<PAGE>
As filed with the Securities and Exchange Commission on September 18, 1998
Registration No. 333-58895
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Mar Mar Realty Trust
(Exact name of registrant as specified in governing instrument)
Independence Office Park
6407 Idlewild Road, Building 2, Suite 111
Charlotte, North Carolina 28212
Telephone (704)566-4081
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
Mr. Benjamin F. Bracy
President
Independence Office Park
6407 Idlewild Road, Building 2, Suite 111
Charlotte, North Carolina 28212
Telephone (704)566-4081
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies To:
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Peter J. Shea, Esq. David C. Wright, Esq.
Parker, Poe, Adams & Bernstein L.L.P. Charles R. Monroe, Jr., Esq.
2500 Charlotte Plaza Hunton & Williams
Charlotte, North Carolina 28244 Riverfront Plaza, East Tower
Telephone (704) 372-9000 951 East Byrd Street
Richmond, Virginia 23219-4074
Telephone (804) 788-8200
</TABLE>
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Approximate date of commencement of the proposed sale of the securities to the
public:
As soon as practicable after this Registration Statement becomes effective.
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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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1998
PROSPECTUS
10,000,000 Common Shares
Mar Mar Realty Trust
Common Shares of Beneficial Interest
Mar Mar Realty Trust (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") that has been created to
capitalize on consolidation opportunities in the ownership of real estate used
by automobile dealerships, automotive parts and service retailers and other
related businesses. The Company intends to focus primarily on investing in real
estate associated with high quality, franchised motor vehicle dealerships
("Dealership Properties") and, to a lesser extent, properties associated with
other motor vehicle related businesses, including stand alone retail auto parts
and services stores, auto rental facilities and fuel service stations ("Related
Business Properties") located throughout North America. Concurrent with the
completion of this offering, the Company will acquire 31 Dealership Properties
on which 23 automobile dealerships operate (the "Initial Dealership
Properties"), 36 Advance Auto Parts Stores (the "Advance Properties") and one
collision repair facility (the "Collision Repair Property" and, together with
the Initial Dealership Properties and the Advance Properties, the "Initial
Properties" and together with any future properties, the "Properties") located
in ten states. The Company will lease, pursuant to long-term leases, 29 of the
Initial Dealership Properties to Sonic Automotive, Inc. ("Sonic Automotive"),
the eighth largest automobile dealer group in the United States based on 1997
revenues, and the Advance Properties to Advance Stores Company, Incorporated
("Advance Auto"), the second largest specialty retailer of automotive parts and
accessories in the United States based on number of stores.
All of the Company's common shares of beneficial interest, par value $1.00
per share (the "Common Shares"), offered hereby (the "Offering") are being
offered by the Company. It currently is estimated that the initial public
offering price of the Common Shares will be between $14.00 and $16.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Prior to the Offering, there has
been no public market for the Common Shares. The Company intends to apply for
listing of the Common Shares on the New York Stock Exchange (the "NYSE") under
the symbol "MMF." The Company's Declaration of Trust limits, subject to certain
exceptions, the ownership of Common Shares to 9.8% of the number or value of
the outstanding Common Shares. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer; Excess Shares."
---------------
See "Risk Factors" beginning on page 13 for a discussion of certain
material risks to be considered by prospective investors in the Common Shares,
including, among others:
o Downturns in the business operations of automobile dealerships, retail
automotive parts stores or other automotive related businesses to which the
Company may lease Properties may reduce the ability of the lessees of
Properties to pay rent and fulfill other lease obligations;
o Any inability of the lessees of Properties to pay rent or fulfill other lease
obligations may reduce distributions to shareholders and cause the market
price of the Common Shares to decline;
o Conflicts of interest arising from O. Bruton Smith's position as Chairman of
the Board of Trustees of the Company and his capacity as chairman, chief
executive officer and controlling stockholder of Sonic Automotive may
influence the terms upon which the Company acquires Properties from and
leases Properties to Sonic Automotive, and decisions to enforce leases with
Sonic Automotive;
o The Company has no operating history and none of its officers or trustees has
any experience operating a REIT, which may adversely affect the financial
performance of the Company;
o Any significant inability by the Company to acquire additional Properties in
the future, whether due to competition or inability to finance such
acquisitions or otherwise, may inhibit the Company's ability to achieve its
investment objectives;
o Adverse tax consequences of failure to qualify as a REIT would decrease funds
available to pay distributions to shareholders and cause the market price of
the Common Shares to decline; and
o An increase in market interest rates may cause a decline in the market price
of the Common Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
Price to Underwriting Proceeds to the
Public Discount(1) Company(2)
<S> <C> <C> <C>
Per Common Share ......... $ $ $
Total(3) ................. $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of this Offering, payable by the Company,
estimated at $ . See "Use of Proceeds."
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 1,500,000
additional Common Shares solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
---------------
The Common Shares are being offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. Delivery of the
Common Shares is expected to be made against payment therefor on or about ,
1998, at the offices of Wheat First Securities, Inc., Richmond, Virginia.
Wheat First Union NationsBanc Montgomery Securities LLC
The date of this Prospectus is , 1998.
<PAGE>
(continuation of cover page)
[Photographs of various Company properties showing car dealerships
and automotive parts stores and a map of the United States showing locations of
the Company's properties]
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This Prospectus contains forward looking statements that involve risks and
uncertainties. The Company's actual operations may differ significantly from
the results discussed in the forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"could," "should," "expect," "anticipate," "estimate," or "continue" or the
negatives thereof or other variations thereon or comparable terminology. The
cautionary statements set forth under the caption "Risk Factors" and elsewhere
in the Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those described in such
forward-looking statements.
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Shares.
Such transactions may include stabilizing, the purchase of Common Shares to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
This Prospectus includes statistical industry data regarding automobile
dealerships and the automotive retail aftermarket. Unless otherwise indicated,
such data is taken or derived from information published by (i) the National
Automobile Dealers Association ("NADA") in its "Industry Analysis and Outlook"
and "Automotive Executive Magazine" publications and on the "NADANET" web-site
located at "www.nadanet.com/news/nadadata/econfyi.htm," (ii) Crain
Communications Inc. in its "Automotive News," "Automotive News 100-Year
Almanac," "1997 Market Data Book" and "1998 Market Data Book" publications,
(iii) United States Census Bureau, "The Official Statistics" dated June 29,
1998, or (iv) The Automotive Parts and Accessories Association ("APAA") in its
"1998 Aftermarket Fact Book" and on its web-site located at
"www.apaa.org/aftmkt.htm."
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<PAGE>
TABLE OF CONTENTS
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PROSPECTUS SUMMARY ................................................ 1
The Company .................................................... 1
Summary Risk Factors ........................................... 2
Business Strategies and Objectives ............................. 3
The Initial Properties and Initial Lessees ..................... 4
The Automotive Retailing and Aftermarket Industries ............ 6
Benefits to Related Parties .................................... 7
Formation Transactions ......................................... 7
Conflicts of Interest and Company Policies Regarding
Conflicts of Interest ........................................ 9
Distributions .................................................. 9
Tax Status of the Company ...................................... 9
The Offering ................................................... 10
Summary Financial Information .................................. 10
RISK FACTORS ...................................................... 12
Lessees May Be Unable to Pay Rent and Fulfill Other
Lease Obligations ............................................ 12
Lessees and Guarantors May Be Unable to Pay Rent
and Perform Lease Terms .................................... 12
Advance Auto is Highly Leveraged ............................. 12
The Company Will Have No Control Over Dealer
Franchise Agreements ....................................... 12
Leases Could Be Rejected in Bankruptcy ....................... 12
The Company May Be Unable to Sell or Re-Lease
Properties ................................................. 12
The Company Could Incur Uninsured Losses ..................... 13
The Performance of Automobile Dealerships May Affect
the Ability of Lessees to Fulfill Lease Obligations .......... 13
Dealerships are Dependent Upon Manufacturers for Supply
of Motor Vehicles .......................................... 13
Terms of Franchise Agreements Affect the Performance
of Dealerships ............................................. 14
The Dealership Industry is Competitive and Cyclical .......... 14
The Performance of Retail Automotive Parts Stores May
Affect the Ability of Lessees to Fulfill Lease
Obligations .................................................. 14
Conflicts of Interest Between the Company and
Mr. Smith May Influence the Company's Decisions .............. 15
Purchase Prices of Properties May Exceed Their Fair
Market Values ................................................ 15
The Company Has No Operating History; Officers and
Trustees Have No Experience Operating a REIT ................. 15
The Company May Be Unable To Acquire Additional
Properties ................................................... 16
The Amount of Debt the Company May Incur is Not
Limited ...................................................... 16
The Company's Performance is Dependent Upon Key
Personnel .................................................... 16
General Factors Affecting Real Estate Investments May
Affect the Company's Performance ............................. 16
Real Estate Investments are Subject to Certain General
Risks ...................................................... 16
Real Estate Investments are Affected By the Illiquidity
of Real Estate ............................................. 16
The Company May Be Subject to Risks Related to
Acquisition, Development and Construction
Activities ................................................. 16
Environmental and Other Governmental Regulations May
Affect the Company's Performance ............................. 17
Environmental Laws ........................................... 17
Americans With Disabilities Act of 1990 ...................... 18
Other Regulations ............................................ 18
The Company Will Compete With Other Companies
with Similar Business Objectives and Strategies .............. 18
Adverse Consequences of Failure to Qualify as a REIT
and Other Tax Risks Would Decrease Funds for
Distributions ................................................ 18
Tax Liabilities as a Consequence of Failure to Qualify
as a REIT .................................................. 18
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Adverse Effects of REIT Minimum Distribution
Requirements ............................................... 19
Consequences of Failure to Qualify as a Partnership .......... 20
Consequences of Recharacterization of Initial Leases ......... 20
Other Tax Liabilities ........................................ 20
The Ownership Limit May Reduce the Ability of
Shareholders to Receive a Premium Price ...................... 20
Certain Tax and Anti-takeover Provisions May Inhibit a
Change in Control of the Company ............................. 21
Ownership Limit .............................................. 21
Removal of Trustees; Vacancies ............................... 21
Classified Board ............................................. 21
Preferred Shares ............................................. 21
Number of Authorized Shares .................................. 21
Advance Notice Provisions .................................... 22
Maryland Business Combination Statute ........................ 22
Company Policies May Be Changed Without Shareholder
Approval ..................................................... 22
An Active Trading Market for Common Shares May Not
Develop ...................................................... 22
An Increase in Market Interest Rates May Cause Share
Prices to Decline ............................................ 22
Common Shares Eligible for Future Sale May Cause
Share Prices to Decline ...................................... 23
Purchasers of Shares in the Offering Will Experience
Dilution ..................................................... 23
USE OF PROCEEDS ................................................... 24
CAPITALIZATION .................................................... 24
DILUTION .......................................................... 25
SELECTED FINANCIAL INFORMATION .................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ..................................................... 27
Overview ....................................................... 27
Results of Operations .......................................... 27
Pro Forma Results of Operations ................................ 27
Liquidity and Capital Resources ................................ 27
Inflation ...................................................... 28
Year 2000 Compliance ........................................... 28
BUSINESS OF THE COMPANY AND ITS PROPERTIES ........................ 30
Overview ....................................................... 30
Business Strategies and Objectives ............................. 31
Acquisition Strategy ......................................... 31
Development Strategy ......................................... 32
Financing Strategy ........................................... 32
The Initial Properties ......................................... 32
Ground Leases and Other Interests in Certain Advance
Properties ................................................... 34
Initial Lessees ................................................ 35
Dealership, Sonic and Bowers Leases ............................ 36
General ...................................................... 36
Typical Dealership Lease Terms ............................... 36
Use of the Properties ........................................ 36
Amounts Payable Under the Leases; Net Provisions ............. 36
Maintenance, Alterations, Capital Additions or
Improvements ............................................... 37
Insurance .................................................... 37
Damage to, or Condemnation of, a Property .................... 37
Financial Covenants .......................................... 38
Net Worth Covenant ........................................... 38
Assignment and Subletting .................................... 38
Indemnification .............................................. 39
Pre-Existing Conditions ...................................... 39
Events of Default ............................................ 39
Governing Law ................................................ 40
Advance Leases ................................................. 40
General ...................................................... 40
Typical Advance Lease Terms .................................. 41
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Use of the Properties ........................................ 41
Amounts Payable Under the Leases; Net Provisions ............. 41
Maintenance, Alterations, Capital Additions or
Improvements ............................................... 41
Noncompetition Covenant ...................................... 41
Insurance .................................................... 41
Damage to, or Condemnation of, a Property .................... 41
Assignment and Subletting .................................... 42
Indemnification .............................................. 42
Environmental Matters ........................................ 42
Events of Default ............................................ 42
Governing Law ................................................ 43
Governmental Regulations Affecting the Properties .............. 43
Environmental Laws ........................................... 43
Americans With Disabilities Act of 1990 ...................... 43
Dealership Franchise Agreements ................................ 44
Competition .................................................... 44
Employees ...................................................... 44
Legal Proceedings .............................................. 45
AUTOMOTIVE RETAILING AND MOTOR VEHICLE
AFTERMARKET INDUSTRIES ......................................... 45
Automotive Retailing Industry .................................. 45
Retail Automotive Aftermarket Industry ......................... 46
MANAGEMENT ........................................................ 48
Trustees, Executive Officers and Key Employees ................. 48
Committees of the Board ........................................ 49
Audit Committee .............................................. 49
Executive Committee .......................................... 49
Executive Compensation Committee ............................. 49
Compensation of Trustees ....................................... 49
Executive Compensation ......................................... 49
1998 Shares Option Plan ........................................ 50
1998 Formula Shares Option Plan ................................ 52
Limitation of Liability and Indemnification of Trustees
and Officers ................................................. 53
POLICIES AND OBJECTIVES WITH RESPECT TO
CERTAIN ACTIVITIES ............................................. 54
Investment Policies ............................................ 54
Conflicts of Interest Policies ................................. 54
Financing Policy ............................................... 54
Distributions Policy ........................................... 55
THE FORMATION TRANSACTIONS ........................................ 55
Benefits to Related Parties .................................... 56
Acquisition of the Initial Properties from the Sellers ......... 56
CERTAIN RELATIONSHIPS AND TRANSACTIONS ............................ 57
Formation of the Company ....................................... 57
Strategic Alliance with Sonic Automotive ....................... 57
Acquisition of Certain Initial Dealership Properties ........... 57
Sonic Leases ................................................... 58
Lock-Out Agreements ............................................ 58
Registration Rights ............................................ 58
PARTNERSHIP AGREEMENT ............................................. 59
Management ..................................................... 59
Indemnification ................................................ 60
Capital Contributions .......................................... 60
Tax Matters .................................................... 60
Operations ..................................................... 60
Duties and Conflicts ........................................... 60
Term ........................................................... 61
PRINCIPAL SHAREHOLDERS OF THE COMPANY ............................. 61
DESCRIPTION OF SHARES OF BENEFICIAL
INTEREST ....................................................... 62
General ........................................................ 62
The Common Shares .............................................. 62
Classification or Reclassification of Preferred Shares ......... 63
Restrictions on Transfer; Excess Shares ........................ 63
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS ......................................................... 66
Classification of the Board .................................... 66
Vacancies ...................................................... 66
Removal of Trustees ............................................ 66
Business Combinations .......................................... 66
Control Share Acquisitions ..................................... 66
Shareholders' Meetings ......................................... 67
Annual Report .................................................. 67
Amendment ...................................................... 67
Limitation of Liability and Indemification ..................... 67
Operations; Maryland Asset Requirements ........................ 68
Terminations of the Trust and REIT Status ...................... 68
Advance Notice of Trustee Nominations and New
Business ..................................................... 68
Possible Antitakeover Effect of Certain Provisions of
Maryland Law and of the Declaration of Trust and
Bylaws ....................................................... 69
COMMON SHARES ELIGIBLE FOR FUTURE SALE ............................ 70
FEDERAL INCOME TAX CONSEQUENCES ................................... 71
Taxation of the Company ........................................ 72
General ...................................................... 72
Share Ownership Tests ........................................ 72
Asset Tests .................................................. 72
Gross Income Tests ........................................... 73
The 75% Test ............................................... 73
The 95% Test ............................................... 73
Characterization of Rent ..................................... 73
Rents from Real Property ..................................... 74
Foreclosure Property Rules and Certain Other Rules ........... 75
Annual Distribution Requirements ............................. 76
Failure to Qualify ........................................... 76
Tax Aspects of the Company's Investments in
Partnerships ................................................. 76
General ...................................................... 76
Entity Classification ........................................ 77
Tax Allocations with Respect to the Properties ............... 77
Sale of the Properties ....................................... 78
Taxation of Domestic Shareholders .............................. 78
Backup Withholding ........................................... 79
Taxation of Tax-Exempt Shareholders .......................... 79
Other Tax Considerations ....................................... 79
Tax Legislation and Other Law Changes ........................ 79
State and Local Taxes ........................................ 80
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS ...................................... 80
Distributions From The Company ................................. 80
Ordinary Dividends ........................................... 80
Capital Gain Dividends ....................................... 81
Non-Dividend Distributions ................................... 81
Dispositions of Shares of Beneficial Interest .................. 81
Federal Estate Tax ............................................. 82
Information Reporting and Backup Withholding ................... 82
UNDERWRITING ...................................................... 83
LEGAL MATTERS ..................................................... 84
EXPERTS ........................................................... 84
ADDITIONAL INFORMATION ............................................ 84
GLOSSARY .......................................................... 86
INDEX TO FINANCIAL STATEMENTS ..................................... F-1
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the historical and pro forma financial statements and
notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus assumes: (i) the
consummation of the transactions described under "The Formation Transactions"
(the "Formation Transactions") concurrently with the closing of the Offering,
(ii) an initial public offering price of $15.00 per Common Share, representing
the midpoint of the price range (the "Offering Price"), and (iii) that the
Underwriters' over-allotment option will not be exercised. Unless the context
otherwise requires, all references to the "Company" in this Prospectus include
Mar Mar Realty Trust, a Maryland REIT, and its affiliated partnership, Mar Mar
Realty L.P., a Delaware limited partnership (the "Operating Partnership"), or
either of them. See "Glossary" beginning on page 80 for the definition of
certain capitalized terms used in this Prospectus.
The Company
The Company is a self-administered and self-managed REIT that was
organized on April 14, 1998 to capitalize on consolidation opportunities in the
ownership of real estate used by automobile dealerships, automotive parts and
service retailers and other businesses related to the automobile industry. The
Company's principal business strategy is to maximize cash available for
distribution to the Company's shareholders by acquiring Dealership Properties
and, to a lesser extent, Related Business Properties located throughout North
America. The Company believes that the automotive dealer industry and the
automotive parts and service retailing industry (the "automotive retail
aftermarket") are undergoing significant consolidation due to increasing
capital needs and the pursuit of economies of scale, which will create
attractive real estate acquisition opportunities for well-capitalized and
experienced real estate investors such as the Company.
The Company believes that its ability to identify and acquire Properties
will be enhanced by (i) its strategic alliance with Sonic Automotive, one of
the fastest growing automobile dealership consolidators in the United States,
(ii) its relationship with Primax Properties, L.L.C. and its affiliates
("Primax"), the sellers of the Advance Properties and the owners of other
Related Business Properties leased to Advance Auto and potentially available to
the Company, and (iii) the extensive real estate and automotive industry
experience and relationships of the Company's senior management and its Board
of Trustees (the "Board"). O. Bruton Smith, the Company's Board Chairman, is
also chairman, chief executive officer and controlling stockholder of Sonic
Automotive and of Speedway Motorsports, Inc. ("Speedway Motorsports"), a
NYSE-listed promoter, marketer and sponsor of motorsports activities.
The Company's initial portfolio will be comprised of the 31 Initial
Dealership Properties, 36 Advance Properties and one Collision Repair Property
located in ten states. Twenty-nine of the Initial Dealership Properties will be
leased to and are currently operated by affiliates of Sonic Automotive (the
"Sonic Lessees"). The dealerships located on the Initial Dealership Properties
sell 20 different brands of new automobiles, including BMW, Cadillac, Chrysler,
Dodge, Ford, Honda, Hyundai, Infiniti, Isuzu, Jeep, KIA, Lincoln, Mercury,
Oldsmobile, Plymouth, Saturn, Subaru, Toyota, Volkswagen and Volvo. Sonic
Automotive, whose stock is traded on the NYSE under the symbol "SAH," is one of
the top ten automobile dealership groups in the United States based on 1997
revenues. Since the beginning of 1997, Sonic Automotive has been one of the
leading consolidators in the automobile industry, having purchased 16
dealerships in that time. After giving pro forma effect to such acquisitions,
Sonic Automotive's 1997 revenues were $1.0 billion, 1997 operating income was
$30.8 million and 1997 retail unit sales were 28,359 new, 16,068 used and
15,591 wholesale vehicles.
All of the Advance Properties are being acquired from Primax. Primax,
which is not affiliated with the Company, Sonic Automotive or Mr. Smith, is a
primary consultant to Advance Auto in connection with the selection, financing
and construction of new stores throughout the United States and owns additional
properties leased to Advance Auto. Certain affiliates of Primax will acquire
units of limited partnership interest ("Units") in the Operating Partnership in
exchange for their contribution of the Advance Properties.
All of the Company's Advance Properties will be leased to Advance Auto
(together with the Sonic Lessees, the "Initial Lessees," and together with any
future lessees, the "Lessees"). Advance Auto is the second largest specialty
retailer of automotive parts and accessories in the United States based on
number of stores and is unaffiliated with the Company. As of July 18, 1998,
Advance Auto had 909 stores in 17 states operating under the "Advance Auto
Parts" name. Advance Auto recently announced its agreement to acquire all 630
Western Auto and Parts America stores from Sears, Roebuck and Co. ("Sears"). As
a result of this transaction, Sears will own approximately 40.6% of Advance
Auto's parent holding company. For fiscal 1997, Advance Auto's net sales, net
income and earnings before interest, taxes, depreciation and amortization
1
<PAGE>
("EBITDA") were $848.1 million, $20.4 million and $65.4 million, respectively.
As a result of the recent leveraged acquisitions of Advance Auto, Advance Auto,
as of July 18, 1998, reported a shareholder deficit of $40.1 million and
long-term debt of $335.0 million.
The Company believes that its relationship with Sonic Automotive will
provide it with unique competitive advantages in acquiring Dealership
Properties by providing the Company the opportunity to acquire Dealership
Properties on which dealerships acquired by Sonic Automotive are operated. The
Company has entered into a Strategic Alliance Agreement and Agreement for the
Mutual Referral of Acquisition Opportunities (the "Strategic Alliance
Agreement") with Sonic Automotive pursuant to which (i) Sonic Automotive has
agreed to refer to the Company real estate acquisition opportunities that arise
in connection with Sonic Automotive's dealership acquisitions, (ii) the Company
has agreed to refer to Sonic Automotive dealership acquisition opportunities
that arise in connection with Property acquisitions (providing sellers the
option to sell both the real estate and the operations associated with their
dealerships), (iii) the Company has agreed to provide or make available to
Sonic Automotive (at Sonic Automotive's cost) certain real estate development,
maintenance, survey and inspection services and (iv) Sonic Automotive and the
Company have agreed to permit an affiliate of the Company to offer to its
future Lessees volume discounts, through participation with Sonic Automotive
and Speedway Motorsports, on insurance, office equipment and supplies,
telecommunications services and certain other products and services
Primax has indicated an intent to continue to provide opportunities for
the Company to acquire additional Properties as Primax participates in Advance
Auto's expansion. Primax, as a strategic participant in the Advance Auto growth
strategy, significantly contributes to the selection, financing and
construction of new Advance Auto stores. The Company believes that its
relationship with Primax will provide it with opportunities to acquire
additional Properties used by Advance Auto.
The Initial Dealership Properties and the Collision Repair Property will
be leased pursuant to "triple-net" leases (the "Initial Dealership Leases"),
which require the Lessees to pay all costs of operating the Properties, as well
as all taxes, utilities, insurance, repairs and maintenance and other
property-related expenses. The Leases with the Sonic Lessees (the "Sonic
Leases") have initial terms of ten years and generally require the Sonic
Lessees to maintain a minimum net worth (the excess of tangible assets over
liabilities) ("Net Worth"). In addition, each of the Sonic Leases is guaranteed
by Sonic Automotive. The Advance Properties are subject to existing modified
triple-net leases (the "Advance Leases" and together with the Initial
Dealership Leases, the "Initial Leases," and together with any future leases,
the "Leases") that require the Company to maintain certain portions of the
facilities and systems at the Advance Properties.
Mr. Smith's position as the Company's Chairman and his positions as
chairman, chief executive officer and controlling shareholder of Sonic
Automotive may create conflicts of interest that may influence the terms upon
which the Company acquires Properties from or leases Properties to Sonic
Automotive and its affiliates and decisions to enforce leases with Sonic
Automotive and its affiliates.
Mr. Smith, the Company's Chairman, Benjamin F. Bracy, the Company's
President, Mark J. Iuppenlatz, the Company's Executive Vice President -
Acquisitions and Chief Operating Officer, and Virginia R. Dunn, the Company's
Vice President and Chief Financial Officer, have significant collective
business and professional experience that will enhance the Company's
performance. Mr. Bracy has over 25 years of experience in the securities and
finance industries; Mr. Iuppenlatz has over 15 years of experience in the
acquisition, development, leasing and management of commercial real estate; and
Ms. Dunn has over 15 years of experience in the public accounting profession
with a focus on the real estate industry. The Company believes that Mr. Smith's
approximately 35 years of experience and relationships with automobile dealers,
manufacturers and parts retailers, which he has developed through his
leadership of Sonic Automotive and Speedway Motorsports, will be of significant
benefit to the Company as it executes its growth strategy. None of the
Company's Trustees or officers have experience operating a REIT.
Summary Risk Factors
An investment in the Common Shares involves various risks. Prospective
shareholders should carefully consider the matters discussed under "Risk
Factors" prior to making an investment decision regarding the Common Shares
offered hereby. These risks include:
o Downturns in the business operations of automobile dealerships, retail
automotive parts stores or other automotive related businesses to which
the Company may lease Properties may reduce the ability of the Lessees to
pay rent and fulfill other lease obligations;
o Any inability of Lessees to pay rent or fulfill other lease obligations
may reduce distributions to shareholders and cause the market price of the
Common Shares to decline;
2
<PAGE>
o Certain conflicts of interest may arise from Mr. Smith's position as the
Company's Chairman and his capacity as chairman, chief executive officer
and controlling shareholder of Sonic Automotive and as owner of interests
in other entities from which the Company will acquire nine Initial
Dealership Properties in exchange for $20.4 million in cash, 1,377,044
Units and the assumption of $1.6 million of debt secured by such
Properties ("Mortgage Debt"). Such conflicts may influence, among other
things, the terms upon which the Company acquires Properties from and
leases Properties to Sonic Automotive and its affiliates and decisions to
enforce leases with Sonic Automotive and its affiliates;
o The Company has no operating history and none of its officers or trustees
has any experience operating a REIT, including operating in accordance
with the requirements for maintaining qualifications as a REIT, which may
adversely affect the financial performance of the Company;
o Any significant inability by the Company to acquire additional Properties
in the future, whether due to competition for or inability to finance such
acquisitions or otherwise, may inhibit the Company's ability to achieve
its investment objectives;
o Adverse tax consequences of a failure to qualify as a REIT would decrease
funds available to pay distributions to shareholders and cause the market
price of the Common Shares to decline;
o The purchase price of the Initial Properties was based primarily on
capitalization of pro forma cash flows from the Initial Lessees; the lack
of third party appraisals and arms' length negotiations for certain of the
Initial Properties may have caused the Company to acquire certain
Properties for more than their fair market values;
o The loss of key officers or Trustees of the Company, including Mr. Smith,
Mr. Bracy, Mr. Iuppenlatz or Ms. Dunn could impair the operations of the
Company;
o General factors affecting commercial real estate ownership, development
and investment, including, but not limited to, economic and other
conditions affecting real estate investments, the general lack of
liquidity of real estate investments and unknown or future environmental
or other liabilities may have a material adverse effect on the performance
of the Company;
o The Board may change the policies of the Company, including investment,
financing, leverage and distribution policies, without the approval of the
shareholders;
o Certain provisions of the Company's Declaration of Trust and Bylaws, such
as staggered elections of Trustees and restrictions on ownership of Common
Shares or other classes of shares of beneficial interest (collectively,
the "Shares") intended to ensure the Company's qualification as a REIT,
may inhibit a change in control of the Company and reduce the ability of
shareholders to receive a market premium for their Common Shares;
o The absence of a prior public market for the Common Shares or a small
volume of trading in the Common Shares as well as the lack of assurance
that an active trading market will develop or that the Common Shares will
trade at or above the Offering Price, the potential negative effects of
rising interest rates on the market price of the Common Shares and the
effect of the availability of shares for future sale may reduce the market
price of the Common Shares
o As a result of, among other things, the annual income distribution
requirements applicable to REITs under applicable tax laws, the Company
expects to rely on borrowings and other external sources of financing to
fund the costs of new Property acquisitions, capital expenditures and
other items. Accordingly, the Company will be subject to real estate
financing risks, including changes from period to period in the
availability of such financing, and increased interest expense that may be
incurred on variable rate debt in rising interest rate markets and the
risk that the Company's cash flow may not be sufficient to cover both
required debt service payments and distributions to shareholders at
desired levels.
Business Strategies and Objectives
The Company's objectives are to maximize cash available for distribution
to shareholders, to enhance shareholder value by investing in additional
Properties that meet its investment criteria and to become one of the nation's
leading owners and lessors of Dealership Properties and Related Business
Properties.
The Company intends to capitalize on consolidation trends in the
automotive retailing and aftermarket industries by acquiring attractively
priced Properties that meet one or more of the following investment criteria:
3
<PAGE>
o Properties that are associated with well managed and financially sound
automobile dealerships, automotive parts stores and other automotive
related businesses with demonstrated operating histories;
o Properties that, because of their location and other characteristics,
are suitable for alternative uses;
o Well built Properties that have limited deferred maintenance;
o Properties that are located in diverse geographic regions in order to
minimize the potential adverse impacts of regional economic downturns; and
o Dealership Properties that are part of large affiliated dealer groups.
The Company intends to fund its growth strategy utilizing a selective
blend of financing sources, including internally generated funds, secured and
unsecured debt and a variety of equity or equity-linked securities.
Additionally, the Company will have the ability to offer sellers of Properties
Units as acquisition currency. Units will provide holders with distributions
that are identical to those paid on the Common Shares and will be redeemable
for cash or Common Shares, on a one for one basis, at the option of the
Company. The utilization of Units as acquisition currency will provide Sellers
with the ability to defer taxes, improve liquidity, facilitate estate planning
and diversify their investment in Dealership and Related Business Properties by
participating as an equity owner in the Company.
Prior to the completion of the Offering, the Company expects to obtain a
$100 million line of credit (the "Line of Credit"), the proceeds of which will
be used for the acquisition of additional Properties and working capital. The
Company intends to maintain a conservative capital structure with a debt to
total market capitalization ratio of not more than 50%. Following the
completion of the Offering, the Company's ratio of debt to total market
capitalization will be approximately 3%.
The Initial Properties and Initial Lessees
Upon completion of the transactions described under "Formation
Transactions" below (the "Formation Transactions"), the Company will own 68
Initial Properties located in ten states. The Company will acquire the Initial
Dealership Properties for an aggregate purchase price of approximately $90.3
million, consisting of $70.1 million in cash, 394,410 Class A units of limited
partnership interest in the Operating Partnership ("Class A Units"), 982,634
Class B units of limited partnership interest in the Operating Partnership
("Class B Units") and the assumption of $1.6 million of Mortgage Debt. The
Company will acquire the Advance Properties for an aggregate purchase price of
approximately $25.9 million, consisting of approximately $240,000 in cash,
483,267 Class A Units and the assumption of $18.4 million of Mortgage Debt, of
which $15.1 million will be paid with Offering proceeds. The Company will also
acquire the Collision Repair Property for a purchase price of $2.0 million in
cash. Two Initial Dealership Properties being contributed by affiliates of Mr.
Smith are subject to existing Leases at rents below current market levels. The
number of Class A Units to be received by Mr. Smith for these Properties was
determined based upon the existing rental revenue from these Properties. Such
existing Leases on these Properties will terminate by December 31, 1999, and
the Company and the relevant Sonic Lessees have entered into new Leases at
market rates effective January 1, 2000. In recognition of the future increased
rent that these Properties will generate, the Company has issued to Mr. Smith
982,634 Class B Units, which have no rights with respect to voting, allocations
or distributions until the effective date of the new Leases (at which time they
will attain rights identical to those of the Class A Units). For purposes of
the Company's pro forma financial statements, the Class B Units have a deemed
fair value of approximately $12.6 million.
4
<PAGE>
The following table presents certain information regarding the Initial
Properties.
<TABLE>
<CAPTION>
Initial Initial Lease
Property Location Base Rent Term Expiration
- --------------------------------------------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
Town & Country Ford (Parcel #1) Charlotte, NC $ 409,200(1) 2009(1)
Town & Country Ford (Parcel #2) Charlotte, NC 108,513 2008
Town & Country Toyota Charlotte, NC 600,000 2008
Lake Norman Chrysler-Plymouth (Parcel #1) Cornelius, NC 480,000 2007
Lake Norman Chrysler-Plymouth (Parcel #2) Cornelius, NC 110,250 2008
Lake Norman Dodge (Parcel #1) Cornelius, NC 360,000 2007
Lake Norman Dodge (Parcel #2) Cornelius, NC 120,000 2007
Frontier Oldsmobile-Cadillac Monroe, NC 187,000 2008
Westside Dodge Columbus, OH 600,000 2008
Toyota West Columbus, OH 480,000 2008
Hatfield Hyundai Columbus, OH 480,000 2008
Hatfield Lincoln-Mercury Columbus, OH 300,000 2008
VW & Jeep-Eagle West Columbus, OH 300,000 2008
Westside Chrysler-Plymouth Columbus, OH 300,000 2008
Fort Mill Ford Fort Mill, SC 480,000 2008
Century BMW Greenville, SC 387,187 2008
Heritage Lincoln-Mercury Greenville, SC 349,860 2008
Century BMW Spartanburg, SC 112,805 2008
Saturn of Chattanooga Chattanooga, TN 324,648 2007
Infiniti of Chattanooga (Parcel #1) Chattanooga, TN 289,224 2007
Infiniti of Chattanooga (Parcel #2) Chattanooga, TN 45,000 2007
Infiniti of Chattanooga (Parcel #3) Chattanooga, TN 5,000 2007
BMW/Volvo of Chattanooga (Parcel #1) Chattanooga, TN 279,840 2007
BMW/Volvo of Chattanooga (Parcel #2) Chattanooga, TN 5,000 2007
KIA/Volkswagen of Chattanooga Chattanooga, TN 132,840 2007
Toyota of Cleveland Cleveland, TN 252,000 2007
Town & Country Ford (Parcel #1) Cleveland, TN 191,424 2007
Town & Country Ford (Parcel #2) Cleveland, TN 90,000 2007
Town & Country Ford (Parcel #3) Cleveland, TN 23,000 2007
Cleveland Honda Cleveland, TN 154,296 2007
Lone Star Ford Houston, TX 360,000(1) 2009(1)
------------
INITIAL DEALERSHIP PROPERTIES SUBTOTAL 8,317,087
------------
Advance Auto Anniston, AL 69,856 2004
Advance Auto Bessemer, AL 72,500 2006
Advance Auto Birmingham, AL 77,621 2007
Advance Auto Boaz, AL 59,500 2003
Advance Auto Leeds, AL 60,200 2004
Advance Auto Montgomery, AL 76,440 2005
Advance Auto Selma, AL 58,619(2) 2004
Advance Auto Tarrant City, AL 72,000 2007
Advance Auto Troy, AL 62,016 2004
Advance Auto LaGrange, GA 56,000 2003
Advance Auto Monticello, KY 63,000 2006
Advance Auto High Point, NC 54,993(2) 2008
Advance Auto Greenville, OH 74,900 2007
Advance Auto Lima, OH 85,058 2007
Advance Auto Lima, OH 85,000 2007
Advance Auto Piqua, OH 66,862 2007
Advance Auto Springfield, OH 95,240 2007
Advance Auto Springfield, OH 82,500 2007
Advance Auto Troy, OH 70,445 2008
Advance Auto Belle Vernon, PA 95,775 2006
Advance Auto Brownsville, PA 73,000 2007
Advance Auto Chambersburg, PA 102,250 2007
Advance Auto Ebensburg, PA 72,750 2007
Advance Auto Greensburg, PA 73,540(2) 2007
Advance Auto Huntingdon, PA 61,335(2) 2008
Advance Auto Indiana, PA 84,000 2007
Advance Auto Jeanette, PA 88,000 2007
Advance Auto Leechburg, PA 81,720 2006
Advance Auto Murrysville, PA 95,428 2006
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Initial Initial Lease
Property Location Base Rent Term Expiration
- -------------------------------- ---------------------- ----------------- ----------------
<S> <C> <C> <C>
Advance Auto New Kensington, PA $ 99,950 2006
Advance Auto North Huntingdon, PA 84,595(3) 2006
Advance Auto Uniontown, PA 90,650 2006
Advance Auto Washington, PA 73,500 2006
Advance Auto Waynesburg, PA 84,510 2006
Advance Auto Dickson, TN 61,700 2005
Advance Auto Lynchburg, VA 51,950(2) 2007
------------
ADVANCE PROPERTIES SUBTOTAL 2,717,403
------------
ABRA Auto Body & Glass Chattanooga, TN 198,000 2007
------------ ----
INITIAL PROPERTIES TOTAL $11,232,490
============
</TABLE>
- ---------
(1) The existing Leases on these Properties provide for their termination by
December 31, 1999. The Company and the Sonic Lessees have entered into new
Leases that will take effect on January 1, 2000, which provide for initial
Base Rents of $1,140,000 for each Property, and expire on December 31,
2009.
(2) These Advance Properties or portions of the interests therein are presently
subject to ground leases, which will be assigned to the Company. The
initial base rent ("Base Rent") figures shown are net of aggregate annual
ground lease payments of $96,899.
(3) The Company will be assigned certain rights under an easement agreement
pursuant to which the Company will receive all rents on the Property from
Advance Auto and will make an annual payment of $5,400 to the easement
grantor. The initial Base Rent figure shown is net of the required
easement payment.
The valuation of the Initial Properties was based primarily upon a
capitalization of pro forma cash flow from the Initial Leases, considering the
creditworthiness of the Initial Lessees, rental rates for similarly situated
properties, the characteristics of the Initial Properties, the cost of capital
used to acquire the Initial Properties and the return the Company could realize
from alternative investments.
The Automotive Retailing and Aftermarket Industries
Automotive retailing is the largest consumer retail market in the United
States, with approximately $625 billion in 1997 sales. The industry is highly
fragmented, with over 22,000 new vehicle dealerships currently operating in the
United States. Dealerships are generally privately owned entities, with
publicly owned dealer groups owning only a small fraction of existing
dealerships. In 1997, the largest 100 dealer groups generated less than 10% of
total sales revenues and controlled less than 6% of all new vehicle
dealerships. The Company believes that the fragmented ownership, together with
the general illiquidity of real property assets, increasing capital
requirements of operating automobile dealerships, the lack of alternative exit
strategies (especially for larger dealerships) and the aging of many dealership
owners will provide attractive opportunities for the Company to acquire
Dealership Properties. In the past, dealers had limited options for financing
the real estate assets required to operate their businesses. The Company
believes that due to the increasing demand for efficient deployment of capital
by increasingly sophisticated dealers that significant demand for the Company's
program exists.
The Company believes that similar opportunities exist to acquire
Properties used by other automotive related businesses. The "automotive
aftermarket" refers to products and services that are purchased for motor
vehicles after the original sale of the vehicles, such as accessories,
maintenance and repairs, replacement parts, fuel and chemicals. The retail
automotive aftermarket products and services industry had sales of
approximately $151 billion in 1997, up from approximately $143 billion in 1996.
The automotive aftermarket also is highly fragmented and is undergoing gradual
consolidation. The top ten automotive parts and services retail chains operated
approximately 1,800 retail outlets in the early 1980s and now control over
5,000 stores or approximately 1% of the total number of aftermarket outlets.
The Company believes that the general illiquidity of real estate assets,
together with the need for liquidity to support large inventories and capital
investment requirements needed to adapt the automotive aftermarket to the
increased complexity and computerization of the United States vehicle fleet,
provide opportunities for the Company to acquire attractively priced Related
Business Properties.
6
<PAGE>
Benefits to Related Parties
The Company's executive officers and Trustees and certain of their
affiliates will receive the following benefits from the Formation Transactions:
Mr. Smith and Affiliates
o Mr. Smith and his affiliates will receive 394,410 Class A Units and
982,634 Class B Units in connection with the contribution of their
interests in two entities that own two Initial Dealership Properties to
the Company. The Company will assume approximately $1.6 million of
Mortgage Debt related to these Properties that is currently guaranteed by
Mr. Smith. The Class A Units will have a value of approximately $5.9
million based on the Offering Price, are redeemable for an equal number of
Common Shares (or cash, at the Company's option) and will be more liquid
than such affiliates' interests in such Initial Dealership Properties. The
Class B Units will automatically attain rights identical to those of the
Class A Units upon the effectiveness of the new Leases entered into with
respect to such Properties. Prior to that time, such Class B Units will
have no rights with respect to voting, allocation or distributions. For
certain tax and business reasons, the Operating Partnership has agreed to
restrictions on its ability to sell or repay Mortgage Debt secured by
these Properties for a period of ten years.
o In order to facilitate the Company's acquisition of five of the Initial
Dealership Properties, Chartown, a North Carolina general partnership
controlled by Mr. Smith, purchased such Properties from unaffiliated third
parties prior to completion of the Offering. In connection with the
Company's acquisition of such Properties, Chartown will receive
approximately $10.1 million of the net proceeds of the Offering,
representing its cost to acquire and maintain such Properties.
o In connection with the formation of the Company, the Company issued Mr.
Smith 702,000 Common Shares in exchange for a subscription receivable of
$1.0 million.
Sonic Automotive and Affiliates
o Subsidiaries of Sonic Automotive will sell two Initial Dealership
Properties to the Company in exchange for approximately $10.3 million of
the net proceeds of the Offering.
o Affiliates of Sonic Automotive will lease 29 Initial Dealership
Properties from the Company and will continue to control the operations of
the automobile dealerships located on such Properties.
Management
o The Company's Trustees and executive officers will receive options under
the Company's 1998 Shares Option Plan (the "Plan") to acquire an aggregate
of 465,000 Common Shares at the Offering Price.
Formation Transactions
The following transactions (the "Formation Transactions") are being
undertaken for the purpose of organizing the Company and the Operating
Partnership in preparation for the Offering. Upon completion of the Formation
Transactions, the Initial Properties will be held by the Operating Partnership,
of which the Company will be the sole general partner.
o Mr. Smith organized the Company as a REIT under Maryland law and
capitalized the Company with a $1.0 million subscription receivable in
exchange for 702,000 Common Shares.
o The Operating Partnership was formed as a limited partnership under
Delaware law, with the Company as its sole general partner.
o The Company will sell 10,000,000 Common Shares in the Offering.
o The Company will contribute the net proceeds of the Offering and the $1.0
million of proceeds from the initial capitalization of the Company to the
Operating Partnership in exchange for 10,702,000 Class A Units. The
Company is the sole general partner of the Operating Partnership.
o Concurrently with the closing of the Offering, the Company will acquire
all of the interests in two affiliates of Mr. Smith that own two Initial
Dealership Properties in exchange for 394,410 Class A Units and 982,634
Class B Units and the assumption of approximately $1.6 million of Mortgage
Debt secured by such Properties.
o In order to accommodate unaffiliated third party sellers, who desired to
close the sales of their properties before consummation of the Offering,
Chartown, an affiliate of Mr. Smith, acquired five Initial Dealership
Properties with the intention of selling them to the Company concurrent
with the completion of the Offering. The Company will acquire such
Properties from Chartown in exchange for approximately $10.1 million in
cash, which represents such affiliate's cost of purchasing and maintaining
such Properties prior to their acquisition by the Company.
7
<PAGE>
o The Company will acquire two Initial Dealership Properties from
subsidiaries of Sonic Automotive in exchange for approximately $10.3
million in cash.
o The Company will acquire 22 Initial Dealership Properties and the
Collision Repair Property from parties unaffiliated with the Company or
Mr. Smith in exchange for approximately $51.7 million in cash.
o The Company will acquire from Primax 36 Advance Properties in exchange
for approximately $240,000 in cash, 483,267 Class A Units and the
assumption of approximately $18.4 million of Mortgage Debt secured by such
Properties.
o The Company will lease the Initial Properties to the Initial Lessees
pursuant to the Initial Leases.
Following the completion of the Formation Transactions, the relationship
among the Company, the Operating Partnership, the Initial Lessees and certain
other parties will be as follows:
[chart appears below]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------- ----------------------------- ----------------------------- ----------------------------
| | | Certain Initial | | | | |
| O. Bruton Smith | | Sellers | | Management | | Public |
| | | (excluding | | | | |
| | | O. Bruton Smith | | | | |
- ---------------------------- ---------------------------- ------------------------------ ---------------------------
| | | |
Common Shares (6.6%) | Common Shares (0%) | | Common Shares (0%) | Common Shares (93.4%)
(16.8%* after redemption | (3.7%* after redemption | |(2.7%* after redemption | (76.8%* after redemption
of all Units and exercise of| of all Units and exercise of| |of all Units and exercise of | of all Units and exercise of
all options to acquire | all options to acquire | |all options to acquire | all options to acquire
Common Shares) | Common Shares) | | Common Shares) | Common Shares)
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
----------------------------------------------------------------------
| MAR MAR REALTY TRUST |
| (the "Company") |
| sole general partner |
----------------------------------------------------------------------
|
|
|
| 90.9% General Partner Interest**
| (100%* after redemption of all Units)
|
|
- ----------------- |
| CERTAIN ----------------------------------------------| |
|INITIAL SELLERS | 9.1 Limited Partner | |
- ----------------- Interest** | MAR MAR |
(0%* after the | REALTY L.P. |
redemption of | (the "Operating" |
all Units) | Partnership") |
-----------------------------
| ^
| |
| |
Initial Leases | | Rent Payments
| |
| |
| |
v |
-----------------------
| |
| INITIAL LESSEES |
| |
-----------------------
</TABLE>
8
<PAGE>
* Upon the completion of the Offering, no Units will be immediately redeemable
and options to acquire 202,500 Common Shares will be exerciseable.
Percentages are based upon the assumed number of Common Shares that would
be outstanding if all 1,860,311 Units not held by the Company and all
465,000 options outstanding as of the completion of the Offering were
redeemed and exercised, respectively, as of that date regardless of the
provisions of the Company's Declaration of Trust that would prohibit
greater than a 9.8% ownership interest in Common Shares.
** Percentages are based upon the relative shares of pro forma net income under
generally accepted accounting principles ("GAAP"), which requires rental
income to be computed on a straight-line basis and a portion of such income
to be allocated to holders of Class B Units. The initial sharing
percentages based on contractual rents are 92.4% to the Company and 7.6% to
the other holders of Class A Units. The holders of Class B Units will have
no voting, allocation or distribution rights until the effectiveness of new
leases on two Initial Dealership Properties (scheduled to be January 1,
2000).
Conflicts of Interest and Company Policies Regarding Conflicts of Interest
Certain conflicts of interest could exist between the Company and Mr.
Smith in his capacity as a Trustee of the Company, on the one hand, and as the
chairman, chief executive officer and controlling stockholder of Sonic
Automotive and as owner of certain other sellers of Properties, on the other
hand. Mr. Smith could significantly influence the business and operations of
the Company in connection with, among other things, the determination of
purchase prices paid to and lease terms provided to his affiliates. In order to
mitigate any potential conflicts of interest, the Company's Declaration of
Trust contains a requirement that any transaction involving the Company and a
Trustee or an affiliate of any Trustee requires the approval of a majority of
the independent Trustees of the Company not otherwise interested in such
transaction. There can be no assurance, however, that such policies will be
successful in all cases in eliminating the influence of interested Trustees.
See "Risk Factors--Conflicts of Interest Between the Company and Mr. Smith May
Influence the Company's Decisions," "The Formation Transactions--Benefits to
Related Parties" and "Policies and Objectives with Respect to Certain
Activities--Conflicts of Interest Policies."
Distributions
The Company plans to pay regular quarterly distributions to its
shareholders of at least 95% of its taxable income determined without regard to
the deduction for dividends paid and by excluding net capital gains (as
determined under Section 857(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code")) each year so as to qualify as a REIT under the Code. The
Board may vary the distributions to holders of the Common Shares based upon the
actual results of operations of the Company. See "Description of Shares of
Beneficial Interest" and "Partnership Agreement."
Tax Status of the Company
The Company intends to qualify and will elect to be taxed as a REIT under
Sections 856-860 of the Code, commencing with its taxable year ending December
31, 1998. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its REIT taxable income each year, determined without regard to the
deduction for dividends paid and by excluding any net capital gains. If the
Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal income tax at the corporate level on income it distributes
currently to its shareholders. If the Company fails to qualify as a REIT for
federal income tax purposes in any taxable year, the Company will be subject to
federal income tax (including any alternative minimum tax) on its taxable
income at regular corporate rates and distributions to the shareholders in any
such year will not be deductible by the Company. See "Risk Factors--Adverse
Consequences of Failure to Qualify as a REIT; Other Tax Liabilities" and
"Federal Income Tax Consequences--Failure to Qualify" for a more detailed
discussion of the consequences of the failure of the Company to qualify as a
REIT for federal income tax purposes. The Company does not intend to request a
ruling from the Internal Revenue Service (the "IRS") as to its REIT status. The
Company has received the opinion of Mayer, Brown & Platt, the Company's special
tax counsel, that, based on certain matters described in "Federal Income Tax
Consequences," the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and its proposed method of operation as represented by the
Company to such counsel and described in "Federal Income Tax Consequences" will
enable it to satisfy the requirements for such qualification. Investors should
be aware, however, that opinions of counsel are not binding on the IRS or any
court. The Company may be subject to certain federal, state and local taxes on
its income and property notwithstanding its qualification for federal income
taxation as REIT.
9
<PAGE>
The Offering
Common Shares Offered by
the Company 10,000,000 shares
Common Shares to be Outstanding After the
Offering....................... 11,579,677 shares (1)
Use of Proceeds................. Approximately $73.4 million for the
acquisition of the Initial Properties,
approximately $15.1 million for the repayment
of Mortgage Debt and the balance of $51.1
million for working capital and general
corporate purposes, including the acquisition
of additional Properties. See "Use of
Proceeds."
Listing......................... The Company intends to apply for listing of
the Common Shares on the NYSE, under the
symbol "MMF."
- ---------
(1) Includes 877,677 Common Shares issuable upon redemption of Class A Units to
be issued in the Formation Transactions, and 702,000 Common Shares issued
to Mr. Smith. Excludes 982,634 Common Shares reserved for issuance upon
redemption of Class B Units to be issued in the Formation Transaction,
1,100,000 Common Shares reserved for issuance pursuant to the Plan, of
which options to purchase 465,000 Common Shares at the Offering Price have
been granted to certain Trustees and executive officers of the Company,
and 200,000 Common Shares reserved for issuance pursuant to the Company's
1998 Formula Shares Option Plan (the "Formula Plan"). See "The Formation
Transactions," "Management--1998 Shares Option Plan" and "--1998 Formula
Shares Option Plan," "Certain Relationships and Transactions" and
"Partnership Agreement."
Summary Financial Information
The following table sets forth summary historical and pro forma financial
information for the Company. The unaudited pro forma operating information is
presented as if the Formation Transactions had occurred as of the beginning of
the periods indicated and therefore incorporates certain assumptions that are
included in the Company's Unaudited Pro Forma Consolidated Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on August 31, 1998. The unaudited
pro forma financial information does not purport to represent what the
Company's financial position or results of operations actually would have been
had the Formation Transactions, in fact, occurred on such date or at the
beginning of the periods indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
The historical and unaudited pro forma financial information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
10
<PAGE>
Mar Mar Realty Trust
Summary Historical and Pro Forma Consolidated Financial Information
(in thousands, except per share and footnote data)
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Year ended Eight Months
December 31, endedAugust 31,
1997 1998
-------------- ----------------
<S> <C> <C>
Operating Data:
Lease revenue (1) ....................................................... $ 12,760 $ 8,506
Depreciation (2) ........................................................ 3,090 2,060
General and administrative expense (3) .................................. 2,000 1,333
Interest expense (4) .................................................... 426 284
Minority interest (5) ................................................... 660 440
Net income .............................................................. 6,584 4,389
Earnings per share -- basic and diluted (6) ............................. $ .94 $ .62
Weighted average common shares outstanding -- basic and diluted (6) ..... 7,040 7,040
</TABLE>
<TABLE>
<CAPTION>
Historical
---------------------------------- Pro Forma
April 14, 1998 August 31, August 31,
(Date of formation) 1998 1998
--------------------- ------------ -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash ............................... $ -- $ -- $ 51,127
Property ........................... -- -- 119,165
Total assets ....................... -- 840 170,292
Mortgages payable .................. -- -- 4,862
Total liabilities .................. -- 840 4,862
Minority interest .................. -- -- 25,805
Total shareholders' equity ......... -- -- 139,625
</TABLE>
- ---------
(1) Represents rental income, computed on a straight-line basis, from the
Initial Lessees based on the terms of the Initial Leases as if all Initial
Properties had been subject to the Initial Leases for the entire period.
The Company and the applicable Sonic Lessees have entered into new leases,
effective January 1, 2000, which provide that the annual lease payments on
the Town & Country Ford and Lone Star Ford properties will each be
increased to $1,140,000 as compared to their current levels of $409,200
and $360,000, respectively.
(2) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over an assumed estimated
useful life of 20 years.
(3) Represents management's estimates of general and administrative expenses.
(4) Represents interest on Mortgage Debt.
(5) Represents approximately 9.1% of the Operating Partnership's pro forma net
income. The minority interest in pro forma net income reflects the
requirements under GAAP that pro forma lease revenue be computed on a
straight-line basis and a portion of such revenue be allocated to holders
of Class B Units. The initial minority interest in contractual rents is
7.6%, reflecting that the holders of Class B Units will have no voting,
allocation or distribution rights until the effectiveness of the new
Leases described in (1) above.
(6) Represents the number of Common Shares issued to Mr. Smith and the number
of Common Shares issued in the Offering, the proceeds from the sale of
which will be used to acquire the Initial Properties. If the total number
of Common Shares issued in the Offering had been used, pro forma weighted
average Common Shares outstanding would be 10,702,000 for both the year
ended December 31, 1997 and the eight months ended August 31, 1998,
resulting in pro forma earnings per share of $0.62 for the year ended
December 31, 1997 and $0.41 for the eight months ended August 31, 1998.
The potential redemption of Class A Units and Class B Units and the
potential exercise of options granted under the Plan are not dilutive to
pro forma earnings per share.
11
<PAGE>
RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective shareholders should carefully consider the following material risks
before purchasing Common Shares in the Offering. Each of these factors could
adversely affect the ability of the Company to make expected distributions to
shareholders.
Lessees May Be Unable to Pay Rent and Fulfill Other Lease Obligations
Lessees and Guarantors May Be Unable to Pay Rent and Perform Lease Terms.
The Company will be dependent upon the payment of rent and the performance of
other Lease obligations, such as maintenance of the Properties, payment of
taxes, utilities and other charges and maintenance of insurance, by the Lessees
under the Leases. Nonperformance by the Lessees could adversely affect the
ability of the Company to pay distributions or otherwise operate its business.
If a Lessee defaults in the payment of rent or performance of other
obligations, the Company could be required to declare a default under the Lease
and pursue its legal and equitable remedies. Even if the Company successfully
pursued its legal or equitable remedies, it could incur substantial legal fees
and the costs of leasing the Property to a replacement Lessee. The failure of a
Lessee to perform under a Lease could require the Company to declare a default,
evict the Lessee, repossess the Property, find another tenant for the Property
or resell the Property.
Certain Initial Leases will be guaranteed by affiliates of the Initial
Lessees (the "Guarantors"), which will guaranty the payment of rent and
performance of other obligations of the Initial Lessees (the "Guaranties"). The
Guaranties will be of payment and not of collection. There is no assurance that
upon a default any or all of the Guarantors will perform under a Guaranty. In
the event of a default under a Guaranty, the Company's remedy will be limited
to seeking payment from such Guarantor. Because Mr. Smith is the Chairman of
the Board of the Company, the Company's decision whether or not to pursue
payment from certain Guarantors could be influenced by Mr. Smith in his
capacity as a Trustee. See " -- Conflicts of Interest Between the Company and
Mr. Smith May Influence the Company's Decisions."
Advance Auto is Highly Leveraged. Advance Auto recently conducted a series
of recapitalization transactions, which resulted in Advance Auto having
consolidated long-term debt of approximately $335.0 million and a stockholders'
deficit of approximately $40.1 million at July 18, 1998. As a result, Advance
Auto's ability to pay rent and satisfy other lease obligations to the Company
is dependent upon its ability to generate sufficient cash flow in excess of its
operating expenses and debt service obligations to meet such lease obligations.
No assurance can be given that Advance Auto will be able to generate sufficient
cash flow to pay such rent and satisfy such other lease obligations. To the
extent that Advance Auto is unable to satisfy some or all of its lease
obligations to the Company, the Company's results of operations, financial
condition and ability to make distributions to shareholders may be adversely
affected.
The Company Will Have No Control Over Dealer Franchise Agreements. The
Company will have no rights under the franchise agreements ("Franchise
Agreements") between automobile dealers and the manufacturers supplying such
dealers with motor vehicle inventory (each a "Manufacturer"). Certain Franchise
Agreements impose restrictions relating to the sale or transfer of certain
assets or Property of dealerships without the consent or waiver of
Manufacturers, which could affect the Company's ability to acquire additional
Properties. Upon termination or non-renewal of any Franchise Agreement, the
Company will have no rights to require a Manufacturer to continue to operate a
dealership at a Property. Although a Lessee may be obligated under a Lease to
continue to pay rent and perform its other obligations, there is no assurance
that the Lessee will do so.
Leases Could Be Rejected in Bankruptcy. Any or all of the Lessees (or
Guarantors) may seek the protection of the federal Bankruptcy Code, which could
result in delays in rent payments or in the rejection and termination of a
Lease and thereby cause a reduction in the Company's cash flow and cash
available for distribution. No assurance can be given that any Lessee (or
Guarantor) will not seek protection under the Bankruptcy Code in the future or,
if any Lessee (or Guarantor) does seek such protection, that it or a trustee in
bankruptcy will assume its Lease (or Guaranty) and continue to make rent
payments in a timely manner. If any Lease (or Guaranty) is not assumed
following bankruptcy, the Company's cash flow and cash available for
distribution may be adversely affected.
The Company May Be Unable to Sell or Re-Lease Properties. In connection
with the acquisition of two of the Initial Dealership Properties and all of the
Advance Properties, the Company has agreed to certain restrictions on its
ability to sell such Properties for a period of ten years. The Company has also
agreed to restrictions on its ability to prepay approximately $1.6 million of
Mortgage Debt that it is assuming on the two Initial Dealership Properties. The
Company may agree to similar provisions in connection with future acquisitions
of Properties.
12
<PAGE>
The Company may not be able to sell a Property when the Company decides to
do so. The real estate market is affected by many factors, such as general
economic downturns, availability of financing, interest rates and other
factors, including supply and demand, that are beyond the control of the
Company. The Company cannot predict the price of or terms on which it may be
able to sell any Property or the length of time required to sell a Property.
The number of competitive Properties operated as dealerships or related
automotive businesses in a particular area could have a material adverse effect
on the Company's ability to lease a Property in the event of loss of a Lessee.
In addition, the length of the Leases, including renewal terms, could adversely
affect the Company's ability to sell a Property that is subject to a Lease.
If a Property is not occupied or if rent is not being paid or is being
paid in an amount that is insufficient to cover operating expenses, the Company
could be required to expend funds with respect to such Property, including
expenses relating to taxes, insurance, utilities and maintenance of the
Property. The Company may not be able to sell a Property as is. The Company may
be required to expend funds to correct defects, such as defects related to the
environment, health or safety or maintenance or repair. The Company may also be
required to make improvements before a Property can be sold. There is no
assurance that the Company will have funds available to correct defects or make
improvements. Furthermore, the expenditure of funds to correct defects or make
improvements may reduce the funds available for investment by the Company or
cash available for distribution to shareholders.
The failure of a Lessee to perform under a Lease could require the Company
to declare a default, repossess the Property, and find another tenant for the
Property. There is no assurance that the Company will be able to lease such
Property to a dealer or operator of a related automotive business, as the case
may be, or to successfully reposition the Property for other uses, or that a
replacement tenant or a different use would support the same or higher level of
lease payments. Moreover, there can be no assurance that any individual Lessee
will elect to extend a Lease upon expiration of its initial term, which would
also force the Company to find a suitable replacement tenant.
The Company Could Incur Uninsured Losses. Each Lease requires the Lessee
to maintain insurance on the Properties and insure against customary risks,
such as fire, vandalism and malicious mischief, extended coverage perils,
physical loss perils, commercial general liability, flood and workers'
compensation insurance. There are, however, certain types of losses (such as
from environmental events, pollution, hurricanes, earthquakes or wars) that may
be either uninsurable or not economically insurable (i.e., the cost of
insurance is higher than the potential loss considering the likelihood of such
loss). In addition, no assurance can be given that material losses in excess of
insurance proceeds will not occur. Although the Leases require the Lessees to
restore the Properties substantially to the condition they were in prior to any
loss, should a Lessee fail to restore a Property the Company could lose both
its capital invested in, and anticipated profits from, such Property. See
"Business Of The Company And Its Properties -- The Initial Properties --
Dealership, Sonic and Bowers Leases -- Insurance."
The Performance of Automobile Dealerships May Affect the Ability of Lessees to
Fulfill Lease Obligations
The Company's strategy is to concentrate on acquisitions of Properties
used in the operation of automobile dealerships. As a result, the Company will
be subject to risks inherent in investments in that industry. The effects on
cash available for distribution to shareholders resulting from a downturn of
business within the industry will be more pronounced than if the Company had
diversified its investments in Properties used for a variety of different
purposes. The success of the operations of a dealership depends on general
economic and other factors. The factors affecting motor vehicle sales include
rates of new employment, income growth, interest rates, credit availability,
other national and local economic conditions, automotive innovations and
general consumer sentiment.
Dealerships are Dependent Upon Manufacturers for Supply of Motor Vehicles.
The ability of each dealership Lessee to pay rent and perform its other
obligations under a Lease will be dependent to a significant extent on its
relationship with the Manufacturer on which it depends for its inventory of new
motor vehicles and parts. A reduction in the availability of new motor vehicles
or parts, and certain popular models in particular, could have an adverse
effect on dealer sales. In addition, the financial condition of the
Manufacturer, marketing programs and expenditures, vehicle design, production
capabilities and management of the Manufacturer affect sales. Events such as
strikes and other labor actions by unions, or negative publicity concerning a
particular Manufacturer or vehicle model, product recalls and litigation also
affect sales. Many of these factors are beyond the control of the Company and
the Lessees. Adverse conditions affecting some or all of the Manufacturers that
account for a significant portion of sales could materially adversely affect a
Lessee's ability to pay rent.
Certain motor vehicles and certain major components of vehicles are
imported. Accordingly, the revenues generated by dealerships could be adversely
affected by tariffs, import restrictions in certain jurisdictions, export
restrictions by certain
13
<PAGE>
jurisdictions, and could be dependent to some extent upon general economic
conditions in and political relations with foreign countries, including Japan
and Germany. Additionally, fluctuations in currency exchange rates may
adversely affect sales of imported motor vehicles. Imports into the United
States may also be adversely affected by increased transportation costs or
tariffs.
Terms of Franchise Agreements Affect the Performance of Dealerships.
Manufacturers exercise a great degree of control over dealerships, and the
Franchise Agreements provide for termination or non-renewal for a variety of
causes. These Franchise Agreements generally expire at various times between
one and five years. There can be no assurance that any of the Franchise
Agreements will be renewed. If a Manufacturer terminates or declines to renew
one or more Franchise Agreements for dealerships operated on any Property, such
action could have a material adverse effect on the ability of the Lessee to pay
rent and perform its other obligations and, therefore, on the ability of the
Company to pay distributions. In addition, the terms of any such renewals could
also have a material adverse effect on the Company by adversely affecting the
ability of such Lessee to pay rent.
Certain Franchise Agreements may require the Manufacturer to consent to,
and may contain other restrictions on, the sale or transfer of assets or real
property necessary for operation of dealerships, or may contain rights of first
refusal in favor of certain Manufacturers to purchase such assets or real
property. There are no assurances that certain Manufacturers will consent to
the sale of, or waive prior rights to purchase, certain Properties that the
Company may negotiate to acquire. Failure to receive all or some of the
required consents or waivers could adversely affect on the ability of the
Company to acquire additional Properties. See "Business Of The Company And Its
Properties -- Dealership Franchise Agreements."
The Dealership Industry is Competitive and Cyclical. The operation of
dealerships is a highly competitive business. Dealers compete with other
dealerships selling the same or similar makes of new and used vehicles, dealers
offering other models, buyers and sellers of used vehicles, service center
chains and independent service and repair shops, some or all of which may offer
motor vehicles, services or repairs at a lower price, provide faster service or
offer faster delivery than dealerships operated by Lessees or affiliates of
Lessees. These competitors may be larger and have greater financial and
marketing resources than Lessees or affiliates of the Lessees. In addition, the
motor vehicle industry is cyclical and historically has experienced periodic
downturns, characterized by oversupply and weak demand. Many factors affect the
industry, including general economic conditions and consumer confidence, the
level of discretionary personal income, interest rates and credit availability.
The Performance of Retail Automotive Parts Stores May Affect the Ability of
Lessees to Fulfill Lease Obligations
In addition to acquiring Properties used in the operation of automobile
dealerships, the Company will also acquire Properties used in the operation of
retail automotive parts stores. Accordingly, the Company will be subject to the
risks inherent in that business. Operation of retail automotive parts stores
involves risks relating to customer demand and trends in the auto parts,
products and accessories industry, related inventory risks due to shifts in
customer demand, the effect of economic conditions, the impact of competitors'
locations and pricing, difficulties with respect to new technologies such as
point-of-sale systems, parts catalogs and supply constraints or difficulties.
The retail sale of automotive parts and accessories is highly competitive.
Automotive parts retailers, including Advance Auto, compete primarily with
national and regional retail automotive parts chains, wholesalers or jobber
stores (some of which are associated with national parts distributors or
associations), automobile dealers that supply manufacturer parts and mass
merchandisers that carry automotive replacement parts and accessories. The
increased presence of existing competitors or the entry of new competitors into
the markets where Advance Auto leases the Advance Properties could have a
material adverse impact upon Advance Auto's business. These factors may
adversely impact Advance Auto's ability to meet its lease obligations, which
may result in a decrease in the Company's cash available for distribution to
shareholders.
Automotive parts retailers are dependent upon developing and maintaining
close relationships with vendors and establishing an ability to purchase
products from these vendors on favorable price and other terms, including
obtaining financial incentives, such as cooperative advertising arrangements
and other marketing incentive programs, and non-financial benefits such as
improved packaging and distribution accommodations. A disruption of these
vendor relationships, or a material reduction in any of these advertising,
incentive or other programs could materially adversely affect the business of
automotive parts retailers, including Advance Auto. While alternative sources
of supply can generally be obtained for most automotive parts if necessary,
there is no assurance that they can be obtained on generally comparable terms.
14
<PAGE>
Conflicts of Interest Between the Company and Mr. Smith May Influence the
Company's Decisions
Certain conflicts of interest could exist between the Company and Mr.
Smith in his capacity as Chairman of the Company's Board, on the one hand, and
as chairman, chief executive officer and controlling shareholder of Sonic
Automotive and as an owner of certain other sellers of Properties, on the other
hand. The terms of the contribution agreement between the Company and Mr. Smith
and the purchase agreements between the Company and Sonic Automotive, pursuant
to which the Company will acquire four Dealership Properties, and the Initial
Leases for such Properties were not negotiated on an arms' length basis.
Consequently, the purchase prices and lease terms for such Properties may not
reflect fair market terms. See "The Formation Transactions--Acquisition of the
Initial Properties from the Sellers."
Mr. Smith could also significantly influence the future business and
operations of the Company in connection with (i) the terms of the contribution
or acquisition agreements and Leases for future Properties that may be acquired
from Sonic Automotive, which could result in the Company paying greater than
market purchase prices and/or receiving below market rents, (ii) decisions to
sell or refinance Properties contributed by his affiliates, which could
adversely affect the composition of the Company's real estate portfolio or
cause the Company to incur higher interest expense, (iii) decisions of Initial
Lessees affiliated with Mr. Smith to extend the terms of existing Leases and
the terms of any such extensions, which could adversely affect occupancy rates
for certain of the Company's Properties and result in less favorable lease
terms, (iv) the terms of "lock-out" restrictions that limit the ability of the
Company to sell or refinance Properties contributed by his affiliates, which
could preclude the Company from selling or refinancing a Property when it
desires, and (v) the enforcement of Initial Leases and agreements with Mr.
Smith and his affiliates, which could reduce the rental revenues of the
Company. See "The Formation Transactions--Benefits to Related Parties" and
"Policies and Objectives with Respect to Certain Activities--Conflicts of
Interest Policies."
Purchase Prices of Properties May Exceed Their Fair Market Values
Generally, the valuations of the Company's Properties have not, and in the
future may not, be determined by independent third-party appraisals. Therefore,
the consideration being paid by the Company for certain Properties may exceed
the value of such Properties if determined by third-party appraisals. The
Company considers several methods of valuation, including the review and
analyses of comparable properties and leases, discounted cash flow
calculations, valuing alternative uses of the Property and evaluating the
financial strength of prospective Lessees. The valuation of the Initial
Properties was based primarily upon a capitalization of pro forma cash flow,
considering the creditworthiness of the Initial Lessees, purchase prices for
similarly situated properties, the characteristics of the Initial Properties,
the cost of capital used to acquire the Initial Properties and the return the
Company could realize from alternative investments.
The market value of the Common Shares may exceed the fair market value of
the proportionate interest in the Company's portfolio of Properties and other
assets they represent. Accordingly, the liquidation value of the Company may be
less than the value of the Company as a going concern, and shareholders may
suffer a loss in the value of their Common Shares if the Company is required to
sell the Properties or any other assets.
The Company Has No Operating History; Officers and Trustees Have No Experience
Operating a REIT
The Company has been recently organized and has no operating history. The
Company's management has no experience operating a REIT, including operating in
accordance with the requirements for maintaining qualifications as a REIT, and
limited experience working together. There can be no assurance that the Company
will be able to generate sufficient revenue from operations to pay operating
expenses of the Company and make or sustain distributions to shareholders. See
"Policies And Objectives With Respect To Certain Activities -- Distributions
Policy." The Company also will be subject to the risks generally associated
with the formation of any new business.
The Company's ability to make and sustain cash distributions is based on
many factors, including the ability of the Company to make additional
acquisitions, investment of the proceeds of the Offering, ability to negotiate
favorable Lease terms, the Lessees' performances under Leases and anticipated
operating expense levels, which may not prove accurate and actual results may
vary substantially from estimates. Some of the factors are beyond the control
of the Company, and a change in any such factor could affect the Company's
ability to pay future distributions. No assurance can be given as to the
Company's ability to pay or maintain distributions. Neither is there an
assurance that the level of distributions will increase over time, that
contractual increases in rent under the leases of the Properties or that the
receipt of rental revenue in connection with future acquisitions of Properties
will increase the Company's cash available for distribution to shareholders. In
the event of a default or a lease termination, there could be a decrease or
cessation of rental payments and thereby a decrease in cash available for
distribution. See "Policies And Objectives With Respect To Certain Activities
- -- Distributions Policy."
15
<PAGE>
The Company May Be Unable to Acquire Additional Properties
Other than the Initial Properties, the Company has no agreements to
acquire additional Properties. There can be no assurances that additional
acquisitions of Properties or opportunities to finance the development of
Properties on terms that meet the Company's investment criteria will be
available to the Company or that the Company will be successful in capitalizing
on such opportunities.
Approximately 37% of the net proceeds of the Offering have not been
committed to the acquisition of Properties on the date of this Prospectus. The
Company cannot predict whether it will make future acquisitions for cash or
Units or any combination thereof.
Shareholders will not have an opportunity to approve or evaluate for
themselves any future Properties acquired by the Company, the terms of such
acquisitions or the terms of the related Leases. Shareholders must depend upon
the ability of management of the Company with respect to the selection of
Properties. Management has limited experience investing in Properties that are
used by dealerships and related automotive businesses.
The Amount of Debt the Company May Incur is Not Limited
The Company currently has a general policy of limiting its borrowings to a
ratio of approximately 50% of long-term debt to total market capitalization.
The organizational documents of the Company contain no limitation on the amount
or percentage of indebtedness that the Company may incur. The Board, without a
vote of the shareholders, could therefore alter or eliminate at any time the
current policy on incurring indebtedness. If the Company's debt to
capitalization policy were changed, the Company could become more leveraged,
resulting in an increase in debt service that could adversely affect the
Company's operating cash flow and its ability to make expected distributions to
shareholders and could result in an increased risk of default on its
obligations.
Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as
the purchase price of Properties to be acquired with debt financing, the
estimated market value of Properties upon refinancing, and the ability of
particular Properties and the Company, as a whole, to generate cash flow to
cover expected debt service), there can be no assurance that the ratio of
long-term debt to total market capitalization will be consistent with the
maintenance of the expected level of distributions to shareholders.
The Company's Performance is Dependent Upon Key Personnel
The loss of the services of Mr. Smith, the Company's Chairman, Mr. Bracy,
the Company's President, or Mr. Iuppenlatz, the Company's Executive Vice
President -- Acquisitions and Chief Operating Officer, and Ms. Dunn, the
Company's Vice President and Chief Financial Officer, could have a material
adverse effect on the Company, its operations and its business prospects. The
executive officers will receive substantial compensation from the Company. See
"Management--Executive Compensation." The Company's success also depends upon
its ability to attract and retain other qualified personnel.
General Factors Affecting Real Estate Investments May Affect the Company's
Performance
Real Estate Investments are Subject to Certain General Risks. The
Company's investments will be subject to the risks generally incident to the
ownership and, in certain instances, the development of commercial real
property, including: (i) reliance on the Lessees to pay rent and perform their
other obligations under the Lease, to generate revenues to meet fixed
obligations and cover debt service on borrowings; (ii) adverse changes in
national or local economic conditions; (iii) changes in the investment climate
for real estate; (iv) changes in real estate tax rates and other operating
expenses; (v) adverse changes in governmental rules and fiscal policies; (vi)
acts of God that may result in uninsured losses; (vii) the financial condition
of the sellers of Properties and Lessees; and (viii) other factors that are
beyond the control of the Company.
Real Estate Investments are Affected By the Illiquidity of Real Estate.
Equity real estate investments are relatively illiquid and therefore may tend
to limit the ability of the Company to react promptly to changes in economic or
other conditions. In addition, certain significant expenditures associated with
equity real estate investments (such as interest payments, real estate taxes
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investments.
The Company May Be Subject to Risks Related to Acquisition, Development
and Construction Activities. The Company intends to acquire additional
Properties. Acquisitions of Properties entail general investment risks
associated with any real estate investment, including the risk that investments
will fail to perform in accordance with expectations or that estimates of the
costs of improvements to bring an acquired property up to the Company's
standards may prove inaccurate.
16
<PAGE>
The Company also intends to grow through the selective development and
construction of Properties, including build-to-suit properties and land
acquisitions for development, as suitable opportunities arise. See "Business of
the Company and Its Properties -- Business Strategies and Objectives." Risks
associated with real estate development and construction activities include the
risk that the Company may abandon development activities after expending
significant resources to determine their feasibility; the construction cost of
a project may exceed original estimates; rents at a newly completed property
may not be sufficient to make the property profitable; financing may not be
available on favorable terms for development of a property; and the
construction and leasing of a property may not be completed on schedule
(resulting in increased debt service and construction costs). Development
activities are also subject to risks relating to inability to obtain, or delays
in obtaining, necessary zoning, land-use, building occupancy and other required
governmental permits and authorizations. If any of the above occur, the
Company's cash flow and ability to make distributions to shareholders could be
adversely affected. In addition, new development activities, regardless of
whether they are ultimately successful, may require a substantial portion of
management's time and attention.
Environmental and Other Governmental Regulations May Affect the Company's
Performance
Automobile dealers, related automotive businesses and the Company are
subject to a wide range of federal, state and local laws and regulations, such
as local licensing requirements, consumer protection laws and regulations
relating to gasoline storage, waste treatment and other environmental matters,
including:
Environmental Laws. All real property and the operations conducted on real
property are subject to federal, state and local laws and regulations relating
to environmental protection and human health and safety, including those
governing wastewater discharges, air emissions, the operation and removal of
underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials and wastes and the
remediation of contamination associated with such materials and wastes. Certain
of these laws and regulations may impose joint and several liability on certain
statutory classes of persons, including lessees, owners or operators, for the
costs of investigation and/or remediation of contaminated properties,
regardless of knowledge, fault or the legality of the original disposal or
release.
The past and present business operations of automobile dealers and related
automotive businesses that are subject to such laws and regulations include the
use, storage, handling and contracting for recycling or disposal of hazardous
or toxic substances or wastes, including environmentally sensitive materials
such as motor oil, waste motor oil and filters, transmission fluid, antifreeze,
freon, waste paint and lacquer thinner, batteries, solvents, lubricants,
degreasing agents, gasoline and diesel fuels. The Company, Lessees and sellers
of Properties may be subject to other laws and regulations as a result of the
past or present existence of certain underground and/or above-ground storage
tanks at the Properties. The Lessees or sellers of Properties, like many of
their competitors, have incurred, and will continue to incur, capital and
operating expenditures and other costs in complying with such laws and
regulations.
Certain laws and regulations, including those governing air emissions and
underground and above-ground storage tanks, have been amended so as to require
compliance with new or more stringent standards as of future dates. The Company
cannot predict what other environmental legislation or regulations will be
enacted in the future, how existing or future laws or regulations will be
administered or interpreted or what environmental conditions may be found to
exist in the future. Compliance with new or more stringent laws or regulations,
stricter interpretation of existing laws or the future discovery of
environmental contamination may require expenditures by the Company or
additional expenditures by the sellers of Properties or Lessees and their
affiliates, some of which may be material. There can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability, or (ii) the current environmental condition of the
Properties will not be affected by the operations of the automobile
dealerships, automotive parts stores or other automotive related businesses or
their affiliates, by the condition of the land or operations in the vicinity of
the Properties (such as the presence or past presence of underground storage
tanks) or by the activities of unrelated third parties. Under various federal,
state and local laws, ordinances and regulations, a current or previous owner,
developer or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, on, under or in its
property. The costs of such removal or remediation could be material. See
"Business of the Company and Its Properties -- The Initial Properties," " --
Initial Lessees," " -- Government Regulations Affecting the Properties --
Environmental Laws."
Limited environmental investigations have been conducted or will be
completed prior to the consummation of the Offering at the Initial Properties,
with the results set out in "Reports" and, in certain circumstances, "Phase II
reports" (collectively, the "Reports") prepared by consultants retained by the
Company, Sonic Automotive, Primax and/or their respective affiliates. The
Reports describe environmental conditions of concern at certain of the Initial
Properties, including actual and potential releases of petroleum products from
underground storage tanks and the presence of asbestos-containing materials.
Based on the Reports, the Company estimates that the aggregate cost expected to
remedy identified environmental
17
<PAGE>
conditions of concern will not be material to the Company. Although the Company
is unaware of any environmental condition at any of the Initial Properties that
the Company believes would have a material adverse effect on the Company's
financial condition or results of operations, no assurance can be given that
such an environmental condition does not exist. If such a condition exists or
arises in the future, the Company may incur substantial costs for the
investigation, removal and/or remediation of the condition.
With the exception of the sellers of 12 of the Initial Dealership
Properties and the Collision Repair Property (collectively, the "Bowers
Properties"), the sellers of the Initial Properties are obligated to indemnify
the Company for any third party claims based on environmental conditions,
including claims by subsequent purchasers of the Property, at least until such
time as any relevant statute of limitations has run. The Company has agreed to
purchase the Bowers Properties "as is," and has further agreed to release,
discharge and indemnify the sellers of the Bowers Properties with respect to
any liabilities that those sellers might otherwise have to the Company in any
way related to the Bowers properties and for any third party claims based on
environmental conditions. In addition, the Initial Lessees and their affiliates
are obligated to comply with, indemnify and hold harmless the Company and its
officers, Trustees, employees, shareholders, agents and affiliates from, and to
assume the cost of compliance with, all laws and regulations applicable to its
Property, including environmental laws and remediation requirements. In the
Leases for the Bowers Properties, the Company has agreed to remediate and be
responsible for, and indemnify the respective Lessees against, environmental
costs associated with conditions not caused by Lessees' acts or omissions. If
any seller or Lessee fails to comply with such requirements or if the Company
is otherwise required to do so, the Company could be forced to pay such costs,
which at such time could be significant, and then, as available, seek
reimbursement of those costs from the seller or the Lessee. Moreover, in the
event remedial action addressing environmental conditions of concern identified
in the Reports is not conducted by the sellers or Lessees or their affiliates
pursuant to environmental laws and regulations, it is possible that the
existence of those conditions could impede the Company's ability to sell,
re-lease or finance the affected Properties in the future or negatively impact
future sales or rental proceeds.
Americans With Disabilities Act of 1990. The Properties are required to
comply with Title III of the Americans with Disabilities Act of 1990 (the
"ADA") to the extent that such properties are "public accommodations" and/or
"commercial facilities" as defined by the ADA. Although the Company believes
that each of the Initial Properties is in substantial compliance with the ADA,
no assurance can be given that any investigation of the Initial Properties will
not reveal non-compliance with the ADA or that the requirements of the ADA will
not be changed. Compliance with the ADA could require the Company to make
significant capital expenditures at the Properties. Although the Lessees will
have primary responsibility for complying with the ADA, there is no assurance
that the Lessees will comply, or that the Company would be reimbursed by the
Lessees if the Company had to make expenditures to comply, with the ADA. See
"Business of the Company and Its Properties--Governmental Regulations Affecting
the Properties--Americans With Disabilities Act of 1990."
Other Regulations. The Properties are and will be subject to state and
local fire, life-safety and similar requirements. The Leases will require that
each Lessee comply with all regulatory requirements. Failure to comply with
those requirements could result in the imposition of fines by governmental
authorities, awards of damages to private litigants, or restrictions on the
ability to conduct business on such properties.
The Company Will Compete With Other Companies with Similar Business Objectives
and Strategies
Several REITs and other competitors of the Company have either begun or
announced intentions to begin acquiring properties used by automobile
dealerships, automotive parts stores and other related automotive businesses.
Other public or private entities may also target these types of properties for
acquisition, and some of those companies may have greater financial resources
or general real estate experience than the Company. Those entities will compete
with the Company in seeking Properties for acquisition and disposition and
re-leasing of Properties to automobile dealers or related automotive businesses
as they become available. The Company believes that competition for acquisition
of Properties will be based primarily on the acquisition price and rental
rates. Competition could have the effect of increasing acquisition prices and
decreasing rents, which would have an adverse effect on the financial results
of the Company and distributions to shareholders.
Adverse Consequences of Failure to Qualify as a REIT and Other Tax Risks Would
Decrease Funds for Distributions
Tax Liabilities as a Consequence of Failure to Qualify as a REIT. The
Company intends to operate its business so as to qualify as a REIT under the
Code commencing with its taxable year ending December 31, 1998. Although
management believes that the Company will be organized and will operate in such
a manner, no assurance can be given that the
18
<PAGE>
Company will be able to operate in a manner so as to qualify as a REIT or
remain so qualified. Qualification as a REIT depends on the Company's
continuing ability to meet various requirements concerning, among other things,
the ownership of its outstanding Shares, the nature of its assets, the sources
of its income and the amount of its distributions to its shareholders. Because
management of the Company has no history of operating an entity such that it
would qualify as a REIT, there can be no assurance that the Company will do so
successfully. See "Federal Income Tax Consequences--Taxation of the Company."
In addition, no assurance can be given that new legislation, regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.
Subject to certain conditions described below, Mayer, Brown & Platt,
special tax counsel to the Company, will deliver its opinion to the Company
regarding the Company's ability to qualify as a REIT. See "Federal Income Tax
Consequences-- Taxation of the Company" and "Legal Matters." Such legal opinion
will be based on various assumptions and factual representations by the Company
regarding the Company's ability to meet the various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. Mayer, Brown & Platt has no obligation to
advise of any subsequent change in the matters stated, represented or assumed
or of any subsequent change in applicable law. Such legal opinion is not
binding on the IRS or any court.
If the Company fails to qualify as a REIT in any taxable year, except as
to certain limited failures for which there may be statutory relief or
imposition of intermediate sanctions in the form of monetary penalties, the
Company would be subject to federal and state income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates and would not be allowed a deduction in computing its taxable income for
amounts distributed to its shareholders. This treatment would reduce the net
earnings of the Company available for investment or distribution to
shareholders because of the additional tax liability to the Company for the
years involved. In addition, unless entitled to relief under certain statutory
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
See "Federal Income Tax Consequences--Taxation of the Company--Failure to
Qualify." Although the Company currently intends to operate in a manner such
that it will qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Company to fail to qualify as
a REIT or may cause the Board to revoke the Company's REIT election.
Adverse Effects of REIT Minimum Distribution Requirements. To obtain the
favorable tax treatment accorded to REITs under the Code, the Company generally
will be required each year to distribute to its shareholders at least 95% of
its REIT taxable income. The Company will be subject to income tax on any
undistributed REIT taxable income and net capital gain, and to a 4%
non-deductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85%
of its ordinary income for the calendar year, (ii) 95% of its capital gain net
income for such year, and (iii) 100% of its undistributed income from prior
years.
The Company intends, although there can be no assurance that it will be
able, to make distributions to its shareholders to comply with the distribution
provisions of the Code and to avoid having undistributed income resulting in
federal and state income taxes and the non-deductible 4% excise tax. The
Company's income will consist primarily of its share of the income of the
Operating Partnership, and the Company's cash flow will consist primarily of
its share of distributions from the Operating Partnership. Differences in
timing between the receipt of income and the payment of expenses in arriving at
taxable income (of the Company or the Operating Partnership) and the effect of
non-deductible capital expenditures, the creation of reserves or required debt
amortization payments could in the future require the Company or the Operating
Partnership to borrow funds on a short-term or long-term basis to meet the
distribution requirements that are necessary to continue to qualify as a REIT.
In such circumstances, the Company might need to borrow funds to avoid adverse
tax consequences even if management believes that the then prevailing market
conditions generally are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations.
Accordingly, the Company will be subject to real estate financing risks,
including adverse changes in the availability of such financing, increased
interest expense that may be incurred on variable rate debt in rising interest
rate markets and the risk that the Company's cash flow may not be sufficient to
cover both required debt service payments and distributions to shareholders at
desired levels.
Distributions by the Operating Partnership will be determined by the
Company, as general partner, and will be dependent on a number of factors,
including the amount of cash available for distribution, the Operating
Partnership's financial condition, any decision by the Company's Board to
reinvest funds rather than to distribute such funds, the Operating
Partnership's capital expenditure requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board deems relevant. There can be no assurance that the Company will be
able to satisfy the annual distribution requirement so as to avoid corporate
income and excise taxation of the earnings that it distributes.
19
<PAGE>
Consequences of Failure to Qualify as a Partnership. Subject to certain
conditions, Mayer, Brown & Platt will deliver an opinion to the Company stating
that, assuming that the Operating Partnership is being operated in accordance
with its organizational documents and satisfies certain conditions relating to
"publicly traded partnership" status under the Code, the Operating Partnership
will be treated as a partnership, and not as a corporation, for federal income
tax purposes. Such opinion is not binding on the IRS. If the IRS were to
challenge successfully the status of the Operating Partnership as a partnership
for federal income tax purposes, the Operating Partnership would be taxed as a
corporation. In such event, the Company would cease to qualify as a REIT for
federal income tax purposes. The imposition of a corporate tax on the Operating
Partnership, with a resulting loss of REIT status of the Company, would reduce
substantially the amount of cash available for distribution.
Consequences of Recharacterization of Initial Leases. Subject to certain
conditions described under "Federal Income Tax Consequences--Taxation of the
Company--Characterization of Rent," Mayer, Brown & Platt is of the opinion
that, subject to the receipt of certain documentation with respect to the
Advance Leases, each Initial Lease will be treated as a true lease for federal
income tax purposes. Such opinion is not binding on the IRS and is based upon
certain factors, assumptions and representations. If the IRS were to challenge
successfully the characterization of the Initial Leases as true leases, the
Operating Partnership would not be treated as the owner of the Property in
question for federal income tax purposes and the Operating Partnership would
lose tax depreciation deductions with respect to such Property, which in turn
could cause the Company to fail to qualify as a REIT. Although the Company
intends to structure any leasing transaction for Properties acquired in the
future such that the Lease will be characterized as a "true lease" and the
Operating Partnership will be treated as the owner of the Property in question
for federal income tax purposes, the Company will not seek an advance ruling
from the IRS and may not seek an opinion of counsel (except with respect to the
Initial Leases) that it will be treated as the owner of any leased Properties
for federal income tax purposes, and thus there can be no assurance that future
leases will be treated as true leases for federal income tax purposes.
Other Tax Liabilities. Even if the Company qualifies as and maintains its
status as a REIT, it may be subject to certain federal income taxes if it has a
certain amount of non-qualified income. For example, if the Company has net
income from a "prohibited transaction," such income will be subject to a 100%
tax. See "Federal Income Tax Consequences-- Taxation of the Company." In
addition, the Company may be subject to state and local taxes on its income and
property.
The Ownership Limit May Reduce the Ability of Shareholders to Receive a Premium
Price
For the Company to maintain its qualification as a REIT under the Code,
not more than 50% in value of the outstanding Shares 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 the Company's taxable
year (other than the first taxable year for which the election to be treated as
a REIT has been made).
To ensure that the Company will not fail to qualify as a REIT under this
and other tests under the Code, the Company's Declaration of Trust, subject to
certain exceptions, authorizes the Board to take such actions as are necessary
and desirable to preserve its qualification as a REIT and to limit any person
to direct or indirect ownership, determined in accordance with the beneficial
ownership rules promulgated under Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), of no more than 9.8% in number or
value of the outstanding Shares (the "Ownership Limit"). While direct or
indirect ownership will be determined in accordance with the beneficial
ownership rules promulgated under Section 13(d) of the Exchange Act, beneficial
ownership for REIT qualification purposes also will be determined in accordance
with the constructive ownership rules of Sections 318 and 544 of the Code.
Under certain conditions, the Company's Board, upon receipt of a ruling from
the IRS, an opinion of counsel or other evidence satisfactory to the Board and
upon such other conditions as the Board may establish, may exempt a proposed
transferee from the Ownership Limit; provided that such exemption would not
result in the termination of the Company's status as a REIT. The Declaration of
Trust contains a waiver of the Ownership Limit with respect to the Underwriters
to permit ownership of the Common Shares provided such Common Shares are timely
distributed and that such ownership will not result in the Company being
"closely held" under the Code. The Company's Declaration of Trust and the
Operating Partnership's Partnership Agreement contain provisions that require
the approval of a majority of the Trustees of the Company not otherwise
interested in the transaction for waiver of the Ownership Limit with respect to
any Trustee or his Affiliates. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer; Excess Shares." The foregoing restrictions
on transferability and ownership will continue to apply until the Board
determines that it is no longer in the best interests of the Company to
continue to qualify as a REIT.
The Ownership Limit may have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer; Excess Shares."
20
<PAGE>
The Company must also satisfy certain gross income tests to maintain its
status as a REIT. See "Federal Income Tax Consequences--Taxation of
Company--Gross Income Tests." In general, for rents to qualify as qualifying
income for purposes of such gross income tests, among other things, the Company
must not own, directly or constructively, 10% or more of any Initial Lessee or
any other Lessee of the Properties. See "Federal Income Tax
Consequences--Taxation of the Company--Gross Income Tests--Rents from Real
Property." If the Company were to own, actually or constructively, 10% or more
of an Initial Lessee or other Lessee, the Lessee would be a "related party
tenant" of the Company. Rents received from "related party tenants" do not
constitute qualifying income for purposes of the gross income tests. In
addition, the Company's Declaration of Trust prohibits transfers of Shares that
would violate the "Related Tenant Limit." See "Description of Shares of
Beneficial Interest--Restrictions on Transfer; Excess Shares." To reduce the
risk that any Lessee will be treated as a related party tenant, (i) each Sonic
Lease places restrictions on the number of Shares such Lessee may own, directly
or constructively and (ii) with respect to the Advance Leases, the Company will
obtain certain documentation from Advance Auto, which will provide for similar
restrictions.
Certain Tax and Anti-takeover Provisions May Inhibit a Change in Control of the
Company
Certain provisions contained in the Declaration of Trust and Bylaws and
the Maryland General Corporation Law (the "MGCL"), as applicable to Maryland
REITs, and the lockout provisions described above, may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby delay, deter or prevent a change in control of the Company or
the removal of existing management and, as a result, could prevent shareholders
from being paid a premium for their Common Shares over then-prevailing market
prices. See "Description of Shares of Beneficial Interest--Restrictions on
Transfer; Excess Shares" and "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws." These provisions are described
below:
Ownership Limit. The Ownership Limit provides that no person or entity may
own, or be deemed to own, as determined in accordance with the beneficial
ownership rules promulgated under Section 13(d) of the Exchange Act, more than
9.8% in number or value of the Shares of the Company unless waived by the
Board. While direct or indirect ownership will be determined in accordance with
the beneficial ownership rules promulgated under Section 13(d) of the Exchange
Act, beneficial ownership for REIT qualification purposes also will be
determined in accordance with the constructive ownership rules of Sections 318
and 544 of the Code. See "--The Ownership Limit and Restrictions on Transfer."
The foregoing ownership limitations may have the effect of precluding
acquisition of control of the Company without the consent of the Board and,
consequently, shareholders may be unable to realize a premium for their Shares
over the then-prevailing market price (a premium is customarily associated with
such acquisitions). See "Description of Shares of Beneficial
Interest--Restrictions on Transfer; Excess Shares."
Removal of Trustees; Vacancies. The Company's Declaration of Trust
provides that a Trustee may only be removed upon the affirmative vote of
two-thirds of all of the votes entitled to be cast by the shareholders in the
election of Trustees. Vacancies may be filled by the Board or at a special or
annual meeting of the shareholders. This requirement makes it more difficult to
change the management of the Company by removing and replacing Trustees.
Classified Board. The Board has been divided into three classes of
trustees. The terms of the classes will expire in 1999, 2000 and 2001,
respectively. As the term of a class expires, Trustees for that class will be
elected for a three-year term and the Trustees in the other classes will
continue in office. As a result, the classified Board could have the effect of
discouraging a takeover or other transaction in which holders of some or a
majority of the Common Shares might receive a premium over the then-prevailing
market price of such Common Shares. See "Certain Provisions of Maryland Law and
of the Declaration of Trust and Bylaws--Classification of the Board."
Preferred Shares. The Declaration of Trust authorizes the Board to
classify or reclassify any unissued Shares from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or distributions, qualifications or
terms or conditions of redemption, without the approval of shareholders. See
"Description of Shares of Beneficial Interest--Classification or
Reclassification of Preferred Shares." Thus, the Board could authorize the
issuance of preferred shares ("Preferred Shares") with terms and conditions
that could have the effect of discouraging a takeover or other transaction in
which holders of some or a majority of the Common Shares might receive a
premium for their Common Shares over the then-prevailing market price of such
Common Shares. See "Description of Shares of Beneficial
Interest--Classification or Reclassification of Preferred Shares."
Number of Authorized Shares. The Declaration of Trust authorizes the Board
to amend the Declaration of Trust, without the approval of shareholders, to
increase or decrease the aggregate number of Shares that the Trust has the
authority to issue. As a result, this ability to increase the number of
authorized Shares could have the effect of discouraging a takeover
21
<PAGE>
or other transaction in which holders of some or a majority of the Common
Shares might receive a premium over the then-prevailing market price of such
Common Shares. See "Description of Shares of Beneficial Interest--General."
Advance Notice Provisions. For nominations of persons for election to the
Board or other business to be properly brought before an annual meeting of
shareholders, the Bylaws require a shareholder proposing such action to deliver
a notice to the secretary, absent specified circumstances, not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting setting forth: (i) as to each person whom the shareholder
proposes to nominate for election or reelection as a Trustee, all information
relating to such person that is required to be disclosed in solicitations of
proxies for the election of Trustees pursuant to Regulation 14A of the Exchange
Act; (ii) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business proposed to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the shareholder 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
shareholder as it appears on the Company's books and of such beneficial owner
and (y) the number of Shares that are owned beneficially and of record by such
shareholder and such beneficial owner, if any. As a result, the advance notice
provisions could have the effect of discouraging a takeover or other
transaction in which holders of some or a majority of the Common Shares might
receive a premium over the then-prevailing market price of such Common Shares.
Maryland Business Combination Statute. Under the MGCL, as applicable to
Maryland REITs, certain "Business Combinations" (including certain issuances of
equity securities) between a Maryland REIT, such as the Company, and any person
who owns 10% or more of the voting power of the Company's Common Shares or an
affiliate or associate of the Company which, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more
of the voting power of the Common Shares of the Company (an "Interested
Shareholder"), or an affiliate of the Interested Shareholder, are prohibited
for five years after the most recent date on which the Interested Shareholder
became an Interested Shareholder. Thereafter, any such "Business Combination"
must be approved by a super-majority shareholder vote unless, among other
things, the holders of Shares 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 Shareholder for its Shares. As permitted
by the MGCL, the Declaration of Trust exempts any "Business Combinations"
involving the Company and Mr. Smith or any of his Affiliates. In addition, the
Board has adopted a resolution exempting Mr. Smith and any of his affiliates
from the application of the Business Combination Statute. Accordingly, the
five-year prohibition and the super-majority vote requirement will not apply to
any "Business Combinations" between Mr. Smith and his affiliates and the
Company. As a result, Mr. Smith and his affiliates may be able to enter into
"Business Combinations" with the Company, which may or may not be in the best
interests of the shareholders, without the super-majority shareholder approval.
See "Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws--Business Combinations."
Company Policies May Be Changed Without Shareholder Approval
The major policies of the Company, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the Board. Although it has no present
intention to do so, the Board may amend or revise these and other policies from
time to time without a vote of the shareholders. Accordingly, shareholders will
have limited control over changes in policies of the Company.
An Active Trading Market for Common Shares May Not Develop
Prior to this Offering, there has been no public market for the Common
Shares. Although the Company intends to apply for listing of the Common Shares
on the NYSE, there can be no assurance that an active trading market will
develop, that the Common Shares will be so listed or that the Common Shares
will trade below the Offering Price. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price of the Common Shares after the
Offering. See "Underwriting."
An Increase in Market Interest Rates May Cause Share Prices to Decline
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield on the price paid for Common Shares
from distributions by the Company. Thus, an increase in market interest rates
may lead purchasers of Common Shares to demand a higher annual yield, which
could reduce the market price of the Common Shares.
22
<PAGE>
Common Shares Eligible for Future Sale May Cause Share Prices to Decline
No prediction can be made as to the effect, if any, of future sales of
Common Shares, or the availability of Common Shares for future sales, on the
market price of the Common Shares. Sales of substantial amounts of Common
Shares (including up to approximately 1,860,311 Common Shares issuable upon the
exchange of Units issued in the Formation Transactions; up to approximately
702,000 Common Shares issued as Common Shares in connection with the Formation
Transactions; and up to 465,000 Common Shares issuable upon exercise of options
under the Plan), or the perception that such sales could occur, may adversely
affect prevailing market prices for the Common Shares. Such Common Shares and
Units issued in the Formation Transactions will be deemed to be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be transferred unless such Common Shares or Units have been registered under
the Securities Act or an exemption from registration is available, including
any exemption from registration provided under Rule 144. In general, upon
satisfaction of certain conditions, Rule 144 permits the sale of certain
amounts of restricted securities one year following the date of acquisition of
the restricted securities from the Company and, after two years, permits
unlimited sales by persons unaffiliated with the Company.
Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company will have 10,702,000 Common Shares outstanding
(12,202,000 Common Shares if the Underwriters' over-allotment option is
exercised in full), of which 10,000,000 Common Shares (11,500,000 Common Shares
if the Underwriters' over-allotment option is exercised in full) will be freely
tradeable in the public market by persons other than "affiliates" of the
Company without restriction or registration under the Securities Act of 1933,
as amended (the "Securities Act"). The Company's officers and Trustees have
agreed not to offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell or dispose of (or announce any offer, sale, offer of
sale, contract of sale, grant of any option to purchase or other sale or
disposition of) any Common Shares or other capital shares of the Company, or
any securities convertible or exercisable or exchangeable for any Units or
Common Shares or other shares of beneficial interest of the Company (other than
pursuant to the Plan and the Formula Plan, including the exercise of options
granted thereunder), for a period of two years from the date of this Prospectus
without the prior written consent of the Underwriters, subject to certain
limited exceptions. The Underwriters, at any time and without notice, may
consent to the sale or disposition of all or any portion of the Common Shares
or Units subject to the foregoing lock-up agreements.
If the Company exercises its option to deliver Common Shares upon the
redemption of Units, the Partnership Agreement provides that the Company will
deliver registered Common Shares to the holder. See "Common Shares Eligible for
Future Shares."
The Company may issue from time to time additional Common Shares or Units
in connection with the acquisition of Properties. See "Business of the Company
and Its Properties--Business Strategies and Objectives." The Company
anticipates that it will file a registration statement with respect to the
Common Shares issuable upon exercise of options under the Plan and the Formula
Plan following or concurrent with the completion of this Offering. Such
registration statement generally will allow Common Shares covered thereby to be
transferred or resold with fewer or no restrictions under the Securities Act.
See "Common Shares Eligible for Future Sale."
Purchasers of Shares in the Offering Will Experience Dilution
Purchasers of Common Shares in the Offering will experience immediate
dilution in the amount of $1.96 per share in net tangible book value per share
from the Offering Price. See "Dilution."
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<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the sale of the Common Shares offered
hereby, net of the estimated underwriting discounts and expenses of the
Offering, are expected to be approximately $139.6 million ($160.7 million if
the Underwriters' over-allotment option is exercised in full), assuming an
Offering Price per share of $15.00. The Company intends to apply the net
proceeds of the Offering as follows:
<TABLE>
<CAPTION>
Proceeds from
the Offering
---------------
(in Thousands)
<S> <C>
Cash consideration and closing costs for Initial Properties ..... $ 73,381
Payment of Mortgage Debt (1) .................................... 15,117
Future Acquisitions and Working Capital ......................... 51,127
--------
Total ........................................................... $139,625
========
</TABLE>
- ---------
(1) The Mortgage Debt being repaid with proceeds from the Offering accrued
interest at the weighted average rate of 8.8% per annum at June 30, 1998.
The balance of the purchase price for the Initial Properties will be paid
with the assumption of approximately $4.8 million of Mortgage Debt, and the
issuance of 877,677 Class A Units and 982,634 Class B Units. Assuming the Class
A Units are valued at the Offering Price and the Class B Units are valued at
$12.6 million, the aggregate purchase price for the Initial Properties,
including closing costs, is approximately $119.2 million. If the Underwriters'
over-allotment option is exercised, the Company intends to use the additional
net proceeds for the acquisition of additional Properties and for working
capital.
Pending the uses described above, the net proceeds will be invested in
interest-bearing accounts and short-term, interest-bearing securities, that are
consistent with the Company's intention to qualify for taxation as a REIT. Such
investments may include, for example, government and government agency
securities, certificates of deposit and interest bearing bank deposits.
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
historical basis and on a pro forma basis as of August 31, 1998 assuming
consummation of the Formation Transactions. The information set forth in the
following table should be read in conjunction with the Company's Audited
Balance Sheet and Notes thereto, and Unaudited Pro Forma Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
<TABLE>
<CAPTION>
August 31, 1998
-------------------------
Historical Pro Forma
------------ ------------
(In Thousands)
<S> <C> <C>
DEBT:
Mortgages payable .................................................................... $ -- $ 4,862
MINORITY INTEREST (1) ................................................................. -- 25,805
SHAREHOLDERS' EQUITY:
Common shares, $1.00 par value; 2,000,000 authorized; 1,000,000 issued and outstanding
historical; 10,702,000 issued and outstanding pro forma as adjusted (2) ............. 1,000 10,702
Additional paid-in capital ........................................................... -- 129,923
Less: share subscription receivable .................................................. (1,000) (1,000)
-------- --------
Total shareholders' equity .......................................................... -- 139,625
-------- --------
Total capitalization .............................................................. $ -- $170,292
======== ========
</TABLE>
- ---------
(1) Minority interest represents pro forma book value at August 31, 1998
attributable to the 1,860,311 Units to be issued in the Formation
Transactions.
(2) Excludes 1,860,311 Common Shares reserved for issuance upon redemption of
the Units to be issued in the Formation Transactions, 1,100,000 Common
Shares reserved for issuance pursuant to the Company's Plan, of which
options to acquire 465,000 Common Shares will be granted upon completion
of the Offering, and 200,000 Common Shares reserved
24
<PAGE>
for issuance pursuant to the Company's Formula Plan. See "The Formation
Transactions" and "Management--1998 Shares Option Plan."
DILUTION
At August 31, 1998, the Company had no net tangible book value. After
giving effect to the Formation Transactions, the pro forma net tangible book
value of the Company at August 31, 1998 would have been $139.6 million or
$13.04 per Common Share. This represents an immediate decrease in the net
tangible book value per Common Share from the Offering Price to purchasers of
Common Shares in the Offering. Net tangible book value per Common Share
represents the amount of total tangible assets of the Company less total
liabilities and minority interest, divided by the number of Common Shares
outstanding. The following table illustrates the foregoing dilution:
<TABLE>
<S> <C> <C>
Offering Price per share(1) .............................................................. $ 15.00
Pro forma net tangible book value per share prior to the Offering attributable to Common
Shares issued to Mr. Smith ............................................................... $ 1.43
Increase in net tangible book value per share attributable to Common Shares issued in the
Offering ................................................................................. 11.61
-------
Pro forma net tangible book value per share after the Offering ........................... 13.04
Dilution per share purchased in the Offering ............................................. 1.96
</TABLE>
- ---------
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering.
The following table summarizes, as of August 31, 1998, the difference
between contributions to be made to the Company by purchasers of Common Shares
in the Offering (before deducting expenses of the Offering) and the Common
Shares and Units to be issued by the Company and the Operating Partnership,
respectively, in the Formation Transactions:
<TABLE>
<CAPTION>
Common Shares issued
by the Company and
Units
issued by the Total Contributions to the
Operating Partnership Company
Average
Price per
Number Percent Amount Percent Share/Unit
------------ --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Common Shares sold by the Company in the
Offering .................................... 10,000,000 79.6% $150,000,000 84.8% $ 15.00(1)
Units issued in the Formation Transactions:
Class A ..................................... 877,677 7.0% 13,165,155 7.4% $ 15.00(2)
Class B ..................................... 982,634 7.8% 12,639,512 7.2% $ 12.86(2)
Common Shares issued to Mr. Smith in the
Formation Transactions ...................... 702,000 5.6% 1,000,000 0.6% 1.43
---------- ---- ------------ ----
Total ........................................ 12,562,311 100% $176,804,667 100%
========== ==== ============ ====
</TABLE>
- ---------
(1) Based on the Offering Price before deducting underwriting discount and
estimated expenses of the Offering.
(2) Based on the fair value of assets to be contributed to the Operating
Partnership in the Formation Transactions.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical and pro forma financial
information for the Company. The unaudited pro forma operating information is
presented as if the Formation Transactions had occurred as of the beginning of
the periods indicated and therefore incorporates certain assumptions that are
included in the Company's Unaudited Pro Forma Consolidated Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on August 31, 1998. The unaudited
pro forma financial information does not purport to represent what the
Company's financial position or results of operations actually would have been
had the Formation Transactions, in fact, occurred on such date or at the
beginning of the periods indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
The historical and unaudited pro forma financial information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
25
<PAGE>
Mar Mar Realty Trust
Selected Historical and Pro Forma Consolidated Financial Information
(in thousands, except per share and footnote data)
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Year ended Eight Months
December 31, endedAugust 31,
1997 1998
-------------- ----------------
<S> <C> <C>
Operating Data:
Lease revenue (1) ....................................................... $ 12,760 $ 8,506
Depreciation (2) ........................................................ 3,090 2,060
General and administrative expense (3) .................................. 2,000 1,333
Interest expense (4) .................................................... 426 284
Minority interest (5) ................................................... 660 440
Net income .............................................................. 6,584 4,389
Earnings per share -- basic and diluted (6) ............................. $ .94 $ .62
Weighted average common shares outstanding -- basic and diluted (6) ..... 7,040 7,040
</TABLE>
<TABLE>
<CAPTION>
Historical
---------------------------------- Pro Forma
April 14, 1998 August 31, August 31,
(Date of formation) 1998 1998
--------------------- ------------ -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash ............................... $ -- $ -- $ 51,127
Property ........................... -- -- 119,165
Total assets ....................... -- 840 170,292
Mortgages payable .................. -- -- 4,862
Total liabilities .................. -- 840 4,862
Minority interest .................. -- -- 25,805
Total shareholders' equity ......... -- -- 139,625
</TABLE>
- ---------
(1) Represents rental income, computed on a straight-line basis, from the
Initial Lessees based on the terms of the Initial Leases as if all Initial
Properties had been subject to the Initial Leases for the entire period.
The Company and the applicable Sonic Lessees have entered into a new
lease, effective January 1, 2000, which provides that the annual lease
payments on the Town & Country Ford and Lone Star Ford properties will
each be increased to $1,140,000 as compared to their current levels of
$409,200 and $360,000, respectively.
(2) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over an assumed estimated
useful life of 20 years.
(3) Represents management's estimates of general and administrative expenses.
(4) Represents interest on Mortgage Debt.
(5) Represents approximately 9.1% of the Operating Partnership's pro forma net
income. The minority interest in pro forma net income reflects the
requirements under GAAP that pro forma lease revenue be computed on a
straight-line basis and a portion of such revenue be allocated to holders
of Class B Units. The initial minority interest in contractual rents is
7.6%, reflecting that the holders of Class B Units will have no voting,
allocation or distribution rights until the effectiveness of the new
Leases described in (1) above.
(6) Represents the number of Common Shares issued to Mr. Smith and the number
of Common Shares issued in the Offering, the proceeds from the sale of
which will be used to acquire the Initial Properties. If the total number
of Common Shares issued in the Offering had been used, pro forma weighted
average common shares outstanding would be 10,702,000 for both the year
ended December 31, 1997 and the eight months ended August 31, 1998,
resulting in pro forma earnings per share of $0.41 for $0.62 for the year
ended December 31, 1997 and the eight months ended August 31, 1998. The
potential redemption of Class A Units and Class B Units and the potential
exercise of options granted under the Plan are not dilutive to pro forma
earnings per share.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was organized as a Maryland REIT on April 14, 1998, and
intends to make an election to qualify under the Code as a REIT commencing with
its taxable year ending December 31, 1998. Substantially all of the Company's
initial revenues are expected to be derived from rents received under long-term
triple-net and modified triple-net leases of the Initial Dealership Properties,
the Advance Properties and the Collision Repair Property. The Leases generally
provide for fixed Base Rent with either periodic rent increases based on
changes in the Consumer Price Index ("CPI") or for fair market adjustments to
rent upon lease renewal. Although the Company is entitled to receive percentage
rent based on sales at the stores located on the Advance Properties, it does
not anticipate that it will receive significant percentage rent payments for
the foreseeable future.
The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional Properties. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax
and financial advisors from time to time.
The primary non-cash expense of the Company will be the depreciation of
its Properties. The Company does not expect to own or lease a material amount
of personal property, furniture or equipment at any Property.
The Company expects to employ moderate leverage, pursuant to its Line of
Credit or otherwise, to fund additional investments and will incur long and
short-term indebtedness, and related interest expense, from time to time.
The Company expects to make distributions to its shareholders in amounts
not less than the amounts required to maintain REIT status under the Code and,
in general, in amounts equal to or exceeding taxable income. The Company's
ability to make distributions will depend upon its cash available for
distribution.
Results of Operations
The Company has had no operations prior to April 14, 1998 (date of
formation), or through the date of this Prospectus. The Company's future
results of operations will depend upon the acquisition of the Initial
Properties and other Properties and the terms of any subsequent investments the
Company may make.
Pro Forma Results of Operations
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Properties, lease revenue would have been $12.8
million for the year ended December 31, 1997, and $8.5 million for the eight
months ended August 31, 1998. Net income would have been $6.6 million or $0.94
per share for the year ended December 31, 1997, and $4.4 million or $.62 per
share for the eight months ended August 31, 1998. General and adminstrative
expenses would have been $2.0 million for the year ended December 31, 1997, and
$1.3 million for the eight months ended August 31, 1998, including salaries and
benefits, professional services, travel and office expenses. Interest expense
would have been $426,000 for the year ended December 31, 1997, and $284,000 for
the eight months ended August 31, 1998 based upon total debt of $4.9 million at
an average interest rate of approximately 8.8%. Depreciation would have been
$3.1 million for the year ended December 31, 1997, and $2.1 million for the
eight months ended August 31, 1998 based upon purchase price allocations to
buildings of 45% for the Initial Dealership Properties and 70% for the Advance
Properties and the Collision Repair Property, and assumed estimated useful
lives of 20 years. Pro forma lease revenue is recorded on a straight-line basis
based on the terms of the Leases as if all Initial Properties had been leased
for the entire period. See "Selected Historical and Pro Forma Consolidated
Financial Information."
Liquidity and Capital Resources
The Company anticipates that its initial working capital and cash from
operations, together with the Line of Credit anticipated to be available to the
Company, will provide adequate liquidity to conduct its operations, fund
administrative and operating costs, interest payments and acquisitions and to
allow distributions to the Company's shareholders in accordance with the Code's
requirements for qualification as a REIT and to avoid any corporate level
federal income or excise tax.
27
<PAGE>
In order to qualify as a REIT for federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders.
Although the Company will receive most of its rental payments on a monthly
basis, it intends to make distributions quarterly. Amounts accumulated for
distributions will be invested by the Company in short-term investments.
Under the terms of the Sonic Leases, the Independent Dealer Leases and the
Body Shop Lease, the Lessees are responsible for substantially all expenses
associated with the operation of the Properties, such as taxes and other
governmental charges, insurance, utilities, service, maintenance and any ground
lease payments. Under the Advance Leases, the Company is responsible for
maintaining structural walls and foundations, roofs, parking lots, sidewalks
and 50% of the repair costs in excess of $500 for any major heating or cooling
system breakdown at the Advance Properties. As part of the acquisition, Primax
has guaranteed all maintenance costs incurred at the Advance Properties for one
year. The Company does not believe that it will be responsible for significant
expenses in connection with the Initial Properties during the terms of the
respective Initial Leases. The Company anticipates entering into triple net
leases with respect to additional Properties. After the expiration of the
Leases, or in the event a Lessee is unable to meet its maintenance obligations,
the Company anticipates that any expenditures it might become responsible for
in maintaining the Properties will be funded by cash from operations and, in
the case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the
Company's cash available for distribution and liquidity may be adversely
affected.
Due to the nature of single tenant triple-net leases, information on the
historical results of operations of the individual Initial Properties is not
considered to be meaningful. Instead, financial information of significant
Lessees is provided with the accompanying historical and pro forma financial
statements.
The Company is negotiating to obtain a $100 million Line of Credit. It is
expected that the Line of Credit will bear interest at variable rates based on
a spread over the London Interbank Offered Rate (LIBOR). It also is expected
that the Line of Credit will contain affirmative and negative covenants
customary and standard for a REIT. The Company expects to borrow under the Line
of Credit in connection with the acquisition of additional Properties, the
renovation or expansion of Properties, or, as necessary, to meet certain
distribution requirements imposed on REITs under the Code.
Other than the $73.4 million used to fund the cash portion of the purchase
price of the Initial Properties, the Company has no commitments with respect to
other capital expenditures. The Company may raise additional long-term capital
by issuing, in public or private transactions, equity or debt securities, but
the availability and terms of any such issuance will depend upon market and
other conditions. The Company anticipates that as a result of its initially low
debt to total market capitalization ratio and its intention to maintain a debt
to total market capitalization ratio of not more than 50%, it will be able to
obtain financing for its long-term capital needs. There can be no assurance,
however, that such additional financing or capital will be available on terms
acceptable to the Company. Assuming the Class A Units are valued at the
Offering Price and the Class B Units are valued at $12.6 million, the aggregate
purchase price for the Initial Properties, including closing costs, is
approximately $119.2 million.
The Company will acquire additional Properties subject to the Company's
investment objectives and policies described elsewhere in this Prospectus. The
Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company or the Operating Partnership uses Common
Shares or Units, respectively, as consideration for such purchases.
Inflation
All of the Initial Leases will be triple-net or modified triple-net
leases, which require the Lessees to pay all or a substantial majority of the
expenses associated with the operation of the Initial Properties, thereby
minimizing the Company's exposure to increases in costs and operating expenses
resulting from inflation. Because the Line of Credit is expected to provide for
a variable interest rate, inflation could have a material adverse effect on the
Company's net income if interest rates increase substantially during any year.
Accordingly, when deemed appropriate, based on the then current interest rates,
the Company may seek to replace the Line of Credit with a credit facility that
provides for a fixed rate.
Year 2000 Compliance
The Company is in the process of assessing its Year 2000 exposures and
determining the consequences that any Year 2000 problems might have on the
Company's business, results of operations or financial condition, or cause the
Company to incur potential liability to third parties if its systems are not
Year 2000 compliant. As part of its assessment, the Company will canvass its
future tenants and review the Year 2000 disclosures of certain publicly-traded
entities that provide the Company with computer and financial services,
including computer equipment and software, to determine whether Year 2000
28
<PAGE>
issues will have a material effect on the Company or such third parties. Once
its assessment is complete, the Company will develop a contingency plan in the
event its expectations regarding the Year 2000 problem are incorrect. Because
of the uncertainty surrounding the Year 2000 problem, however, the Company can
give no assurances that its assessment or its contingency plan will avoid all
potential, material effects of the Year 2000 problem.
The Company does not anticipate that any incremental expenditures it may
incur as a result of Year 2000 issues will be material. The Company uses
certain accounting, word processing and time management software as part of its
day-to-day operations. Because of the nature of its business, however, the
Company's operations do not depend on the use of computer equipment. Although a
shutdown of all of its computer systems could cause minor inconveniences and
minor delays in payments made by and to the Company, the Company does not
expect such interruption to materially interfere with its operations or cause
it to incur any potential liability to third parties if its systems are not
Year 2000 compliant.
Nevertheless, in the event that Year 2000 problems have a material effect
on the Company, its tenants or service providers, the Company expects to have
sufficient cash reserves available to meet its payroll and various other
obligations pending resolution of any significant Year 2000 issues.
29
<PAGE>
BUSINESS OF THE COMPANY AND ITS PROPERTIES
Overview
The Company is a self-administered and self-managed REIT that was
organized on April 14, 1998 to capitalize on consolidation opportunities in the
ownership of real estate used by automobile dealerships, automotive parts and
service retailers and other businesses related to the automobile industry. The
Company's principal business strategy is to maximize cash available for
distribution by acquiring Dealership Properties and, to a lesser extent,
Related Business Properties located throughout North America. The Company
believes that the automotive dealer industry and the automotive retail
aftermarket industry, are undergoing significant consolidation due to
increasing capital needs and the pursuit of economies of scale, which will
create attractive real estate acquisition opportunities for well-capitalized
and experienced real estate investors such as the Company.
The Company believes that its ability to identify and acquire Properties
will be enhanced by (i) its strategic alliance with Sonic Automotive, one of
the fastest growing automobile dealership consolidators in the United States,
(ii) its relationship with Primax, the sellers of the Advance Properties and
the owners of other Related Business Properties leased to Advance Auto and
potentially available to the Company, and (iii) the extensive real estate and
automotive industry experience and relationships of the Company's senior
management and its Board. Mr. Smith, the Company's Board Chairman, who is also
the chairman, chief executive officer and controlling stockholder of Sonic
Automotive and of Speedway Motorsports, a NYSE-listed promoter, marketer and
sponsor of motorsports activities.
The Company's initial portfolio will be comprised of the 31 Initial
Dealership Properties, 36 Advance Properties and one Collision Repair Property
located in ten states. Twenty-nine of the Initial Dealership Properties will be
leased to and are currently operated by the Sonic Lessees. The dealerships
located on the Initial Dealership Properties sell 20 different brands of new
automobiles, including BMW, Cadillac, Chrysler, Dodge, Ford, Honda, Hyundai,
Infiniti, Isuzu, Jeep, KIA, Lincoln, Mercury, Oldsmobile, Plymouth, Saturn,
Subaru, Toyota, Volkswagen and Volvo. Sonic Automotive, whose stock is traded
on the NYSE under the symbol "SAH," is one of the top ten automobile dealership
groups in the United States based on 1997 revenues. Since the beginning of
1997, Sonic Automotive has been one of the leading consolidators in the
automobile industry, having purchased 16 dealerships in that time. After giving
pro forma effect to such acquisitions, Sonic Automotive's 1997 revenues were
$1.0 billion, 1997 operating income was $30.8 million and 1997 retail unit
sales were 28,359 new, 16,068 used and 15,591 wholesale vehicles.
All of the Advance Properties are being acquired from Primax. Primax,
which is not affiliated with the Company, Sonic Automotive or Mr. Smith, is a
primary consultant to Advance Auto in connection with the selection, financing
and construction of new stores throughout the United States and owns additional
properties leased to Advance Auto. Certain affiliates of Primax will acquire
Units in the Operating Partnership in exchange for their contribution of the
Advance Properties.
All of the Company's Advance Properties will be leased to Advance Auto,
the second largest specialty retailer of automotive parts and accessories in
the United States based on number of stores and is unaffiliated with the
Company. As of July 18, 1998, Advance Auto had 909 stores in 17 states
operating under the "Advance Auto Parts" name. Advance Auto recently announced
its agreement to acquire all 630 Western Auto and Parts America stores from
Sears. As a result of this transaction, Sears will own approximately 40.6% of
Advance Auto's parent holding company. For fiscal 1997, Advance Auto's net
sales, net income and EBITDA were $848.1 million, $20.4 million and $65.4
million, respectively. As a result of the recent leveraged acquisitions of
Advance Auto, Advance Auto, as of July 18, 1998, reported a shareholder deficit
of $40.1 million and long-term debt of $335 million.
The Company will seek to maximize cash available for distribution to
shareholders by investing in a diverse portfolio of Dealership and Related
Business Properties, including Properties used by new and used motor vehicle
dealerships, automobile parts retailers, automobile repair services, automobile
rental outlets, fuel service stations and automobile auction businesses, among
others. While substantially all of the Initial Properties will be leased to
either Sonic Automotive's affiliates or Advance Auto, the Company intends to
pursue acquisition opportunities from a diverse group of sellers.
The Company believes that its relationship with Sonic Automotive will
provide it with unique competitive advantages in acquiring Dealership
Properties by providing the Company the opportunity to acquire Dealership
Properties on which dealerships acquired by Sonic Automotive are operated. The
Company has entered into the Strategic Alliance Agreement with Sonic Automotive
the primary provisions of which are as follows: (i) Sonic Automotive will refer
to the Company real estate acquisition opportunities that arise in connection
with Sonic Automotive's dealership acquisitions, and (ii) the Company will
refer to Sonic Automotive dealership acquisition opportunities that arise in
connection with Property acquisitions
30
<PAGE>
(providing sellers the option to sell both the real estate and the operations
associated with their dealerships), for which neither party will receive
separate compensation for their respective referrals. The Company has also
agreed to provide services within its areas of expertise to Sonic Automotive
(at Sonic Automotive's cost), such as (i) identifying sites for additional
dealership locations, replacement locations and body shop locations, (ii)
obtaining zoning changes that may be necessary for the appropriate use of the
property, (iii) identifying, designing and constructing facilities on the
property, (iv) advising Sonic Automotive with respect to maintenance items
relating to properties Sonic Automotive is leasing from the Company, (v)
arranging property inspections and environmental reports and (vi) other
automobile dealership related real estate needs. As consideration, Sonic
Automotive will offer the Company and its lessees an opportunity to jointly
purchase certain services from non-affiliated third parties to allow the
Company and its lessees to benefit from any volume discounts or other similar
savings such third party may offer due to the aggregate amount or quantity of
services purchased by Sonic, Speedway Motorsports, the Company and the
Company's lessees. Such services will include insurance, office equipment and
supplies, telecommunications services and certain other business operations
related products and services. Neither the Company nor its lessees will be
required to compensate Sonic Automotive for the opportunity to jointly purchase
such services. The Strategic Alliance Agreement will expire on July 9, 1999,
but will automatically renew for successive one year terms. The Strategic
Alliance Agreement may be terminated upon 30 days notice prior to the
expiration of the then existing term.
Primax has indicated an intent to continue to provide opportunities for
the Company to acquire additional Properties as Primax participates in Advance
Auto's expansion. Primax, as a strategic participant in the Advance Auto growth
strategy, significantly contributes to the selection, financing and
construction of new Advance Auto stores. The Company believes that its
relationship with Primax will provide it with opportunities to acquire
additional Properties used by Advance Auto.
The Initial Dealership Properties and the Collision Repair Property will
be leased to the Sonic Lessees pursuant to triple-net Leases, which require the
Sonic Lessees to pay all costs of operating the Initial Dealership Properties,
as well as all taxes, utilities, insurance, repairs and maintenance and other
property-related expenses. The Sonic Leases have initial terms of ten years and
generally require the Sonic Lessees to maintain a minimum Net Worth. In
addition, each of the Sonic Leases is guaranteed by Sonic Automotive. The
Advance Properties are subject to existing modified triple-net Leases that
require the Company to maintain certain portions of the facilities and systems
at the Advance Properties.
Mr. Smith's position as the Company's Chairman and his position as
chairman, chief executive officer and controlling stockholder of Sonic
Automotive may create conflicts of interest that may influence the terms upon
which the Company acquires Properties from or leases Properties to Sonic
Automotive and its affiliates and decisions to enforce leases with Sonic
Automotive and its affiliates.
Mr. Smith, the Company's Chairman, Benjamin F. Bracy, the Company's
President, Mark J. Iuppenlatz, the Company's Executive Vice President --
Acquisitions and Chief Operating Officer, and Virginia R. Dunn, the Company's
Vice President and Chief Financial Officer, have significant collective
business and professional experience that will enhance the Company's
performance. Mr. Bracy has over 25 years of experience in the securities and
finance industries; Mr. Iuppenlatz has over 15 years of experience in the
acquisition, development, leasing and management of commercial real estate
development and management industry; and Ms. Dunn has over 15 years of
experience in the public accounting profession with a focus in the real estate
industry. The Company believes that Mr. Smith's approximately 35 years of
experience and relationships with automobile dealers, manufacturers and parts
retailers, which he has developed through his leadership of Sonic Automotive
and Speedway Motorsports, will be of significant benefit to the Company as it
executes its growth strategy. None of the Company's Trustees or officers have
experience operating a REIT.
Business Strategies and Objectives
The Company's objectives are to maximize cash available for distribution
to shareholders, to enhance shareholder value by investing in additional
Properties that meet its investment criteria and to become one of the nation's
leading owners and lessors of Dealership Properties and Related Business
Properties.
Acquisition Strategy
The Company will seek to capitalize on consolidation trends in the
automotive retailing and aftermarket industries by acquiring the real estate of
well-located, geographically diverse automobile dealerships, automotive parts
stores and related automotive businesses and leasing it to the operators of
such businesses or other qualified automobile dealers and business operators
under long-term leases. While the Company's primary investment focus will be on
Dealership Properties, the Company intends to seek portfolio diversification by
investing in Related Business Properties whose operators are focused on
31
<PAGE>
the broader automobile industry, such as automobile parts retailers, automobile
repair services, automobile rental businesses, fuel service stations, and
automobile auction businesses, among others.
The Company intends to acquire attractively priced Properties that meet
one or more of the following investment criteria:
o Properties that are associated with well managed and financially sound
automobile dealerships, automotive parts stores and other automotive
related businesses with demonstrated operating histories;
o Properties that, because of their location and other characteristics,
are suitable for alternative uses;
o Well built Properties that have limited deferred maintenance;
o Properties that are located in diverse geographic regions in order to
minimize the potential adverse impacts of regional economic downturns; and
o Dealership Properties that are part of large affiliated dealer groups.
The Company believes that its acquisition capabilities will be enhanced by
its strategic alliance with Sonic Automotive, its relationship with Primax and
Mr. Smith's contacts and the relationships he has developed over the last 35
years within the automotive retailing and motorsports businesses.
Development Strategy
The Company may pursue attractive real estate development opportunities
from time to time. The Company currently anticipates that substantially all of
its development activities will be associated with Lessees that are either (i)
seeking to expand their operations in order to maximize performance and/or meet
certain manufacturer requirements or (ii) constructing additional automobile
dealership or related automotive business locations. The Company currently
intends to limit its development risk exposure by undertaking development
projects on behalf of a Lessee and leasing the project back to such Lessee upon
completion based on its cost (including capitalized financing costs). The lease
payment associated with such development projects will be calculated based on
the rate associated with the existing lease payment on the original facility
(in the case of an expansion) or a specified payment negotiated with the Lessee
prior to the commencement of development.
Financing Strategy
The Company intends to fund its growth strategy utilizing a selective
blend of financing sources, including internally generated funds, secured and
unsecured debt, and a variety of equity or equity-linked securities.
Additionally, the Company will have the ability to offer sellers of Properties
Units as acquisition currency. Units will provide holders with distributions
that are identical to those paid on the Common Shares and will be redeemable
for cash or Common Shares, on a one for one basis, at the option of the
Company. The utilization of Units as acquisition currency will provide sellers
with the ability to defer taxes, improve liquidity, facilitate estate planning
and diversify their investment in Dealership Properties and Related Business
Properties by participating as an equity owner in the Company.
Prior to the completion of the Offering, the Company expects to obtain the
Line of Credit of $100 million, the proceeds of which will be used for the
acquisition of additional Properties and working capital. The Company intends
to maintain a conservative capital structure with a debt to total market
capitalization ratio of not more than 50%. Following the completion of the
Offering, the Company's ratio of debt to total market capitalization will be
approximately 3%.
The Initial Properties
Upon completion of the Formation Transactions the Company will own 68
Initial Properites located in ten states. The Company will acquire the Initial
Dealership Properties for an aggregate purchase price of approximately $90.3
million, consisting of $70.1 million in cash, 394,410 Class A Units and the
assumption of $1.6 million of Mortgage Debt. The Company will acquire the
Advance Properties for an aggregate purchase price of approximately $25.9
million, consisting of approximately $240,000 in cash, 483,267 Class A Units
and the assumption of $18.4 million of Mortgage Debt, of which $15.1 million
will be paid with Offering proceeds. The Company will also acquire the
Collision Repair Property for a purchase price of $2.0 million in cash. The two
Initial Dealership Properties being contributed by affiliates of Mr. Smith are
subject to existing Leases at rents below current market levels. The number of
Class A Units to be received by Mr. Smith for these Properties was determined
based upon the existing rental revenue from these Properties. Such existing
Leases on these Properties will terminate by December 31, 1999, and the Company
and the relevant Sonic Lessees have entered into new Leases at market rates
effective January 1, 2000. In recognition of the future increased rent that
these Properties will generate, the
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Company has issued to Mr. Smith 982,634 Class B Units, which initially have no
rights with respect to voting, allocations or distributions until the effective
date of the new Leases (at which time they will attain rights identical to
those of the Class A Units). For purposes of the Company's pro forma financial
statements, the Class B Units have a deemed fair value of approximately $12.6
million.
The Company will use the proceeds from the Offering, assume Mortgage Debt
and issue Units to acquire interests in the Initial Properties. With limited
exceptions, the Company will acquire all of the Initial Properties free of any
material mortgages, liens or other encumbrances. The Company intends to acquire
additional Properties with the balance of the net proceeds of the Offering
after the Company acquires the Initial Properties. The Company will acquire
Properties primarily for income purposes, but may sell Properties from time to
time to take advantage of possible capital gains or losses.
The valuation of the Initial Properties was based primarily upon a
capitalization of pro forma cash flow from the Initial Leases, considering the
credit worthiness of the Initial Lessees, purchase prices for similarly
situated properties, the characteristics of the Initial Properties, the cost of
capital used to acquire the Initial Properties and the return the Company could
realize from alternative investments. Pro forma cash flow was based upon the
rental revenue that the Initial Leases are anticipated to generate in the first
year.
The following table presents certain information regarding the Initial
Properties.
<TABLE>
<CAPTION>
Initial Initial Term Land
Annual Lease Area
Property Location Base Rent Expiration in Acres
- ---------------------------------------------- ------------------ ----------------- -------------- ---------
<S> <C> <C> <C> <C>
Town & Country Ford (Parcel #1) Charlotte, NC $ 409,200(1) 2009(1) 12.5
Town & Country Ford (Parcel #2) Charlotte, NC 108,513 2008 1.7
Town & Country Toyota Charlotte, NC 600,000 2008 5.7
Lake Norman Chrysler-Plymouth (Parcel #1) Cornelius, NC 480,000 2007 5.7
Lake Norman Chrysler-Plymouth (Parcel #2) Cornelius, NC 110,250 2008 2.7
Lake Norman Dodge (Parcel #1) Cornelius, NC 360,000 2007 4.2
Lake Norman Dodge (Parcel #2) Cornelius, NC 120,000 2007 1.8
Frontier Oldsmobile-Cadillac Monroe, NC 187,000 2008 7.1
Westside Dodge Columbus, OH 600,000 2008 4.1
Toyota West Columbus, OH 480,000 2008 7.6
Hatfield Hyundai Columbus, OH 480,000 2008 1.5
Hatfield Lincoln-Mercury Columbus, OH 300,000 2008 4.9
VW & Jeep-Eagle West Columbus, OH 300,000 2008 3.0
Westside Chrysler-Plymouth Columbus, OH 300,000 2008 7.8
Fort Mill Ford Fort Mill, SC 480,000 2008 10.0
Century BMW Greenville, SC 387,187 2008 4.1
Heritage Lincoln-Mercury Greenville, SC 349,860 2008 5.5
Century BMW Spartanburg, SC 112,805 2008 1.7
Saturn of Chattanooga Chattanooga, TN 324,648 2007 5.0
Infiniti of Chattanooga (Parcel #1) Chattanooga, TN 289,224 2007 2.0
Infiniti of Chattanooga (Parcel #2) Chattanooga, TN 45,000 2007 1.5
Infiniti of Chattanooga (Parcel #3) Chattanooga, TN 5,000 2007 0.3
BMW/Volvo of Chattanooga (Parcel #1) Chattanooga, TN 279,840 2007 12.2
BMW/Volvo of Chattanooga (Parcel #2) Chattanooga, TN 5,000 2007 0.4
KIA/Volkswagen of Chattanooga Chattanooga, TN 132,840 2007 3.8
Toyota of Cleveland Cleveland, TN 252,000 2007 3.4
Town & Country Ford (Parcel #1) Cleveland, TN 191,424 2007 5.6
Town & Country Ford (Parcel #2) Cleveland, TN 90,000 2007 1.9
Town & Country Ford (Parcel #3) Cleveland, TN 23,000 2007 5.5
Cleveland Honda Cleveland, TN 154,296 2007 2.1
Lone Star Ford Houston, TX 360,000(1) 2009(1) 24.8
------------ -----
INITIAL DEALERSHIP PROPERTIES SUBTOTAL 8,317,087 160.1
Advance Auto Anniston, AL 69,856 2004 1.0
Advance Auto Bessemer, AL 72,500 2006 .6
Advance Auto Birmingham, AL 77,621 2007 1.0
Advance Auto Boaz, AL 59,500 2003 .7
Advance Auto Leeds, AL 60,200 2004 1.2
Advance Auto Montgomery, AL 76,440 2005 .7
Advance Auto Selma, AL 58,619(2) 2004 1.0
Advance Auto Tarrant City, AL 72,000 2007 .7
Advance Auto Troy, AL 62,016 2004 1.0
Advance Auto LaGrange, GA 56,000 2003 1.3
Advance Auto Monticello, KY 63,000 2006 .7
Advance Auto High Point, NC 54,993(2) 2008 1.0
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Initial Initial Term Land
Annual Lease Area
Property Location Base Rent Expiration in Acres
- --------------------------- ---------------------- ----------------- -------------- ---------
<S> <C> <C> <C> <C>
Advance Auto Greenville, OH $ 74,900 2007 1.0
Advance Auto Lima, OH 85,058 2007 .7
Advance Auto Lima, OH 85,000 2007 .8
Advance Auto Piqua, OH 66,862 2007 1.7
Advance Auto Springfield, OH 95,240 2007 .9
Advance Auto Springfield, OH 82,500 2007 .5
Advance Auto Troy, OH 70,445 2008 .7
Advance Auto Belle Vernon, PA 95,775 2006 .8
Advance Auto Brownsville, PA 73,000 2007 .5
Advance Auto Chambersburg, PA 102,250 2007 .8
Advance Auto Ebensburg, PA 72,750 2007 1.0
Advance Auto Greensburg, PA 73,540(2) 2007 1.0
Advance Auto Huntingdon, PA 61,335(4) 2008 .9
Advance Auto Indiana, PA 84,000 2007 .8
Advance Auto Jeanette, PA 88,000 2007 1.0
Advance Auto Leechburg, PA 81,720 2006 1.0
Advance Auto Murrysville, PA 95,428 2006 1.4
Advance Auto New Kensington, PA 99,950 2006 1.4
Advance Auto North Huntingdon, PA 84,595(3) 2006 1.0
Advance Auto Uniontown, PA 90,650 2006 .9
Advance Auto Washington, PA 73,500 2006 .7
Advance Auto Waynesburg, PA 84,510 2006 1.3
Advance Auto Dickson, TN 61,700 2005 .9
Advance Auto Lynchburg, VA 51,950(2) 2007 .9
------------ -----
ADVANCE PROPERTIES SUBTOTAL 2,717,403 33.5
------------ -----
ABRA Auto Body & Glass Chattanooga, TN 198,000 2007 2.2
------------ -----
INITIAL PROPERTIES TOTAL $11,232,490 195.8
============ =====
</TABLE>
- ---------
(1) The existing Leases on these properties provide for their termination by
December 31, 1999. The Company and the Sonic Lessees have entered into new
Leases that will take effect on January 1, 2000, which provide for initial
Base Rents of $1,140,000 for each Property, and expire on December 31,
2009.
(2) These Advance Properties or portions of the interests therein are presently
subject to ground leases, which will be assigned to the Company. The
initial Base Rent figures shown are net of aggregate annual ground lease
payments of $89,484.
(3) The Company will be assigned certain rights under an easement agreement
pursuant to which the Company will receive all rents on the Property from
Advance Auto and will make an annual payment of $5,400 to the easement
grantor. The initial Base Rent figure shown is net of the required
easement payment.
(4) This Advance Property is presently subject to an access easement agreement
that requires no payments by the Company.
Ground Leases and Other Interests in Certain Advance Properties
The Selma, Alabama Advance Property is subject to a ground lease with an
unrelated third-party that expires on December 31, 2034, and is renewable at
the Company's option for four successive five year terms. The rental rate is
$8,000 per year, with ten percent increases every five years during the term of
the lease. The lease also requires the Company to pay to the ground lessor 25%
of any percentage rent paid by Advance Auto. The Company is not currently
entitled to percentage rent on any of its Initial Properties.
The High Point, North Carolina Advance Property is subject to a ground
lease with an unrelated third-party that expires on December 31, 2004, with six
renewal options of five years each. The rental rate payable under the ground
lease is $26,484 per year. The rental rate increases by five percent during
each of the first two renewal terms and by ten percent during the final four
renewal terms.
The Greensburg, Pennsylvania Advance Property is subject to a ground lease
dated June 24, 1996 with an unrelated third-party that expires on December 31,
2016, with four renewal options of five years each. The present rental rate
payable under the ground lease is $30,000 per year, which will be the rental
rate through the end of 2000. Thereafter, rent increases by $5,000 every five
years of the initial term. The ground lease provides for additional rental
increases for each successive five-year term equal to the previous term's rent
multiplied by 50% of the increase in the Consumer Price Index ("CPI") for the
previous five-year period, and will, in no event, be less than a ten percent
overall increase in the rent for the previous five-year period.
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<PAGE>
The Huntingdon, Pennsylvania Advance Property is subject to an access
easement agreement with an unrelated third party dated as of February 3, 1997.
The easement agreement gives each party the right to use the property of the
other to access its own property in perpetuity. No other compensation is
required under the agreement, although the Company will be required to maintain
the property subject to the easement.
The North Huntingdon, Pennsylvania Advance Property is subject to an
access easement agreement with an unrelated third-party dated March 20, 1984.
The easement agreement provides for an initial term that expired on March 26,
1994, but contains provisions for three additional renewal terms of ten years
each. The easement agreement provides for payments to the easement grantor
during the first renewal terms of $5,400 per year. The payment increases to
$8,100 per year during the second renewal term and $12,000 per year during the
third renewal term.
The Lynchburg, Virginia Advance Property is subject to a ground lease with
an unrelated third party that expires on April 9, 2016. The lease also provides
for four additional renewal terms of five years each. The base rental rate is
$25,000 per year, and the tenant is obligated to pay the ground lessor one-half
of any percentage rent paid by Advance Auto. The base rental rate is increased
for the renewal terms as follows: $27,500 for the first renewal term; $28,875
for the second renewal term; $30,319 for the third renewal term; and $31,835
for the fourth renewal term.
The Company does not believe the lack of a fee interest in Properties
subject to the ground leases will be material to the Company because of the
long term nature of the ground leases and the remaining useful life of the
facilities located thereon.
Initial Lessees
Concurrently with the Company's acquisition of the Initial Properties, the
Company intends to lease the Initial Properties to the Initial Lessees pursuant
to the Initial Leases.
The Sonic Lessees and their affiliates operating on the Initial Dealership
Properties (the "Sonic Dealers") sell domestic and imported luxury, family,
economy and sport utility vehicles, trucks and vans, including BMW, Cadillac,
Chrysler, Dodge, Ford, Honda, Hyundai, Infiniti, Isuzu, Jeep, KIA, Lincoln,
Mercury, Oldsmobile, Plymouth, Subaru, Toyota, Volkswagen and Volvo. In
addition to selling new vehicles, many of the Sonic Dealers lease new vehicles
and sell used vehicles. They also provide service and parts primarily for the
vehicle makes and models that they sell or lease, and perform both warranty and
non-warranty service work. In general, parts departments support the sales and
service divisions. The Sonic Dealers also sell factory-approved parts at retail
to their customers or at wholesale to independent repair shops and arrange
third-party financing for their customers, sell vehicle service contracts and
arrange selected types of credit insurance for which they receive financing
fees, subject to a charge-back against a portion of the finance fees if
contracts are terminated prior to their scheduled maturity.
All of the Sonic Lessees are subsidiaries of Sonic Automotive. Sonic
Automotive is one of the leading automotive retailers in the United States,
operating 22 dealerships and eight collision repair centers in six metropolitan
areas of the southeastern and southwestern United States. Its business is
geographically diverse, with dealership operations in the Charlotte, North
Carolina, Chattanooga, Tennessee, Nashville, Tennessee, Tampa/Clearwater,
Florida, Houston, Texas and Atlanta, Georgia markets. In recent years, many of
Sonic Automotive's dealerships have won awards measuring quality and customer
satisfaction from various Manufacturers. These awards include the Five Star
Award from Chrysler, the Chairman's Award from Ford and the President's Award
from BMW. In addition, Sonic Automotive was named to Ford's Top 100 Club, which
consists of Ford's top 100 retailers based on retail volume and customer
satisfaction. Sonic Automotive had revenues of $1.0 billion, operating income
of $30.8 and retail unit sales of 28,359 new, 16,068 used and 15,591 wholesale
vehicles in 1997 (after giving pro forma effect to Sonic Automotive's
acquisitions in 1997 and 1998).
The Company's Chairman of the Board, Mr. Smith, is the chief executive
officer and chairman and a controlling shareholder of Sonic Automotive. In
addition to Mr. Smith's automotive experience, each of Sonic Automotive's other
executive officers, regional vice presidents and executive managers have an
average of 18 years of automotive retailing experience.
The Advance Properties will be acquired from Primax subject to existing
leases with Advance Auto. Advance Auto is the second largest specialty retailer
of automotive parts and accessories in the United States based on the number of
retail outlets. As of July 18, 1998, Advance Auto had 909 stores in 17 states
operating under the "Advance Auto Parts" name. Advance Auto has achieved
significant growth in recent years. Since accelerating its store expansion plan
in 1992, Advance Auto has grown from the eighth largest to the second largest
U.S. specialty retailer of automotive parts, increasing its store count by
387%. From fiscal 1992 through fiscal 1997, Advance Auto, as disclosed in
reports filed with the Commission by Advance Auto, increased sales, net income
and pro forma EBITDA by a compounded annual growth rate of 29.3%, 15.5%
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<PAGE>
and 28.4%, respectively. Advance Auto, which is the largest automotive parts
retailer in a majority of its markets based on store count, has expanded from
its original geographic base of North Carolina, South Carolina, Tennessee and
Virginia to also operate in Alabama, Arkansas, Florida, Georgia, Indiana,
Kentucky, Maryland, Michigan, Mississippi, Ohio, Pennsylvania and West
Virginia. For fiscal 1997, Advance Auto's net sales, net income and EBITDA were
$848.1 million, $20.4 million and $65.4 million, respectively. As a result of
the recent leveraged acquisitions of Advance Auto, Advance Auto reported a
shareholder deficit of $40.1 million and long-term debt of $335.0 million as of
July 18, 1998. Advance Auto recently announced its agreement to acquire all 630
Western Auto and Parts America stores from Sears. As a result of this
transaction, Sears will own approximately 40.6% of Advance Auto's parent
holding company.
Dealership, Sonic and Bowers Leases
General
As the Company acquires Dealership Properties in the future, the Company
intends to lease these Dealership Properties to the Lessees thereof (other than
Sonic Automotive) pursuant to standardized dealer leases (the "Dealership
Leases"). As discussed below, the terms of the Dealership Leases are expected
to differ in certain respects from the Sonic Leases on 15 of the Initial
Dealership Properties, the existing Leases on the Lake Norman Dodge (Parcels #1
and #2) and Lake Norman Chrysler-Plymouth (Parcels #1 and #2) Dealership
Properties (the "Lake Norman Leases") and the Leases on the Bowers Properties,
including the Collision Repair Property (the "Bowers Leases"), which are being
assumed in connection with the acquisition of such Properties. The Dealership
Leases are expected to have initial terms of ten years (each an "Initial Term")
with two additional five year terms (each a "Renewal Term") at the option of
the Lessee. All Dealership Leases and Sonic Leases will be triple-net leases
requiring the Lessees to undertake and pay for any maintenance and repairs and
will permit the Lessees to undertake additions, renovations and improvements to
the Dealership Properties after receiving the consent of the Company.
The Base Rent under each Dealership Lease and Sonic Lease will be
negotiated by the Company to produce an appropriate yield to the Company based
on the Company's determination of the appropriate return on the Company's
investment considering (i) the purchase price for the Property, (ii) the credit
worthiness of the Lessee, (iii) the rental rates for similarly situated
properties in the geographic location in which the Property is situated, (iv)
the characteristics of the Property, (v) the cost to the Company of the funds
used to acquire the Property, and (vi) the return that the Company could
realize from alternative investments on that Property's purchase price
(including acquisition fees and expenses). The Base Rent thereafter will be
adjusted upward either (i) annually or periodically based on a factor of the
CPI, or (ii) periodically, based on a fair market evaluation. Such fair market
evaluation is to be agreed upon by the Company and the relevant Lessee;
otherwise, the determination of this amount will be made by independent
arbitrators pursuant to the terms of the Dealership Lease. The CPI-based
adjustments range from a minimum of 1% to a maximum of 3% of Base Rent.
Typical Dealership Lease Terms
In general, the Dealership Leases and, except as otherwise noted, the
Sonic Leases (including the Lake Norman Leases) and the Bowers Leases will
include the following lease terms. Certain of the Bowers Leases, namely the
leases on the Collision Repair Property (the "CRP Lease"), a Saturn dealership
(the "Saturn Lease") and a Toyota dealership (the "Toyota Lease"), differ from
the remaining Bowers Leases on particular terms as noted below. With future
Lessees other than Sonic Automotive, the Company will attempt to negotiate
lease terms similar to those contained in the Dealership Leases, while future
Leases with affiliates of Sonic Automotive are expected to contain terms
similar to those contained in the Sonic Leases. No assurance can be given that
the Company will be successful in instituting all the terms of the Dealership
Leases as new Dealership Properties are acquired. Moreover, the Company may be
required to assume existing leases on Properties it acquires in the future,
which may have terms substantially different from those of the Dealership
Lease.
Use of the Properties. The Dealership Leases will require (a) the
Dealership Property to be operated as an automobile dealership, and (b) that
the Lessee or any permitted assignee operate the Dealership Properties in an
efficient and professional manner in compliance with all laws and regulations.
The Bowers Leases generally provide that the property may be used for any
lawful purpose.
Amounts Payable Under the Leases; Net Provisions. During the Initial Term
and any Renewal Terms, each Lessee or any permitted assignee will pay the Base
Rent, in monthly installments. The Base Rent will be adjusted upward on a
yearly basis based on a factor of the CPI, except for the fifth anniversary of
the Lease and each five year anniversary thereafter, including the beginning of
each Renewal Term, when Base Rent shall be adjusted for such year on the basis
of a fair market evaluation. Such evaluation will be agreed to by the Company
and the applicable Lessee; otherwise, the evaluation will be made by
independent arbitrators pursuant to the Lease terms. The Sonic Leases provide
for CPI adjustments every five
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<PAGE>
years based on the cumulative increase in CPI during the preceding five years.
The Lake Norman Leases provide for annual CPI adjustments. The Bowers Leases
only provide for a Base Rent adjustment upon the beginning of each Renewal Term
on the basis of fair market value.
Each Dealership Lease will be a triple-net lease, under which each Lessee
will be required to pay rent and substantially all expenses associated with the
operation of a particular Dealership Property. Such expenses include all taxes,
assessments and levies, excises, fees and all other governmental charges with
respect to such Dealership Property, all charges for insurance, utilities,
service, repair and maintenance, including, without limitation, electricity,
telephone, trash disposal, gas, oil, water, sewer, communication and all other
utilities used in each Dealership Property. Each Lessee will be obligated to
comply with all laws, contracts, covenants and restrictions affecting a
Dealership Property.
Maintenance, Alterations, Capital Additions or Improvements. The Lessee or
any permitted assignee shall be obligated, at its sole cost and expense, to
maintain its Dealership Property in good order, repair and appearance and to
make structural and non-structural, interior and exterior, and ordinary and
extraordinary repairs and replacements, which may be necessary and appropriate
to keep such Dealership Property in good order, repair and appearance or which
may be required by any governmental authority. The Company will not be required
to build or rebuild any improvements to any Dealership Property, or to make any
repairs, replacements, alterations, restorations or renewals to any Dealership
Property.
The Lessee or any permitted assignee, at its sole cost and expense, may
make alterations, additions, changes and/or improvements to each Dealership
Property only with the prior written consent of the Company, in the Company's
reasonable discretion. Typically, all improvements, additions, alterations and
replacements constructed upon each Dealership Property by the Lessee during the
Initial Term or a Renewal Term of a Dealership Lease will be the sole property
of the Lessee until the expiration or early termination of such Dealership
Lease, at which time all improvements, additions, alterations and replacements
will become the property of the Company. All machinery, equipment, furniture,
furnishings and other personal property installed at the expense of a Lessee on
any Dealership Property will remain the property of such Lessee and may be
removed by such Lessee at the expiration or earlier termination of the
Dealership Lease. The Bowers Leases provide that any alteration, addition or
improvement made by the Lessee and any fixtures installed as a part thereof,
may at the Lessee's sole option remain the property of the Lessee. The Bowers
Leases require the Lessee to pay for any legally mandated alterations,
additions and improvements but the Lessee is liable for any such changes in the
nature of a capital expenditure only up to $5,000 for any one item and $25,000
for all items during the Initial Term. Expenses in excess of these limitations
are subject to mutual agreement of the parties. If the parties are unable to
agree on the excess expenses, either party may terminate the lease upon 90 days
notice.
Insurance. Each Dealership Lease will provide that the Lessee will
maintain insurance on its Dealership Property with coverages in such amounts as
are customarily insured against with respect to properties similar to the
Dealership Properties, including: (i) fire, and other hazards and perils
generally included under extended coverage; (ii) sprinkler leakage; (iii)
vandalism and malicious mischief; (iv) boiler and machinery; (v) other perils
commonly covered by "All Risk" insurance, all in an amount which reasonably
assures there will be sufficient proceeds to replace the improvements and
personalty in the event of a loss against which such insurance is issued but in
no event less than 100% of the full replacement value thereof (exclusive of
foundations); (vi) broad form comprehensive general public liability and
property damage insurance providing coverage against liability for personal
injury, death and property damage; (vii) builder's risk insurance (prior to and
during any construction); (viii) business interruption insurance (not required
of the Sonic Lessees); (ix) flood (when the Dealership Property is located in
whole or in material part in a designated flood plain area), (x) worker's
compensation; and (xi) other insurance which at the time is commonly obtained
in connection with business operations similar to those of the Initial Lessee.
The Company believes that the amount of insurance required under the Leases is
sufficient to protect each Property. The foregoing insurance policies are to
name the Company and any holder of a mortgage deed of trust or other security
agreement on such Dealership Property ("Company Mortgagee") as additional
insureds. Each Dealership Lease shall specify the deductibles for insurance
covering each class of risk. In addition, such insurance shall carry not less
than "A-" or "VIII" ratings. Notwithstanding, there will be risks for which
insurance will not be obtainable or will be prohibitively expensive. In such
event, a Lessee's ability to restore the Dealership Property may be dependent
on its internally generated funds or borrowing capacity. The Bowers Leases
provide for comprehensive public liability coverage in the amount of not less
than $5,000,000, and fire, casualty and extended coverage insurance naming the
Lessee as the sole payee (but not naming the Company as additional insured).
Damage to, or Condemnation of, a Property. In the event of any damage to
any Dealership Property, the Lessee is required to submit complete and detailed
plans and specifications to the Company, and will have the obligation to
promptly repair or restore the damage at the Lessee's expense so as to make
such Dealership Property at least equal in value and character to such
Dealership Property immediately prior to such occurrence. Typically, the rent,
real estate taxes and other
37
<PAGE>
impositions on the particular Dealership Property will not be abated during the
time of restoration. If any Dealership Property is damaged during the Initial
Term to an extent greater than 80% of the value of the improvements and
personalty, or during a Renewal Term to an extent greater than 60% of the value
of the improvements and personalty, then the Company may elect to terminate the
relevant Dealership Lease upon notice to the Lessee. Upon such a termination of
the Dealership Lease, the Lessee will have no obligation to repair such
Dealership Property, and the entire insurance proceeds will belong to the
Company. The Bowers Leases provide for abatement or a porportional reduction of
rent for any fees or charges during the period of restoration. The Bowers
Leases provide that if the Lessee determines, in its sole discretion, that such
casualty or the repair and restoration of the premises is substantially and
materially affects the Lessee's business, then the Lessee may elect to
terminate the lease. The Bowers Leases do not provide for termination of the
lease by the Company in the event of damage.
If at any time during the Initial Term or any Renewal Term, the Dealership
Property is totally and permanently taken by right of eminent domain or by
conveyance made in response to the threat of the exercise of such right
("Condemnation"), then the Dealership Lease will terminate as of the date the
condemning authority takes possession of the Dealership Property being
condemned. The Lessee will be required to pay all outstanding applicable rent
and other charges through the date of termination.
If a portion of a Dealership Property is taken by Condemnation, the
Dealership Lease will remain in effect as to such Dealership Property if such
Dealership Property is not thereby rendered unsuitable for use as the business
contemplated by the Dealership Lease, in the Company's and the Lessee's mutual
reasonable judgment. If the Dealership Lease is not terminated, then the Lessee
will restore the Dealership Property. Any award made by the condemning
authority will belong to the Company, except to the extent required by Lessee
to restore the remaining portion of the Dealership Property. If the award is
insufficient to pay for the restoration, the Lessee is responsible for the
remaining cost and expense of such restoration. The Bowers Leases provide that
if any substantial, material portion of a Dealership Property is taken by
Condemnation, then the Company shall repair and restore the property to the
best possible tenantable condition and the rent shall be equitably reduced or
the Lessee may elect to terminate the lease in its good faith discretion.
Financial Covenants. Each Lessee, will be required to maintain a ratio of
net income before income taxes plus depreciation, amortization and rent expense
to rent of at least 1.5 to 1.0 (the "Cash Flow Coverage Ratio"), computed as
the aggregate of net income before taxes plus mortgage interest, plus rent
expense, depreciation, plus the annual LIFO adjustment and other non-cash
expenses, less recurring capital expenditures and gain (loss) on sale of real
estate, dividends and/or profits taken out of the Lessees, divided by the
aggregate of the Lessee's obligations under the Dealership Leases. The Company
will monitor the Lessee's compliance with the Cash Flow Coverage Ratio and if
the Lessee defaults in such obligation, the Lessee can cure such default by
providing the Company with additional security, in the form of guaranties,
letters of credit, security deposits or the cross collateralization of the
subject Dealership Lease with other properties of the Lessee or an affiliate.
The Sonic Leases and the Bowers Leases to affiliates of Sonic Automotive do not
provide for any Cash Flow Coverage Ratio covenant and instead provide that all
obligations of the Lessees under such Leases will be guaranteed by Sonic
Automotive. Saturn Corporation guarantees the Saturn Lease. The CRP Lease and
the Toyota Lease are not guaranteed.
Net Worth Covenant. Each Lessee will be required to maintain a Net Worth
equal to six months of the following year's Base Rent; however, during the
first year of the term such measurement shall be based on the entire first
years Base Rent divided by two. The Lake Norman Leases and the Bowers Leases
contain no Net Worth covenant. The Bowers Leases that contain a guaranty
provision provide that the guarantor shall be irrevocably released from the
guaranty when the Lessee has a net worth of $20,000,000.
Assignment and Subletting. The Dealership Leases provide that each Lessee
may not, without the prior written consent of the Company, assign, or otherwise
transfer any Dealership Lease or sublease any Initial Property or grant or
permit any lien or encumbrance on or security interest in the Lessee's interest
in the Dealership Lease, in whole or in part. An assignment of the Dealership
Lease includes any change of control of the Lessee. The Bowers Leases provide
that the Lessee may assign the lease without the Company's consent.
If the Company consents to any assignment, transfer, subletting or
encumbrance, the Lessee will continue to be primarily liable under the
Dealership Lease. Any assignment or other transfer of all or any portion of the
Lessee's interest in an Dealership Lease in violation of the restrictions on
assignment or subletting will be voidable at the Company's option.
The Lessee is not permitted to sublease the Dealership Property, assign
the Dealership Lease or enter into another arrangement which would have the
effect of causing any portion of the amount received by the Company under the
Dealership Leases to fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Code.
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Indemnification. A Lessee will be required to defend, indemnify and save
and hold the Company harmless from and against liabilities, obligations,
losses, injunctions, suits, fines, actions, penalties, claims, demands, costs
and expenses (including reasonable attorneys' fees and expenses) and actual or
consequential damages incurred by, imposed upon or asserted against, indirectly
or directly, the Company, its officers, trustees, employees, shareholders,
agents or affiliates on account of, among other things: (a) any breach,
violation, or nonperformance by the Lessee or any person claiming under the
Lessee or the employees, agents, contractors, invitees, or visitors of the
Lessee of any term, representation, warranty, covenant, or provision of the
Dealership Lease or business of the Initial Lessee, its employees, agents,
contractors, invitees, visitors or any other person or any law, ordinance, or
governmental requirement of any kind; (b) any use, condition, operation or
occupancy of the Dealership Properties; (c) any acts, omissions, or negligence
of the Lessee; (d) any accident, injury, death or damage to the person or
property on the Lessee's part to be performed occurring at any Dealership
Property; (e) any matter or thing growing out of the condition, occupation,
maintenance, alteration, repair, use or operation by any person of the Property
or the operation of the business contemplated by the Dealership Lease to be
conducted thereon; (f) any failure of the Lessee to comply with any laws,
ordinances, requirements, orders, directions, rules or regulations of any
governmental authority; (g) any contamination of the Dealership Property, or
the ground waters thereof, arising on or after the date that the Lessee takes
possession of the Dealership Property and occasioned by the use,
transportation, storage, spillage or discharge thereon of any toxic or
hazardous chemicals, compounds, materials or substances (the Bowers Leases,
however, require indemnification for an acts or omissions by the Lessee that
cause the release of hazardous materials); (h) any discharge of toxic or
hazardous sewage or waste materials from the Dealership Property into any
septic facility or sanitary sewer system serving the Dealership Property
arising on or after the date the Lessee takes possession of the Property; (i)
any brokers or agents fees and commissions; or (j) any other act or omission of
the Lessee, its employees, agents, invitees, customers, licensees or
contractors (the Bowers Leases do not provide indemnification for these types
of acts or omissions).
Pre-Existing Conditions. The Sonic Leases (other than the Lake Norman
Leases and the Bowers Leases) contain a pre-existing condition clause, which
provides with respect to any condition that existed prior to the Sonic Lessee's
possession, the Sonic Lessee will have the option of either (i) remediating
such condition at its own cost and expense, or (ii) requesting that the Company
remediate at its cost and expense in which event the Base Rent will be
increased by an amount equal to the cost of remediation multiplied by the
capitalization rate of the applicable Sonic Lease. Pre-existing conditions
covered by this clause include environmental conditions.
Events of Default. The following events, among others, will constitute
"Events of Default" under the Dealership Leases: (a) the Lessee fails to pay in
full any installment of Base Rent, or any other monetary obligation payable by
the Lessee to the Company under the Dealership Lease; (b) the Lessee fails to
observe and perform any covenant in the Dealership Lease and such failure
continues for a period of 30 days after receipt of written notice of such
failure; or if, by reason of the nature of such default, the same cannot with
due diligence be reasonably remedied within the 30-day period, the Lessee does
not commence to remedy the failure and diligently completes the remedy thereof
within a reasonable time; provided, however, such cure period will generally
not extend beyond 90 days; (c) if the Lessee (i) becomes bankrupt or insolvent
or admits in writing its inability to pay its debts generally as they become
due, (ii) files a petition in bankruptcy or a petition to take advantage of any
insolvency act, (iii) files a petition or answer seeking reorganization or
arrangement under the bankruptcy laws or any other applicable law or statute of
the United States of America or any state, or (iv) makes an assignment for the
benefit of its creditors; (d) if the Lessee files a petition for the
appointment of a receiver or trustee for all or substantially all of its assets
and such petition or appointment shall not have been set aside within 60 days
from the date of such petition or appointment; (e) if the estate or interest of
the Lessee in a Dealership Property or any part thereof is levied upon or
attached in any proceeding and the same is not vacated or discharged within 60
days after commencement; (f) termination or relinquishment of the franchise or
license pursuant to which an Lessee conducts business on the Dealership
Property, provided that such event does not constitute an Event of Default if
(i) no other Event of Default has occurred and is continuing, and (ii) at a
date no later than 30 days following such date of the default, termination or
relinquishment, the Lessee or an affiliate has cured such default or entered
into written new or amended franchises or licenses for operation of the
dealership at the Dealership Property satisfactory to the Company in its
discretion applying commercially reasonable standards; provided that if Lessee
is, in good faith, disputing an assertion of default by the franchisor or
licensor or is proceeding diligently to cure such default, the 30-day period
shall be extended so long as Lessee continues to dispute or cure such default
in good faith and the Dealership Property is operated pursuant to a Franchise
Agreement approved by the Company; (g) the Lessee shall fail to provide
insurance coverage if the Lessee vacates, abandons or fails to continuously
operate the business on the Dealership Property; (h) if, except as a result of
damage, destruction or a partial or complete condemnation, the Lessee ceases
operations on the Dealership Property for a period in excess of 30 days; (i) if
a change of control occurs or the estate or interest of the Lessee in the
Dealership Property is or any part thereof is voluntarily or involuntarily
transferred, assigned, conveyed, levied upon or attached in any proceeding,
unless Lessee is contesting such lien or attachment
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in good faith; (j) Lessee's failure to provide the Company immediate notice of
Lessee's receipt of notice of a default or potential default by Lessee under
the Franchise Agreement or the Manufacturer's intent to terminate, suspend or
not renew the Franchise Agreement; and (k) if Lessee or any of its affiliates
defaults under any Dealership Lease with the Company or another landlord. The
Bowers Leases do not provide a default for items (f), (g), (i), (j) or (k)
above.
The Company may exercise any one or more of the following rights and
remedies upon the occurrence of an event of default: (i) the Company may, by
written notice thereof to the Lessee, terminate the Dealership Lease and,
peaceably or pursuant to appropriate legal proceedings, resume possession of
the Dealership Property for the Company's own account and, for the Lessee's
breach of and default under the Dealership Lease, recover immediately from the
Lessee any and all rent and other sums and damages, including costs and
expenses, due or in existence at the time of such termination; (ii) the Company
may, by written notice thereof to the Lessee, terminate the Lessee's option to
renew the Dealership Lease for any or all of the Renewal Terms; (iii) the
Company may, pursuant to any prior notice required by law, and without
terminating the Dealership Lease, peaceably or pursuant to appropriate legal
proceedings, resume possession of the Dealership Property for the account of
the Lessee, make such alterations of and repairs to the Dealership Property as
may be reasonably necessary in order to relet the same or any part or parts
thereof and relet or attempt to relet the Dealership Property or any part or
parts thereof for such term or terms (which may be for a term or terms
extending beyond the Term), at such rent and upon such other terms and
provisions as the Company, in its reasonable discretion may deem advisable;
(iv) the Company may, without resuming possession of the Dealership Property,
sue for all rent and all other sums, charges, payments, costs and expenses due
from the Lessee to the Company hereunder and incurred in connection with the
Company's recovery of possession of the premises; (v) the Company may require
the Lessee to immediately transfer to the Company all amounts held by the
Lessee in the trust account established pursuant to the Dealership Lease and,
thereafter, to deposit on the first day of each month together with and in
addition to the regular installment of Base Rent, an amount equal to
one-twelfth of the yearly taxes and assessments as estimated by the Company to
be sufficient to enable the Company to pay, at least 30 days before they become
delinquent, all taxes, assessments, and other similar charges and insurance
premiums against the Dealership Property or any part thereof. In addition to
the remedies hereinabove specified and enumerated, the Company shall have and
may exercise the right to invoke any other remedies allowed at law or in equity
as if the remedies of re-entry, unlawful detainer proceedings and other
remedies were not herein provided. The Bowers Leases provide that the Lessee
may terminate the Lease if the Company fails to perform its obligations under
the Lease.
Governing Law. Each Dealership Lease and each Sonic Lease will be governed
by and construed in accordance with the law of the state of where the
Dealership Property is located.
Advance Leases
General
Concurrently with the Company's acquisition of the Advance Properties, the
Company will assume the existing Advance Leases on the Advance Properties. The
Advance Leases all have Initial Terms of ten years or more and may be extended
for at least two additional five year Renewal Terms at the option of Advance
Auto. The Advance Leases require Advance Auto to undertake and pay for most
maintenance and repair obligations (excluding structural walls and foundations,
roof, parking lot, sidewalks and certain major break downs in heating/air
conditioning systems), and all insurance and tax obligations which relate to
the Advance Properties. The Dealership Leases provide similiar terms except
that Lessees under the Dealership Leases must bear all maintenance and repair
obligations.
The purchase price for the Advance Properties was negotiated by the
Company based upon the yield to the Company considering (i) the leases on the
Advance Properties, (ii) the creditworthiness of Advance Auto, (iii) the rental
rates for similarly situated properties in the geographic location in which the
Advance Properties are situated, (iv) the characteristics of the Advance
Properties, (v) the cost to the Company of the funds used to acquire the
Advance Properties, and (vi) the return that the Company could realize from
alternative investments on that Advance Property's purchase price (including
acquisition fees and expenses).
The Base Rent at the inception of any Renewal Term, if exercised by
Advance Auto, will be adjusted upward by pre-determined amounts averaging
approximately 4.5% of the Base Rent paid during the previous term. Similar
increases in Base Rent occur during subsequent Renewal Terms, if exercised by
Advance Auto. In all cases, if 2.5% of Advance Auto's gross sales for the
particular location in any year exceed its Base Rent, Advance Auto is required
to pay additional percentage rent such that total rent received by the Company
equals at least 2.5% of Advance Auto's gross sales for the particular location
in any year.
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Typical Advance Lease Terms
The Advance Leases include the lease terms described below. The Company
expects future Leases with Advance Auto will contain substantially similar
terms as result of the Company's relationship with Primax.
Use of the Properties. The Advance Leases require that the Advance
Properties (a) be used only for the purpose of operating and conducting the
sale of automobile parts and accessories and (b) that such use complies with
all ordinances, laws, rules and regulations promulgated by any governmental
body having jurisdiction over the Advance Properties.
Amounts Payable Under the Leases; Net Provisions. During the Initial Term
and any Renewal Terms, Advance Auto or any permitted assignee will pay the Base
Rent, in monthly installments. The Base Rent will be adjusted upward during
each of the Renewal Terms as set forth above. In addition, Advance Auto shall
pay additional percentage rental, as set forth above, no later than 90 days
following the end of each rental year. Advance Auto must provide the Company
with an audit of its gross sales if requested by the Company, and the Company
may inspect Advance Auto's sales records to determine the accurancy of the
percentage rental calculation.
Each Advance Lease is generally a "triple-net" lease, except that the
Company will incur certain maintenance and repair obligations pursuant to the
Advance Leases, as set forth below. Advance Auto is responsible for all real
estate taxes, assessments or other governmental charges which may be levied or
assessed by any lawful authority against the Advance Properties as well as all
charges for utilities.
Maintenance, Alterations, Capital Additions or Improvements. Advance Auto
will also be responsible for all maintenance and repair costs related to each
of the Advance Properties and will keep the Advance Properties in good order
and repair, except that the Company is responsible for maintenance and repair
of structural walls and foundations, roof, parking lot, sidewalks and in the
event of a major breakdown in the heating/air conditioning system which results
in generally a cost of more than $500, one half of the maintenance or repair
costs related to such major breakdown. Primax has guaranteed all maintenance
costs for a period of one year. Historically, such costs have not been
material.
Advance Auto may make alterations, improvements or may re-arrange interior
partition walls as it deems necessary for the conduct of its business. Advance
Auto may not alter, improve or re-arrange structural walls without first
obtaining the Company's written consent, which the Company may not unreasonably
withhold. All furnishings, fixtures, and equipment supplied and installed on
the Advance shall remain the property of Advance Auto unless permanently
attached to the Property. Any damage to the Property occasioned by the removal
of any furnishings, fixtures and equipment must be repaired by Advance Auto at
its sole cost and expense.
Noncompetition Covenant. In each Advance Lease, the Company has covenanted
not to lease to any third person any land or building within two miles of the
applicable Advance Property for the purpose of conducting thereon a business
similar to that being conducted by Advance Auto. Advance Auto's remedies for a
breach of this covenant include termination of its lease or the payment of only
percentage rents annually at the applicable Property.
Insurance. The Advance Leases, with one exception, require Advance Auto to
maintain hazard insurance in the amount of the full replacement value of each
of the Advance Properties. In addition, Advance Auto must maintain public
liability insurance in pre-determined amounts which were customary at the time
of lease execution for properties similar to the Advance Properties.
Notwithstanding the foregoing, there will be risks for which insurance is not
required of Advance Auto. In such event, Advance Auto's or the Company's
ability to restore the Advance Properties may be dependent on its internally
generated funds or borrowing capacity.
Damage to, or Condemnation of, a Property. In the event of any damage to
any of the Advance Properties, the Company shall be obligated to rebuild or
restore such property to a condition comparable to that existing prior to the
occurrence of said destruction or damage. If, in Advance Auto's reasonable
discretion, the damage or destruction prevents the operation of Advance Auto's
business or makes it impractical to do so, rent shall abate during rebuilding
or restoration to the extent that an Advance Property is unusable.
Notwithstanding the foregoing, the Company shall not be obligated to rebuild or
restore an Advance Property in the event that one year or less remains in the
term of the applicable Advance Lease.
If at any time during the Initial Term or any Renewal Term, any Advance
Property is totally and permanently taken by Condemnation then the Advance
Lease shall terminate automatically as of the date the condemning authority
takes title to such Advance Property. Advance Auto will be required to pay all
outstanding applicable rent and other charges through the date of termination.
If a portion of an Advance Property is taken by Condemnation such that the
portion not so taken is unsuitable for an automotive parts store, either the
Company or Advance Auto may terminate the applicable Advance Lease. If a
portion of an Advance Property is taken by Condemnation and the Advance Lease
is not terminated, the Base Rent shall be reduced
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by the proportion of such taking. Upon receipt of any such Condemnation award,
the Company shall restore the building to a complete architectural unit, and
Advance Auto shall make all necessary repairs and alterations to its
furnishings, fixtures, equipment and signs. All damages or compensation paid
for any such Condemnation will belong to the Company. If the award is
insufficient to pay for the restoration, the Company may be dependent on its
internally generated funds or borrowing capacity to complete such restoration.
Assignment and Subletting. The Advance Leases provide that Advance Auto
may not, without the written prior consent of the Company, assign or sublet an
Advance Property, which consent the Company may not unreasonably withhold. If
the Company consents to any assignment or subletting, Advance Auto will remain
liable for all of its obligations pursuant to the Advance Lease.
Indemnification. Advance Auto will indemnify and save the Company harmless
from and against any and all claims, actions, damage, liability and expense in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Advance Properties, or the
occupancy or use by Advance Auto of the Advance Properties, or occasioned
wholly or in part by any act or omission of Advance Auto, its agents,
contractors, employees, servants, lessees or concessionaires. Advance Auto will
also indemnify and save and hold the Company harmless for certain environmental
matters at set forth below.
Environmental Matters. The Advance Leases provide for covenants by Advance
Auto relating to environmental matters with respect to each Advance Property.
Each Advance Lease also requires Advance Auto to indemnify and hold the Company
harmless from any and all claims, damages, fines, judgments, penalties, costs,
liabilities or losses (including, without limitation, any and all sums paid for
settlement of claims, attorneys' fees, consultant and expert fees) arising
during or after the term of the Advance Leases and which arises as a result of
Advance Auto's failure to comply with all environmental laws. See "Governmental
Regulations Affecting the Properties--Environmental Laws."
Events of Default. The following events constitute "Events of Default"
under the Advance Leases: (a) Advance Auto fails to pay rent when due which
remains unpaid for more than ten days after written notice from the Company;
(b) Advance Auto fails to perform any of the other terms, conditions or
covenants contained in an Advance Lease for more than 30 days after written
notice from the Company, provided that, the nature of the default is such that
it cannot be reasonably be cured within 30 days and work thereon has commenced
within said period and diligently prosecuted, no Event of Default shall have
occurred; (c) Advance Auto shall become bankrupt or insolvent or file any
debtor proceedings or take or have taken against it in any court pursuant to
any statute, a petition in bankruptcy or insolvency or for reorganization or
for the appointment of a receiver or trustee of all or a portion of its
property; (d) Advance Auto makes an assignment for the benefit of creditors or
petitions for or enters into such an arrangement; and (e) Advance Auto abandons
an Advance Property or suffers an Advance Property to be taken under any writ
of execution.
If any Event of Default had occurred, then the Company, without excluding
other rights or remedies it may have, shall have the immediate right of
re-entry and may remove all persons and property from the Advance Property and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Advance Auto, all without resort to legal
process and without being deemed guilty of trespass, or becoming liable for any
loss or damage which may be occasioned thereby (to the extent permitted by the
law of the state in which the Advance Property is located). If the Company
should elect to re-enter as herein provided, or should it take possession
pursuant to legal proceedings, it may either terminate the Advance Lease or it
may from time to time, without terminating the Advance Lease, make such
alterations and repairs as may be necessary to relet the Advance Property, and
relet said Property for such term and at such rentals and upon such other terms
and conditions as the Company may deem advisable. In the event of such
reletting, all rents received by the Company will be applied, first, to the
payment of any indebtedness other than rent due from Advance Auto to the
Company; second, to the payment of any costs and expenses of such reletting,
including the expense of alterations and repairs; and, third, to the payment of
rent due and unpaid, and the residue, if any, will be held by the Company and
applied in payment of any future rent due and unpaid. If such reletting yields
rentals insufficient for any month to pay the rent due by Advance Auto
hereunder for that month, Advance Auto will be liable to the Company for the
deficiency and same will be paid monthly. No such re-entry or taking possession
of the leased premises by the Company will be construed as an election to
terminate the Advance Lease unless a written notice of such intention be given
by the Company to Advance Auto at the time of such re-entry. Notwithstanding
any such re-entry and reletting without termination, the Company may at any
time thereafter elect to terminate the Advance Lease for such previous breach,
in which event it may recover from Advance Auto damages incurred by reason of
such breach, including the cost of recovering the Advance Property and the
difference in value between the rent due pursuant to the Advance Lease for the
remainder of the term and its fair market rental value for the remainder of the
term. In determining the rent payable by Advance Auto, subsequent to default,
the Base Rent for each year of the unexpired term will be equal to the average
Base Rent paid by Advance Auto from the commencement of the Term to the date of
default.
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Governing Law. Each Advance Lease will be governed by and construed in
accordance with the law of the state where the applicable Advance Property is
located. In addition, each Advance Lessee will provide a certificate relating
to certain federal income tax standards.
Governmental Regulations Affecting the Properties
Environmental Laws. Under various federal, state and local laws,
ordinances and regulations, a current or previous owner, developer or operator
of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. The costs of
such removal or remediation could be substantial. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
The presence of such substances may adversely affect the owner's ability to
sell or rent such real estate or to borrow using such real estate as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances also may be liable for the costs of investigation, removal
and/or remediation of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person.
Limited environmental investigations have been conducted or will be
completed prior to the consummation of the Offering at the Initial Properties,
with the results set out in the Reports prepared by consultants retained by or
on behalf of the Company, Sonic Automotive, Primax and/or their respective
affiliates. The Reports describe environmental conditions of concern at certain
of the Initial Properties, including actual and potential releases of petroleum
products from underground storage tanks and the presence of asbestos-containing
materials. Based on the Reports, the Company estimates that the aggregate cost
expected to remedy identified environmental conditions of concern will not be
material to the Company. Although the Company is unaware of any environmental
condition at any of the Initial Properties that the Company believes would have
a material adverse effect on the Company's financial condition or results of
operations, no assurance can be given that such an environmental condition does
not exist. If such a condition exists or arises in the future, the Company may
incur substantial costs for the investigation, removal and/or remediation of
the condition.
With the exception of the sellers of the Bowers Properties, the sellers of
the Initial Properties have agreed to indemnify the Company for third party
claims based on environmental conditions at least until such time as the
relevant statutes of limitations have expired. The Company has agreed to
purchase the Bowers Properties "as is," and has further agreed to release,
discharge and indemnify the sellers of the Bowers Properties with respect to
any liabilities that those sellers might have to the Company in any way related
to the Bowers Properties and the Initial Lessees and their affiliates are
obligated to comply with environmental laws and remediation requirements and
hold harmless the Company and its officers, Trustees, employees, shareholders,
agents and Affiliates from any failure to comply with those requirements. In
the Bowers Leases, the Company has agreed to remediate and be responsible for,
and indemnify the Lessees against, environmental costs associated with
conditions not caused by the Lessees' acts or omissions. No assurance can be
given, however, that all potential environmental liabilities have been
identified, that no prior owner or operator or other person created any
material environmental condition not known to the Company or that future uses,
conditions or legal requirements (including, without limitation, those that may
result from future acts or omissions or changes in applicable environmental
laws and regulations) will not result in the imposition of environmental
liabilities. The Initial Lessees have covenanted and the sellers of the Initial
Properties have made certain representations in the Initial Leases and the
contribution agreements (the "Contribution Agreements") and the purchase
agreements (the "Purchase Agreements") for the Initial Properties,
respectively, regarding environmental matters and, with the exception of the
sellers of the Bowers Properties, will indemnify the Company for third party
claims arising from breaches of such representations. There can be no assurance
that such indemnification will be available or uncontested, however, or that
any environmental conditions that are not remediated by the sellers of the
Initial Properties or Initial Lessees and their affiliates will not impede the
ability of the Company to sell, re-lease or finance the Initial Properties in
the future or negatively impact future sales or rental proceeds.
Americans With Disabilities Act of 1990. The Initial Properties and any
subsequently acquired Properties must comply with Title III of the ADA to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires that public
accommodations "reasonably accommodate" individuals with disabilities and that
new construction or alterations made to "commercial facilities" conform to
accessibility guidelines unless "structurally impracticable" for new
construction, or technically infeasible for alterations. Under the Leases, the
Lessee is responsible for all costs associated with compliance with the ADA.
However, noncompliance with the ADA could result in the imposition of
injunctive relief, fines, an award of damages to private litigants or
additional capital expenditures to remedy such noncompliance.
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Dealership Franchise Agreements
Each automobile dealer located on the Initial Dealership Properties
operates its dealership pursuant to a written Franchise Agreement with a
Manufacturer. The typical automotive Franchise Agreement specifies the
locations at which the dealer has the right and the obligation to sell motor
vehicles and related parts and products and to perform certain approved
services in order to serve a specified market area. The designation of such
areas and the allocation of new vehicles among dealerships are subject to the
discretion of the Manufacturer, which generally does not guarantee exclusivity
within a specified territory. A Franchise Agreement may impose requirements on
the dealer concerning such matters as the showrooms, the facilities and
equipment for servicing vehicles, the maintenance of inventories of vehicles
and parts, the maintenance of minimum net working capital and the training of
personnel. Compliance with these requirements is closely monitored by the
Manufacturer. In addition, Manufacturers require the dealers to submit a
financial statement of operations on a monthly basis. The Franchise Agreement
also grants the dealers the non-exclusive right to use and display the
Manufacturer's trademarks, service marks and designs in the form and manner
approved by the Manufacturer.
Each Franchise Agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the operations of a
dealership and the names and ownership percentages of the approved owners of
the dealership and contains provisions requiring the Manufacturer's prior
approval of changes in management or transfers of ownership of the dealership.
Several Manufacturers include provisions in their Franchise Agreements that
prohibit transfers of assets or real property considered necessary for the
conduct of the dealership or similar restrictions that could prohibit or
require the prior consent of a Manufacturer before a Seller can sell and the
Company can purchase a Property.
Most Franchise Agreements expire after a specified period of time, ranging
from one to five years, and the Company is not aware of any Sonic Lessee that
would be unable to renew any expiring agreements in the ordinary course of
business. The typical Franchise Agreement provides for early termination or
non-renewal by the Manufacturer under certain circumstances, such as change of
management or ownership without Manufacturer approval, insolvency or bankruptcy
of the dealership, death or incapacity of the dealer manager, conviction of a
dealer manager or owner of certain crimes, misrepresentation of certain
information by the dealer or owner to the Manufacturer, failure to adequately
operate the dealership, failure to maintain any license, permit or
authorization required for the conduct of business, or material breach of other
provisions of the Franchise Agreement. The dealership is typically entitled to
terminate the Franchise Agreement at any time without cause.
The motor vehicle franchise relationship is also governed by various
federal and state laws. The following discussion of state court and
administrative holdings and various state laws is based on management's beliefs
and may not be an accurate description of the state court and administrative
holdings and various state laws. Under the laws of most states, despite the
terms of contracts between the Manufacturers and the dealers, Manufacturers may
not unreasonably withhold approval of a transfer of a dealership, or reject a
prospective transferee of a dealership who is of good moral character and who
otherwise meets the Manufacturer's written, reasonable and uniformly applied
standards or qualifications relating to the prospective transferee's business
experience and financial qualifications. In addition, under the laws of certain
states, franchised dealerships may challenge Manufacturers' attempts to
establish new franchises in the franchised dealers' markets, and state
regulators may deny applications to establish new dealerships for a number of
reasons, including a determination that the Manufacturer is adequately
represented in the market. The laws of certain states also limit the ability of
Manufacturers to terminate or fail to renew franchises.
Competition
Several REITs and other competitors of the Company have either begun or
announced intentions to begin acquiring properties used by automobile
dealerships, automobile parts stores and other related automotive businesses.
Other public or private entities also may target these types of properties for
acquisition, and some of those companies may have greater financial resources
or general real estate experience than the Company. Those entities will compete
with the Company in seeking Properties for acquisition and re-leasing of
Properties to automobile dealers or related automotive businesses as they
become available. The Company believes that competition for Properties will be
based primarily on the acquisition price and rental terms. Competition could
have the effect of increasing acquisition prices and decreasing rents, which
would have an adverse affect on the financial results of the Company and cash
available for distribution to shareholders. See "Risk Factors--The Company will
Compete with Other Companies with Similar Business Objectives and Strategies."
Employees
As of September 17, 1998, the Company had five employees. None of the
employees is represented by a collective bargaining unit. The Company believes
that its relationship with its employees is good.
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Legal Proceedings
The Company is not a party to any legal proceedings. Pursuant to the
Initial Leases, the Initial Lessees will indemnify the Company from and against
all liabilities, costs and expenses imposed upon or asserted against the
Company as owner of the Initial Properties on account of certain matters
relating to the operation of the Initial Properties by Initial Lessee and,
where appropriate, the ownership of the Initial Properties prior to their
acquisition by the Company. See "--Dealership, Sonic and Bowers
Leases--Indemnification."
AUTOMOTIVE RETAILING AND MOTOR VEHICLE AFTERMARKET INDUSTRIES
Automotive Retailing Industry
Automotive retailing, with approximately $625 billion in 1997 sales, is
the largest consumer retail business in the United States, representing
approximately 8% of the domestic gross product based on data published by NADA
and the U.S. Department of Commerce. From 1992 to 1997, average dealership new
vehicles sales grew at an annual compounded rate of 8.8%, while average
dealership used vehicle sales grew at a rate of 12.2%. During this period, unit
sales grew at rates of 3.3% for new vehicles and 4.8% for used vehicles.
New vehicles are sold through dealerships franchised by vehicle
manufacturers. According to industry data, the number of franchised dealerships
has declined from approximately 25,000 dealerships in 1990 to approximately
22,600 in 1997. Although significant consolidation has taken place since the
automotive retailing industry's inception, the industry today remains highly
fragmented, with the largest 100 dealer groups generating less than 10% of
total sales revenues and controlling less than 6% of all franchised
dealerships. The chart set forth below illustrates the consolidation of the
automotive retail industry since 1990:
[bar graph appears below]
FRANCHISED DEALERSHIPS IN THE UNITED STATES
1990 1991 1992 1993 1994 1995 1996 1997
- ---- ---- ---- ---- ---- ---- ---- ----
24,825 24,200 23,500 22,950 22,850 22,800 22,750 22,600
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As the consolidation of dealerships has continued, dealers have been
aggregating stores into large dealership groups. The following chart
illustrates the decline in the number of smaller dealerships and the related
increase in larger dealerships over the same period:
[bar graph appears below]
NUMBER OF DEALERSHIPS BY NEW UNIT SALES VOLUME
ANNUAL NEW-CAR SALES VOLUME (UNITS)
0-149 150-399 400-749 750 +
----- ------- ------- -----
1997 4,540 6,810 5,562 5,789
# OF DEALERSHIPS
IN CATEGORY 1987 7,294 8,048 4,653 5,156
1977 13,100 8,950 3,615 3,435
In addition to the consolidation of new car dealers, an increasing number
of used vehicles are being sold by "super-store" outlets such as Carmax and
Auto Nation.
The Company believes that further consolidation is likely in the
automotive retail industry due to economies of scale, increased capital
requirements of dealerships, the limited number of viable alternative exit
strategies for dealership owners and the desire of certain Manufacturers to
strengthen their brand identity by consolidating their franchised dealerships.
The Company believes that these factors, together with the general illiquidity
of real estate assets, will provide the Company with attractive investment
opportunities. In the past, dealers had limited options for financing the real
estate assets required to operate their businesses. The Company believes that
due to the increasing demand for efficient development of capital by
increasingly sophisticated dealers that significant demand for the Company's
program exists.
Retail Automotive Aftermarket Industry
The retail automotive aftermarket consists of products and services that
are purchased for motor vehicles after the original sale of the vehicles, such
as accessories, maintenance and repairs, replacement parts, fuel and chemicals.
According to the APAA, the retail automotive aftermarket industry had 1997
sales of approximately $151 billion, up from approximately $143 billion in
1996. Retail sales in 1997 consisted of the following:
<TABLE>
<CAPTION>
Products and Services Retail Sales
- --------------------------------- --------------
(in billions)
<S> <C>
Do-It-Yourself Products:
Parts and Accessories ......... $ 25.1
Lubricants .................... 0.9
Motor Oil ..................... 1.7
Other Chemicals ............... 2.4
Tires and Tubes ............... 18.3
Service and Repair:
Labor ......................... 44.5
Parts, Chemicals .............. 58.3
-------
Total ......................... $ 151.2
=======
</TABLE>
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The automobile aftermarket industry is highly fragmented, with
approximately 520,000 outlets in the U.S. While the industry has undergone
significant consolidation over the past decade, the top ten retailers currently
control only 1% of the total number of outlets. The Company's expects that its
acquisition efforts in the automotive aftermarket industry will be focused on
auto parts outlets and specialty service centers.
The Company believes that this fragmented ownership, combined with the
increasing liquidity required by retailers to support large inventories and to
invest in technological improvements related to the increased complexity and
computerization of the vehicle fleet, create opportunities to acquire
attractive Properties that can be leased back to national retail operators.
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MANAGEMENT
Trustees, Executive Officers and Key Employees
The executive officers and Trustees of the Company, and their ages as of
September1, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company Initial Term Expires
- ----------------------------- ----- ------------------------------------------ ---------------------
<S> <C> <C> <C>
O. Bruton Smith ............. 72 Chairman and Trustee 2001
Benjamin F. Bracy ........... 55 President --
Mark J. Iuppenlatz .......... 39 Executive Vice President -- Acquisitions --
and Chief Operating Officer
Virginia R. Dunn ............ 42 Vice President and --
Chief Financial Officer
James W. Johnston ........... 52 Trustee 2000
Donald J. Carter ............ 65 Trustee 1999
</TABLE>
O. Bruton Smith has been the Chairman and a Trustee of the Company since
its organization in 1998. Mr. Smith has been the controlling shareholder, the
chairman, chief executive officer and a director of Sonic Automotive since its
formation in 1997. Mr. Smith is presently a director and president of each of
the dealerships affiliated with Sonic Automotive. Mr. Smith has worked in the
retail automobile industry since 1966. He is also the chairman and chief
executive officer, a director and controlling shareholder, either directly or
indirectly through Sonic Financial Corporation, of Speedway Motorsports, a NYSE
traded company. Among other things, Speedway Motorsports owns and operates the
following NASCAR racetracks: Atlanta Motor Speedway, Bristol Motor Speedway,
Charlotte Motor Speedway, Sears Point Raceway and Texas Motor Speedway.
Benjamin F. Bracy has been the Company's President since its organization
in 1998. Before joining the Company, Mr. Bracy was a senior vice president of
NationsBanc Investments Inc. ("NBII"), a wholly owned subsidiary of
NationsBank, N.A. He has held several management positions with NBII and its
predecessor companies since 1988, each generally involving managing the retail
brokerage sales efforts of NBII and promoting customer services between the
parent entity and NBII. Mr. Bracy was a founder and from 1986 to 1988, an
executive vice president of First Tryon Securities, an investment banking firm
located in Charlotte that was acquired by the predecessor of NationsBank, N.A.
in 1988, where he was responsible for the recruitment and management of a
regional retail brokerage branch distribution system. From 1982 until 1986, Mr.
Bracy was a senior vice president with Interstate Securities, now Interstate
Johnson Lane, holding positions in branch management and regional development.
Mark J. Iuppenlatz has been the Executive Vice President -- Acquisitions
and Chief Operating Officer of the Company since September 1998. Mr. Iuppenlatz
has worked in the commercial real estate industry for the past 15 years. From
1996 until he joined the Company, he was responsible for conducting the
development operations of Brookdale Living Communities, Inc., a publicly traded
company ("Brookdale"). At Brookdale, Mr. Iuppenlatz was responsible for the
implementation of a $400.0 million development program, including developing
strategy, locating sites and negotiating purchase contracts, awarding
construction contracts and coordinating of debt financing. From 1994 to 1996,
he was vice president of Scholtzsky's, Inc., where his responsibilities
included the development of over 30 new restaurant locations in more than ten
states. He also served in Spain from 1989 to 1991 as the director of marketing
and assistant director of development for Kepro S.A., an affiliate of The Prime
Group, where he had responsibilities for the marketing and development of a
mixed use planned development comprised of 22 office buildings, a 2.0 million
square foot shopping mall, apartments, cultural facilities and a major urban
park. Mr. Iuppenlatz was also the director of leasing for The Prime Group from
1989 through 1991, and was responsible for marketing, negotiating and closing
lease agreements for commercial space in a 1.0 million square foot office
tower.
Virginia R. Dunn has been the Vice President and Chief Financial Officer
of the Company since September 1998. Ms. Dunn has over 15 years of experience
in the public accounting profession with a specialization in the real estate
and financial services industries. Before joining the Company, she was a senior
manager in the Charlotte office of Deloitte & Touche LLP where she had been
employed since 1997. From 1978 to 1993, Ms. Dunn had worked in the Baltimore
and Washington, D.C. offices of Deloitte & Touche LLP. Ms. Dunn served both
public and private clients engaged in the development, construction and
management of commercial, industrial and residential real estate as well as in
mortgage banking. She was a vice president and director of accounting from 1993
to 1994 for The Bank of Baltimore, which was acquired by First Fidelity
Bancorporation and subsequently by First Union Corporation. At The Bank of
Baltimore, Ms. Dunn was responsible for managing and directing all corporate
accounting operations, including financial and regulatory reporting. From
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1994 to 1996, she served as the director of finance for Roland Park Country
School, an independent school in Baltimore, Maryland. Ms. Dunn is a certified
public accountant in Maryland.
James W. Johnston has been a Trustee of the Company since July 1998. Mr.
Johnston is president and chief executive officer of Stonemarker Enterprises,
Inc., a consulting and investment company, and serves on the boards of
directors of Wrap-it, the Sealy Corporation, the North Carolina Citizens for
Business and Industry, and the Greater Winston-Salem Chamber of Commerce. He is
a member of the Board of Visitors of the Bowman Gray/Baptist Hospital Medical
Center and the North Carolina Business Council of Management and Development,
Winston-Salem, Inc. Mr. Johnston also serves on the board of trustees of Wake
Forest University and is a member of the marketing committee for the National
Multiple Sclerosis Society. From 1995 to 1996, Mr. Johnston was vice chairman
of RJR Nabisco, Inc. Mr. Johnston was chief executive officer of R.J. Reynolds
Tobacco Company from 1989 to 1995, and chaired the board of directors of that
company from 1989 to 1996. Mr. Johnston was responsible for R.J. Reynolds
Tobacco Company's worldwide tobacco operations from 1994 to 1996.
Donald J. Carter has been a Trustee of the Company since July 1998. Mr.
Carter is a former chairman of the board, CEO and treasurer of Home Interiors &
Gifts, Inc., a private Dallas, Texas corporation, and is a part owner of the
Dallas Mavericks' National Basketball Association franchise. Mr. Carter founded
Carter-Crowley Properties, Inc., a real estate firm located in Dallas, Texas
that was purchased by Crescent Real Estate in 1997. In addition, he is the
chairman of the board of Carter & Sons Freightways, Inc., a privately owned
trucking company based in Carrollton, Texas.
Committees of the Board
Audit Committee. Promptly following the closing of the Offering, the Board
of the Company will establish an Audit Committee. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, to review with the independent accountants the plans and
results of the audit engagement, to approve professional services provided by
the independent public accountants, to review the independence of the
independent public accountants, to consider the range of audit and non-audit
fees and to review the adequacy of the Company's internal accounting controls.
A majority of the members of the Audit Committee will be comprised of
Independent Trustees.
Executive Committee. Promptly following the closing of the Offering, the
Board of the Company will establish an Executive Committee. Subject to the
Company's conflicts of interest policies, the Executive Committee may be
granted certain authority to acquire and dispose of real property and the power
to authorize, on behalf of the full Board, the execution of certain contracts
and agreements, including those related to the borrowing of money by the
Company, and, consistent with the Partnership Agreement, to cause the Operating
Partnership to take such actions. The Executive Committee initially will be
comprised of Mr. Smith and two Trustees to be appointed after the consummation
of the Offering.
Executive Compensation Committee. Promptly following the closing of the
Offering, the Board of the Company will establish an Executive Compensation
Committee to determine compensation for the Company's executive officers and to
implement and administer the Company's Plan. The Executive Compensation
Committee will be comprised of at least two Independent Trustees to be
appointed after the consummation of the Offering.
Compensation of Trustees
Each non-employee Trustee (other than Mr. Smith) will receive an annual
grant of options to purchase 10,000 Common Shares under the Formula Plan. See
"--1998 Formula Shares Option Plan." The Company does not intend to pay any
other compensation to its Trustees.
Executive Compensation
The Company was organized on April 14, 1998 and did not conduct any
operations prior to that time. Accordingly, the Company did not pay any
compensation to its executive officers for the year ended December 31, 1997.
The following table below sets forth the annual base salary rates and other
compensation expected to be paid in 1998 to the Company's executive officers.
Executive officers are also eligible to receive discretionary annual incentive
bonuses based upon a percentage of the base annual salary of each executive
officer and dependent upon individual and corporate contribution to the
achievement of specific Company goals as set forth annually by the Executive
Compensation Committee.
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Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Long-Term
Compensation
Awards
Number of
Shares
Name and Underlying
Principal Position(s) Year Salary (1) Bonus (2) Options (3)
- ------------------------------------ ------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Benjamin F. Bracy
President .................. 1998 $250,000 -- 140,000
Mark J. Iuppenlatz
Executive Vice President, Chief
Operating Officer and Director of
Acquisitions ............... 1998 $250,000 --(4) 140,000
Virginia R. Dunn
Vice President and Chief Financial
Officer .................... 1998 $144,000 -- 70,000
</TABLE>
- ---------
(1) Amounts given are annualized projections for the year ending December 31,
1998.
(2) The executive officers are eligible to receive bonuses based on performance
at the discretion of the Executive Compensation Committee.
(3) All options will vest in 25% increments over a three-year period with the
first increment vesting immediately upon the date of grant and the
remaining 75% vesting in three equal installments on the first, second and
third anniversaries of the date of grant. All such options will be
exercisable at the Offering Price.
(4) Mr. Iuppenlatz may receive, in addition to discretionary bonuses that may
be awarded, incentive compensation based on the dollar value of properties
acquired by the Company annually.
1998 Shares Option Plan
In October 1998, the Board and shareholders of the Company will adopt the
Plan in order to attract and retain key personnel. The following discussion of
the material features of the Plan is qualified by reference to the text of such
Plan filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Under the Plan, options to purchase up to an aggregate of 1,100,000 Common
Shares may be granted to key employees of the Company, its subsidiaries and
other affiliated entities and to officers, Trustees, consultants and other
individuals providing services to the Company and subsidiaries and affiliated
entities. Unless designated as "incentive stock options" ("ISOs") intended to
qualify under Section 422 of the Code, options granted under the Plan are
intended to be "nonstatutory stock options ("NSOs"). The Executive Compensation
Committee of the Board will administer the Plan. Members of the Board who serve
on the Executive Compensation Committee must qualify as "non-employee
directors," as that term is defined in Rule 16b-3 promulgated under the
Exchange Act.
The Executive Compensation Committee will determine, among other things,
the persons who are to receive options, the number of shares to be subject to
each option, the exercise price of options and the vesting schedule of options;
provided, that the Board will make such determinations with respect to the
initial grants made under the Plan. The Board will determine the terms and
conditions upon which the Company may make loans to enable an optionee to pay
the exercise price of an option. In selecting individuals for options and
determining the terms thereof, the Executive Compensation Committee may
consider any factors it considers relevant, including present and potential
contributions to the success of the Company. Option grants will be evidenced by
an agreement in a form, established from time to time, by the Executive
Compensation Committee.
Options granted under the Plan must be exercised within a period fixed by
the Executive Compensation Committee, which period may not exceed ten years
from the date of grant of the option, or, in the case of ISOs granted to any
holder on the date of grant of more than 10% of the total combined voting power
of all classes of shares of the Company, five years from the date of grant of
the option. Options may expire earlier upon termination of employment or
severance of the relationship with the Company. Options may be made exercisable
in whole or in installments, as determined by the Executive Compensation
Committee. The exercise price of ISOs may not be less than the fair market
value of the Common Shares on the date of grant of the ISOs. In addition, in
the case of ISOs granted to any holder on the date of grant of more than 10% of
the total combined voting power of all classes of shares of the Company, the
exercise price of such ISOs may not
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<PAGE>
be less than 110% of the fair market value of the Common Shares on the date of
grant of the ISOs. The exercise price of options that are not ISOs will be
determined at the discretion of the Executive Compensation Committee. The
exercise price of options may be paid in cash, in Common Shares owned by the
optionee, or in any combination of cash, shares and NSOs.
Options generally may not be transferred other than by will or the laws of
descent and distribution and, during the lifetime of an optionee, options may
be exercised only by the optionee. Notwithstanding the foregoing, the Executive
Compensation Committee, in its absolute discretion, may grant transferable
NSOs, subject to the applicable limitations provided in the option agreement.
Options granted under the Plan may include the right to acquire a "reload"
option. In such a case, if a participant pays all or part of the exercise price
of an option with Common Shares held by the optionee for at least six months,
then, upon exercise of the option, the optionee is granted a second option to
purchase, at the fair market value as of the date of exercise of the original
option, the number of Common Shares transferred to the Company by the optionee
in payment of the exercise price of the original option. A reload option is not
exercisable until one year after the grant date of such reload option or the
expiration date of the original option. If the exercise price of a reload
option is paid for with Common Shares that have been held by the optionee for
more than six months, then another reload option will be issued. Common Shares
covered by a reload option will not reduce the number of Common Shares
available under the Plan.
The Plan provides that, in the event of changes in the corporate structure
of the Company or certain events affecting the shares of the Company,
adjustments will automatically be made in the number and kind of shares
available for issuance and in the number and kind of shares covered by
outstanding options. It further provides that, in connection with any merger or
consolidation in which the Company is not the surviving entity and which
results in the holders of the outstanding voting securities of the Company
owning less than a majority of the surviving entity or any sale or transfer by
the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then-outstanding voting securities of the
Company, all outstanding options under the Plan will become exercisable in full
on and after (i) the 15th day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement
of such tender offer or exchange offer, as the case may be.
The Board at any time may amend the Plan or the term of any option
outstanding under the Plan, but no such amendment shall, without an optionee's
consent, adversely affect that optionee's rights under an outstanding option.
Shareholder approval of an amendment to the Plan will be required only to the
extent necessary to comply with applicable self-regulatory organization rules
or applicable federal or state laws or regulations.
The Board, on or before the consummation of the Offering, intends to grant
options to purchase an aggregate of 465,000 Common Shares under the Plan to Mr.
Smith and executive officers of the Company. Messrs. Smith, Bracy and
Iuppenlatz and Ms. Dunn are to be granted options to purchase 115,000 shares,
140,000 shares, 140,000 shares and 70,000 shares, respectively, at an exercise
price equal to the public offering price of the Common Shares sold in the
Offering. All of Mr. Smith's options will become exercisable upon their grant.
Options granted to Messrs. Bracy and Iuppenlatz and Ms. Dunn vest and become
exercisable as follows: 25% on the date of grant and the remaining 75% in three
equal installments on the first, second and third anniversaries of the date of
grant. All options will expire ten years after the date of grant.
The following is a summary description of the federal income tax
consequences of certain transactions that may occur under the Plan. This
summary is not intended to be exhaustive and does not attempt to describe the
federal income tax consequences of each possible transaction under the Plan.
The issuance and exercise of ISOs have no federal income tax consequences
to the Company. While the issuance and exercise of ISOs generally have no
ordinary income tax consequences to the holder, upon the exercise of an ISO,
the holder will treat the excess of the fair market value of the Common Shares
on the date of exercise over the exercise price as an item of tax adjustment
for alternative minimum tax purposes. If the holder of Common Shares acquired
upon the exercise of an ISO holds such Common Shares until a date that is more
than two years following the grant of the ISO and one year following the
exercise of the ISO, the disposition of such Common Shares will ordinarily
result in capital gain or loss to the holder for federal income tax purposes
equal to the difference between the amount realized on disposition of the
Common Stock and the option exercise price. If the holding period requirements
described above are not met, the holder will recognize ordinary income for
federal income tax purposes upon disposition of the Common Shares in an amount
equal to the lesser of (i) the excess of the fair market value of the Common
Shares on the date of exercise over the option exercise price,
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<PAGE>
and (ii) the excess of the amount realized on disposition of the Common Shares
over the option exercise price. Any additional gain upon the disposition will
be treated as capital gain. The Company will be entitled to a federal income
tax deduction for the Company's taxable year in which the disposition of the
Common Shares occurs equal to the amount of ordinary income recognized by the
holder.
The issuance of NSOs has no federal income tax consequences to the Company
or the holder. Upon the exercise of an NSO, NSO holders generally will
recognize ordinary income for federal income tax purposes at the time of option
exercise equal to the amount by which the fair market value of the underlying
shares on the date of exercise exceeds the exercise price. The Company
generally will be allowed a federal income tax deduction in the same amount.
The holder's tax basis in the shares will be the exercise price plus the amount
of income recognized upon exercise of the NSO and the holding period will begin
on the date the NSO is exercised. In the event of the disposition of the Common
Shares acquired by exercise of a NSO, any appreciation or depreciation after
the exercise date generally will be treated as capital gain or loss.
If the option exercise price under any NSO is paid for by surrendering
Common Shares previously acquired, then the optionee will recognize ordinary
income on the exercise as described above with respect to any shares acquired
under the NSO in excess of the number of shares surrendered (such shares being
treated as having been acquired without consideration), but will not recognize
any taxable gain or loss on the difference between the optionee's basis in the
surrendered shares and their current fair market value. For federal income tax
purposes, the number of newly acquired shares equal to the number of shares
surrendered will have the same basis and holding period as the surrendered
shares. Any newly acquired shares in excess of the number of shares surrendered
will have a tax basis equal to the amount of ordinary income recognized on such
exercise (i.e., fair market value at exercise) and a holding period which
begins on the date the optionee recognizes ordinary income for tax purposes.
The Company intends to register the Common Shares underlying the Plan as
required by the federal securities laws. If such registration is not required,
such shares may be issued upon option exercise in reliance upon the private
offering exemption codified in Section 4(2) of the Securities Act. Resale of
such shares may be permitted subject to the limitations of Rule 144.
1998 Formula Shares Option Plan
The Formula Plan will be adopted by the Board and the shareholders of the
Company in October 1998. The Formula Plan is intended to be a "formula plan"
under Note (3) to Rule 16b-3 of the Securities and Exchange Commission (the
"SEC"). The Formula Plan is intended to promote the interests of the Company
and its shareholders by providing the Trustees of the Company who are not
affiliated with the Company's management ("Independent Trustees"), who are
responsible in part for the Company's growth and financial success, with the
incentives inherent in ownership of Common Shares and encouraging them to
continue as Trustees. A committee of the Board consisting of all Trustees other
than the Independent Trustees (the "Committee") serves as the committee to
administer and interpret the terms of the Formula Plan on behalf of the
Company.
Under the Formula Plan, on January 31 of each year during the term of the
Formula Plan, each person who is then an Independent Trustee shall be awarded a
nonstatutory option to purchase 10,000 shares of Common Shares up to a total of
200,000 shares reserved under the Formula Plan (subject to further adjustment
in certain events). No options to purchase Common Shares have been issued under
the Plan.
An option granted under the Formula Plan (evidenced by an agreement in a
form established, from time to time, by the Committee) entitles the participant
to purchase Common Shares at an option exercise price equal to the closing
sales price of a Common Share on the last business day immediately preceding
the date of such award for which a closing price is available from the
principal trading market for the Common Shares (the "Fair Market Value").
In the event the optionee's status as an Independent Trustee terminates
incidental to conduct that, in the judgment of the Committee, involves a breach
of fiduciary duty by such Independent Trustee or other conduct detrimental to
the Company, then his or her options shall terminate immediately and thereafter
be of no force or effect. Options granted under the Formula Plan are
non-transferable and non-assignable by the optionee other than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employment Retirement
Income Security Act and the rules thereunder. No option may be exercised after
the expiration of its term. The option exercise price is payable in full upon
exercise of an option in cash or in Common Shares owned by the optionee or a
combination of cash and Common Shares. No exercise of options shall be for less
than 100 Common Shares unless the number purchased is the total number of
shares in respect of which the option is then exercisable.
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Upon the occurrence of certain events involving the recapitalization or
reorganization of the Company, the Committee will make proportionate
adjustments to the number of shares covered by each outstanding option and the
per share exercise price thereof for any increase or decrease in the number of
issued Common Shares resulting from a subdivision or consolidation of shares or
the payment of a share dividend on the Common Shares.
The Committee may from time to time amend, suspend or discontinue the
Formula Plan or revise it in any respect whatsoever. Shareholder approval of an
amendment will be required only to the extent necessary to comply with
applicable self-regulatory organization rules or applicable federal or state
laws or regulations. No amendment shall, without an Independent Trustee's
consent, adversely affect that Independent Trustee's rights under our
outstanding option.
The following summary description of the federal income tax consequences
of transactions that may occur under the Formula Plan is not intended to be
exhaustive. No federal taxable income is recognized by plan participants upon
the grant of an option under this Formula Plan. The Independent Trustees are
subject to liability under Section 16(b) of the Exchange Act ("16(b)
Optionees") and may not be deemed to recognize the ordinary income attributable
to exercise until the occurrence of both (i) an exercise and (ii) the earlier
of (a) the expiration of six months after the date of grant of the option and
(b) the first day on which the sale of the Common Shares at a profit will not
subject the Trustee to Section 16 liability (the "Recognition Date"). The
amount of ordinary income to be recognized by 16(b) Optionees will equal the
excess of the Fair Market Value on the Recognition Date of the Common Shares so
purchased over the option exercise price, unless (if the Recognition Date is
later than the exercise date) the 16(b) Optionee files a written election with
both the Internal Revenue Service and the Company pursuant to Section 83(b) of
the Code within thirty days after exercise to have the ordinary income
attributable to exercise realized as of the exercise date, in which case the
Independent Trustee will recognize ordinary income equal to the amount by which
the Fair Market Value of the purchased shares on the date of exercise exceeds
the option exercise price.
The option exercise price plus the amount of income recognized on the date
of exercise (or, if the Recognition Date is later than the exercise date, in
the case of 16(b) Optionees who do not make an 83(b) election, on the
Recognition Date) will constitute the tax basis thereof for computing capital
gain or loss on any subsequent sale, and the holding period for an Independent
Trustee will generally be measured from the date the option is exercised (or,
if the Recognition Date is later than the exercise date, in the case of 16(b)
Optionees who do not make an 83(b) election, from the Recognition Date). The
Company will be entitled to a federal income tax deduction for the Company's
taxable year during which the 16(b) Optionee recognizes income as the result of
the exercise of the option equal to the amount of ordinary income recognized by
the 16(b) Optionee, provided that the Company timely complies with applicable
Form W-2 or 1099 reporting requirements with respect to such income. Additional
gain or loss recognized by the optionee upon the subsequent disposition of the
Common Shares will be treated as capital gain or loss.
If the option exercise price under any option is paid for by surrendering
Common Shares previously acquired, then the optionee will recognize ordinary
income on the exercise as described above with respect to any shares acquired
under the option in excess of the number of Common Shares surrendered (such
shares being treated as having been acquired without consideration), but will
not recognize any taxable gain or loss on the difference between the optionee's
basis in the surrendered shares and their current Fair Market Value. For
federal income tax purposes, that number of newly acquired Common Shares equal
to the number of shares surrendered will have the same basis and holding period
as the surrendered shares. Any newly acquired Common Shares in excess of the
number of shares surrendered will have a basis equal to their Fair Market Value
at exercise and their holding period will begin when the optionee recognizes
ordinary income for tax purposes, as described above.
Limitation of Liability and Indemnification of Trustees and Officers
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit
or profit in money, property or services or (ii) active and deliberate
dishonesty material to the cause of action as established by a final judgment.
The Company's Declaration of Trust contains such a provision limiting such
liability to the maximum extent permitted by the Maryland REIT Law.
The Declaration of Trust provides that the Company, to the fullest extent
permitted by Maryland law, may indemnify each Trustee, officer, employee and
agent in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person was a Trustee, officer, employee or agent of the
Company or is or was serving at the request of the Company as a trustee,
director, officer, partner, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or
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employee benefit plan, from all claims and liabilities to which such person may
become subject by reason of service in that capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each Trustee, officer,
employee or agent in connection with any such action, suit or proceeding.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees, officers, employees and
agents to the same extent as permitted by the MGCL for directors and officers
of Maryland corporations. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in 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 (i)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (a) was committed in bad faith or (b) was the
result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit in money, property or services
or (iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a 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 and
the Bylaws permit a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of such person's good faith belief that he or she has met
the standard of conduct necessary for indemnification by the corporation and
(b) a written undertaking by or on behalf of such person to repay the amount
paid or reimbursed by the corporation if it shall ultimately be determined that
the standard of conduct was not met. The Declaration of Trust permits
indemnification of the Company's Trustees, officers, employees and agents to
the fullest extent permitted by Maryland law. Insofar as indemnification for
liability arising under the Securities Act may be permitted to Trustees,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
Investment Policies
The Company will invest in Dealership Properties and Related Business
Properties. The Company has established no limit on the amount that may be
invested in any one Property. The Company currently does not intend to acquire
Properties used by businesses other than automobile dealerships, retail
automotive parts stores and other automotive related businesses. Pending
investment in real estate, a portion of the proceeds of this Offering will be
invested in various short-term investments. See "Use of Proceeds." The Company
currently does not intend to invest in mortgages (including participating and
convertible mortgages), the securities of other issuers, except in connection
with acquisitions of indirect interests in Properties (generally through
partnership interests in special purpose partnerships owning Properties) and
does not intend to make loans to third parties. The Company does not intend to
underwrite the securities of other issuers. The Company currently has no plans
to repurchase or otherwise reacquire its Shares. The Company may change its
policies with respect to investment activities without the approval of its
shareholders. In any event, any activities of the Company with respect to
investments in securities of other issuers will be subject to the asset and
gross income tests necessary for REIT qualification for federal income tax
purposes.
Conflicts of Interest Policies
In order to mitigate any potential conflicts of interest, the Company's
Declaration of Trust contains a requirement that any transaction involving the
Company and a Trustee or an affiliate of any Trustee requires the approval of a
majority of the Independent Trustees of the Company not otherwise interested in
such transaction. However, there can be no assurance that such policies will be
successful in all cases in eliminating the influence of interested Trustees,
and if they are not successful, decisions could be made that might fail to
reflect fully the best interests of the shareholders. See "Risk Factors--
Conflicts of Interest Between the Company and Mr. Smith."
Financing Policy
The Company intends to maintain a ratio of debt-to-total market
capitalization of not more than 50%. Following completion of the Offering and
the use of the net proceeds therefrom, the Company will have approximately $4.9
million of indebtedness, which will constitute approximately 3% of its total
market capitalization.
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The Company has no self-imposed limitation on the amount or number of
mortgages that may be placed on one piece of Property, and there is no
limitation on the percentage of the Company's assets that may be invested in
any specific piece of Property. The Company does not intend to invest in real
estate mortgages or securities of, or interests in, persons primarily engaged
in real estate other than on a short-term basis as an investment of idle funds.
To ensure that the Company has sufficient liquidity to conduct its
operations, including making investments in additional Properties, the Company
intends to seek a Line of Credit for approximately $100 million. Either the
Operating Partnership or the Company may borrow money. Indebtedness may be in
the form of purchase money obligations to sellers of Properties, publicly or
privately placed debt instruments or financing from banks, institutional
investors or other lenders, any of which indebtedness may be unsecured or
secured by mortgages or other interests in Property owned by the Company. In
addition, such indebtedness may be recourse to all or any part of Property of
the Company or may be limited to the particular Property to which the
indebtedness relates. The proceeds from any borrowings may be used to make
distributions, to refinance existing indebtedness or to finance acquisitions,
expansions, additions, renovations or development of Properties, and for
working capital.
In the event that the Board determines to raise additional equity capital,
the Board will have the authority, without shareholder approval, to issue
additional Common Shares or Preferred Shares in any manner (and on such terms
and for such consideration) it deems appropriate, including in exchange for
Property. Existing shareholders have no preemptive right to purchase shares
issued in any such offering, and any such offering might cause a dilution of a
shareholder's investment in the Company.
Distributions Policy
The Company plans to pay regular quarterly distributions to its
shareholders of at least 95% of its taxable income (as defined in Section
857(b)(2) of the Code) each year so as to qualify as a REIT under the Code. The
Board may vary the distributions to holders of the Common Shares based upon the
actual results of operations of the Company, including (i) the timing of the
investment of the net proceeds of the Offering, (ii) the rent received from the
Lessees, (iii) the ability of the Lessees to meet their obligations under the
Leases, and (iv) the operating expenses of the Company. See "Description of
Shares of Beneficial Interest" and "Partnership Agreement."
THE FORMATION TRANSACTIONS
The Formation Transactions are being undertaken for the purpose of
organizing the Company and the Operating Partnership in preparation for the
Offering. Upon completion of the Formation Transactions, the Initial Properties
will be held by the Operating Partnership, of which the Company will be the
sole general partner.
o Mr. Smith organized the Company as a REIT under Maryland law and capitalized
the Company with a $1.0 million subscription receivable in exchange for
702,000 Common Shares.
o The Operating Partnership was formed as a limited partnership under Delaware
law, with the Company as its sole general partner.
o The Company will sell 10,000,000 Common Shares in the Offering.
o The Company will contribute the net proceeds of the Offering and the $1.0
million of proceeds from the initial capitalization of the Company to the
Operating Partnership in exchange for 10,702,000 Class A Units. The Company
is the sole general partner of the Operating Partnership.
o Concurrently with the closing of the Offering, the Company will acquire all
of the interests in two affiliates of Mr. Smith that own two Initial
Dealership Properties in exchange for 394,410 Class A Units and 982,634
Class B Units and the assumption of approximately $1.6 million of Mortgage
Debt secured by such Properties.
o In order to accommodate unaffiliated third party sellers, who desired to
close the sales of their properties before consummation of the Offering,
Chartown, an affiliate of Mr. Smith, acquired five Initial Dealership
Properties with the intention of selling them to the Company concurrent
with the completion of the Offering. The Company will acquire such
Properties from Chartown in exchange for approximately $10.1 million in
cash, which represents such affiliate's cost of purchasing and maintaining
such Properties prior to their acquisition by the Company.
o The Company will acquire two Initial Dealership Properties from subsidiaries
of Sonic Automotive in exchange for approximately $10.3 million in cash.
o The Company will acquire 22 Initial Dealership Properties and the Collision
Repair Property from parties unaffiliated with the Company or Mr. Smith in
exchange for approximately $51.7 million in cash.
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o The Company will acquire from Primax 36 Advance Properties in exchange for
approximately $240,000 in cash, 483,267 Class A Units and the assumption of
approximately $18.4 million of Mortgage Debt secured by such Properties.
o The Company will lease the Initial Properties to the Initial Lessees
pursuant to the Initial Leases.
Benefits to Related Parties
The Company's executive officers and Trustees and certain of their
affiliates will receive the following benefits from the Formation Transactions:
Mr. Smith and Affiliates
o Mr. Smith and his affiliates will receive 394,410 Class A Units and
982,634 Class B Units in connection with the contribution of their
interests in two entities that own two Initial Dealership Properties to
the Company. The Company will assume approximately $1.6 million of
Mortgage Debt related to these Properties that is currently guaranteed by
Mr. Smith. The Class A Units will have a value of approximately $5.9
million based on the Offering Price, are redeemable for an equal number of
Common Shares (or cash, at the Company's option) and will be more liquid
than such affiliates' interests in such Initial Dealership Properties. The
Class B Units will automatically attain rights identical to those of the
Class A Units upon the effectiveness of the new Leases entered into with
respect to such Properties. Prior to that time, such Class B Units will
have no rights with respect to voting, allocation or distributions. For
certain tax and business reasons, the Operating Partnership has agreed to
restrictions on its ability to sell or repay Mortgage Debt secured by
these Properties for a period of ten years.
o In order to facilitate the Company's acquisition of five of the Initial
Dealership Properties, Chartown, a North Carolina general partnership
controlled by Mr. Smith, purchased such Properties from unaffiliated third
parties prior to completion of the Offering. In connection with the
Company's acquisition of such Properties, Chartown will receive
approximately $10.1 million of the net proceeds of the Offering,
representing its cost to acquire and maintain such Properties.
o In connection with the formation of the Company, the Company issued Mr.
Smith 702,000 Common Shares in exchange for a subscription receivable of
$1.0 million.
Sonic Automotive and Affiliates
o Subsidiaries of Sonic Automotive will sell two Initial Dealership
Properties to the Company in exchange for approximately $10.3 million of
the net proceeds of the Offering.
o Affiliates of Sonic Automotive will lease the 29 Initial Dealership
Properties from the Company and will continue to control the operations of
the automobile dealerships located on such Properties.
Management
o The Company's Trustees and executive officers will receive options under
the Company's 1998 Shares Option Plan (the "Plan") to acquire an aggregate
of 465,000 Common Shares at the Offering Price.
Acquisition of the Initial Properties from the Sellers
The Company will acquire the Initial Properties pursuant to Purchase
Agreements and a Contribution Agreement negotiated on an arms' length basis
with each seller unaffiliated with the Company or Mr. Smith. Company officials
believe that the purchase prices under the Contribution Agreement and Purchase
Agreements with sellers affiliated with Mr. Smith or Sonic Automotive fairly
represent fair values for the Initial Dealership Properties acquired because
such prices were based primarily on a capitalization of pro forma cash flow
from the Initial Leases on such Properties. The Company also considered the
creditworthiness of the Initial Lessees of such Properties, the quality, age
and condition of the structures located on the Properties, the Properties'
locations, the value of the Properties for alternative uses, the availability
of similar properties in the same locality, recent sales prices for comparable
commercial properties in the same locality and the cost of capital used to
acquire the Properties. The prices of all other Properties acquired from
Chartown were based on the purchase prices negotiated at arms' length by
Chartown with unaffiliated sellers and Chartown's cost of maintaining such
Properties prior to the Company's acquisition. The obligations of the Sellers
to transfer such Initial Properties pursuant to the Contribution Agreement or
Purchase Agreements is or will be conditioned upon the completion of the
Offering, the closing of the transactions contemplated by the Initial Leases,
the Purchase Agreements and the Contribution Agreement, and normal and
customary conditions to the closing of real estate transactions, including the
consents of lenders and Manufacturers, if required.
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The Contribution Agreement and Purchase Agreements also contain representations
and warranties to the Operating Partnership concerning the ownership and
operation of the Initial Properties and environmental matters and certain other
covenants, representations and warranties. Claims for indemnification for any
breach under the Contribution Agreement may be made by the Company for
approximately one year from the completion of the Offering. Moreover, the
Leases will generally contain a net worth covenant and indemnification
obligations, but the Lessee of any particular Property may not be the seller of
the same Property.
In connection with the acquisition of two of the Initial Dealership
Properties and all of the Advance Properties, the Company has agreed (the
"Lock-Out Agreement") to restrictions on its ability to sell, transfer,
exchange or otherwise dispose of such Properties for a period of ten years,
subject to certain exceptions including either a like-kind exchange of such
Properties under Section 1031 of the Code or any other disposition or transfer
that does not result in a taxable gain under the Code. The prohibition against
the sale, transfer, exchange or other disposition of such Properties will
automatically terminate in the event that Mr. Smith and his affiliates or
Primax, in one or more transactions, exchange for Common Shares, sell or
otherwise dispose of 95% or more of their individual Units in a taxable
transaction.
In the Lock-Out Agreement, the Company has also agreed to certain
restrictions on its ability to prepay approximately $1.6 million of Mortgage
Debt that it is assuming on the two Initial Dealership Properties acquired from
affiliates of Mr. Smith. These restrictions do not limit the Company's ability
to change the amount or characteristic of its liabilities so long as the
changes do not result in taxable gains to Mr. Smith and his affiliates. In
addition, loan agreements will restrict the ability of the Company to prepay
approximately $3.3 million of the Mortgage Debt being assumed on seven of the
Advance Properties.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Formation of the Company
Mr. Smith, the Chairman of the Company's Board, formed the Company on
April 14, 1998 and provided initial capital of $1.0 million in exchange for
702,000 Common Shares pursuant to a subscription agreement between Mr. Smith
and the Company.
Strategic Alliance with Sonic Automotive
The Company has entered into the Strategic Alliance Agreement with Sonic
Automotive pursuant to which Sonic Automotive has agreed to refer to the
Company real estate acquisition opportunities that arise in connection with
Sonic Automotive's dealership acquisitions. The Company has agreed to provide
or make available to Sonic Automotive such real estate development,
maintenance, survey and inspection services as Sonic Automotive may reasonably
request from time to time. Sonic Automotive and the Company have also agreed to
permit an affiliate of the Company to offer future Lessees volume discounts,
through participation with Sonic Automotive and Speedway Motorsports, on
insurance, office equipment and supplies, telecommunications services and
certain other products and services. The Strategic Alliance Agreement will
expire on July 9, 1999, but will automatically renew for successive one year
terms. The Strategic Alliance Agreement may be terminated upon 30 days notice
prior to the expiration of the then existing term. In return, the Company has
agreed to refer to Sonic Automotive dealership acquisition opportunities that
arise in connection with Property acquisitions, thereby providing sellers of
dealerships the option to sell both the real estate and the operations
associated with their dealerships. The Company believes that this alliance will
provide it with unique competitive advantages in acquiring Dealership
Properties. Mr. Smith is the chairman of the board, chief executive officer and
controlling stockholder of Sonic Automotive.
Acquisition of Certain Initial Dealership Properties
The Company will acquire from Mr. Smith and affiliates of Mr. Smith all of
the interests in two Initial Dealership Properties. The Company will acquire
such interests in exchange for 394,410 Class A Units, with an aggregate value
of $5.9 million based on the Offering Price, 982,634 Class B Units, and the
assumption by the Company of $1.6 million of Mortgage Debt secured by such
Properties. The Class A Units are redeemable for cash or Common Shares on a
one-for-one basis, at the option of the Company, one year after the
consummation of the Offering. The Class B Units were issued to account for
below market rental rates in the existing Leases on the two Properties acquired
from Mr. Smith and affiliates of Mr. Smith. The Company has entered into new
Leases on such Properties, which are scheduled to become effective on January
1, 2000 and provide for market rental rates. The Class B Units will attain
rights identical to those of the Class A
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Units at the time the new Leases become effective. Until such time, the Class B
Units have no voting, allocation or distribution rights. The Class B Units have
a deemed fair value of $12.6 million for purposes of the Company's Pro Forma
Consolidated Financial Statements.
The Company will acquire from Sonic Automotive two Initial Dealership
Properties in exchange for an aggregate of approximately $10.3 million in cash.
The Company will acquire five Initial Dealership Properties from Chartown,
a North Carolina general partnership controlled by Mr. Smith. Chartown acquired
or will acquire such Properties through arms' length negotiations with the
sellers, which are unaffiliated with the Company, in order to facilitate the
Company's acquisition of such Properties. The Company will acquire such
Properties for approximately $10.1 million in cash, which represents Chartown's
cost of purchasing and maintaining such Properties prior to their acquisition
by the Company.
The Company will acquire from sellers who are unaffiliated with the
Company, Sonic Automotive or Mr. Smith six Initial Dealership Properties
pursuant to purchase options acquired from Sonic Automotive for nominal
consideration. The Company negotiated the $20.5 million purchase price for such
Properties through arms-length negotiations with the sellers.
Sonic Leases
Twenty-nine of the Initial Dealership Properties will be leased to the
Sonic Lessees, which are direct or indirect, wholly-owned subsidiaries of Sonic
Automotive. With the exception of the two Intial Dealership Properties to be
acquired from Mr. Smith and his affiliates and the Lake Norman Properties, the
Sonic Lessees have agreed to enter into Sonic Leases that provide for Initial
Terms of ten years, two optional five-year Renewal Terms and fair market rent,
and, other than Sonic Leases on certain of the Bowers Properties, are subject
to upward CPI adjustments every five years. For further discussion of the terms
of the Sonic Leases, see "Business of the Company and Its Properties -- Initial
Properties," " -- Initial Lessees" and "--Dealership, Sonic and Bowers Leases."
For the initial annual Base Rent to be paid under each of the Sonic Leases, see
the table appearing under "Business of the Company and Its Properties --
Initial Properties."
The Company will assume the existing Leases on the two Initial Dealership
Properties to be purchased from Mr. Smith and affiliates of Mr. Smith. The
existing Leases currently provide for rent of $409,200 and $360,000,
respectively, and provide for their termination by December 31, 1999. The
Company and the Lessees of such Properties have entered into new Leases that
are scheduled to take effect on January 1, 2000. The new Leases have terms
substantially similar to those of the Sonic Leases, provide for initial Base
Rent of $1,140,000 for each Property, and expire on December 31, 2009.
Lock-Out Agreement
Pursuant to a Lock-Out Agreement among Sonic Financial Corporation and
Town and Country Ford, Inc., each an affiliate of Mr. Smith, Mr. Smith and the
Operating Partnership, the Company has agreed to certain restrictions on its
ability to sell, transfer, exchange or otherwise dispose of, or prepay or
refinance approximately $1.6 million of Mortgage Debt secured by, the two
Initial Dealership Properties acquired by the Company from Mr. Smith and
affiliates of Mr. Smith for a period of ten years.
The restriction on the Company's ability to sell or otherwise dispose of
such Properties is subject to certain exceptions including either a like-kind
exchange of any Property under Section 1031 of the Code or any other
disposition or transfer that does not result in a taxable gain under the Code.
The prohibition against the sale, transfer, exchange or other disposition of
such Properties shall automatically terminate in the event that Mr. Smith and
his affiliates, in one or more transactions, exchange for Common Shares, sell
or otherwise dispose of 95% or more of their Units in a taxable transaction.
The restrictions on the Company's ability to prepay or refinance certain
Mortgage Debt do not limit the Company's ability to change the amount or
characteristic of its liabilities so long as the changes do not result in
taxable gains to Mr. Smith and his affiliates.
Registration Rights
The Company has entered into a Registration Rights and Lock-Up Agreement
(the "Registration Rights Agreement") with, among others, Mr. Smith and his
affiliates, the holders of 1,377,044 Units. Mr. Smith and his affiliates have
agreed that their Units are not redeemable by the Company until one year after
the date of the consummation of the Offering. Subject to certain limitations,
the Company has agreed to use its best efforts to file a registration statement
under the Securities Act one year after the date of the consummation of the
Offering, at its expense, that would allow the sale of any and
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all Common Shares issued in connection with the redemption of Units held by Mr.
Smith and his affiliates. For further discussion of the Registration Rights
Agreement, see "Common Shares Eligible for Future Sale--Registration Rights and
Lock-Up Agreement."
PARTNERSHIP AGREEMENT
The Initial Properties will be owned by the Operating Partnership. The
sellers of Initial Properties that are contributing such Initial Properties to
the Operating Partnership in exchange for Units, including Mr. Smith and his
affiliates, will, among other things, be permitted to defer until a later date
a portion of the tax liabilities that they otherwise would incur if they
received cash or Common Shares. Because the Operating Partnership will not be
able to charge market rents for the Initial Properties being contributed by Mr.
Smith until January 1, 2000, Mr. Smith will receive 394,410 Class A Units and
982,634 Class B Units. Prior to the effectiveness of the new Leases entered
into with respect to such Properties, the Class B Units will have no rights
with respect to voting, allocations or distributions. Upon the effectiveness of
such new Leases, a Class B Unit will attain the same rights as a Class A Unit.
In addition, through the Operating Partnership the Company may acquire
interests in additional properties in transactions that may defer such tax
consequences for the contributors.
Following the closing of the Offering, substantially all of the Company's
assets (including the Company's interest in the Initial Properties) will be
held by, and its operations will be conducted through, the Operating
Partnership. The Company will initially hold 10,702,000 Class A Units and will
control the Operating Partnership in its capacity as the sole general partner.
The Company's interest in the Operating Partnership will entitle it to share in
cash distributions from, and in the profits and losses of, the Operating
Partnership in proportion to the Company's percentage ownership of the
Operating Partnership (apart from tax allocations of profits and losses to take
into account pre-contribution property appreciation). Other holders of Units
(the "Limited Partners") will own 877,677 Class A Units and 982,634 Class B
Units. For a period of one year following the closing of the Offering, the
holders of Units will not be permitted to offer, pledge, sell, contract to
sell, grant any options for the sale of or otherwise dispose of any such Units
without the permission of the Company except (i) in the case of a holder that
is a natural person, to certain family members of such holder or upon the death
of such holder, to such holder's estate, personal representative or
beneficiaries, (ii) in the case of a business entity, to another entity wholly
owned thereby or as a distribution to the equity owners thereof, (iii) as a
bona fide gift, or (iv) pursuant to a pledge, grant of a security interest or
other encumbrance effected in a bona fide transaction with an unrelated and
unaffiliated pledgee. After the first anniversary of the closing of the
Offering, Units may be transferred by a Limited Partner without restriction,
except if such transfer would (i) violate any securities laws, (ii) result in
the Operating Partnership being treated as an association taxable as a
corporation, (iii) be effectuated through an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code, or (iv) be to a lender to the Operating
Partnership or related person holding nonrecourse liability, the transferee
will only be admitted as a Limited Partner subject to furnishing certain
specified or requested instruments or documents to the Company in its capacity
as general partner. Also, after the first anniversary after the closing of the
Offering (or earlier with the consent of the Company in its capacity as general
partner), each Limited Partner may tender to the Operating Partnership for
redemption its Units, which may be redeemed by the Company or the Operating
Partnership for Common Shares on a one-for-one basis, subject to the Company's
right to pay cash in lieu of issuing Common Shares. With each redemption of
Units, the Company's interest in the Operating Partnership will increase.
The Company will hold one Unit in the Operating Partnership for each
Common Share that it has issued. The net proceeds of any future issuance of
Common Shares of the Company will be contributed to the Operating Partnership
in exchange for an equivalent number of Units.
As general partner of the Operating Partnership, the Company will have the
exclusive power under the Partnership Agreement to manage and conduct the
business of the Operating Partnership. The Board will manage the affairs of the
Company by directing the affairs of the Operating Partnership. The Operating
Partnership will be responsible for, and pay when due, its share of all
administrative and operating expenses of the Properties.
The following summary of the Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which the Prospectus is a
part.
Management
The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Partnership Agreement. The Company, as
the sole general partner of the Operating Partnership, generally will have
full, exclusive
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and complete discretion in managing and controlling the Operating Partnership.
The Limited Partners will have no authority to transact business for, or to
participate in the management activities or decisions of, the Operating
Partnership, except as provided in the Partnership Agreement and as provided by
applicable law. However, the consent of all the Limited Partners will be
required to (i) take any action that would make it impossible to carry on the
ordinary business of the Operating Partnership, except as otherwise provided in
the Partnership Agreement; (ii) possess Operating Partnership property, or
assign any rights to specific Operating Partnership property for other than an
Operating Partnership purpose, except as otherwise provided in the Partnership
Agreement; (iii) admit a person as a partner, except as otherwise provided in
the Partnership Agreement and (iv) perform any act that would subject a Limited
Partner to liability as a general partner in any jurisdiction or any other
liability except as provided in the Partnership Agreement or under the laws of
the State of Delaware. In addition, the Company has agreed pursuant to the
Partnership Agreement that it will not take any of the following actions prior
to the first anniversary of the Closing Date without the consent of Limited
Partners holding a majority of the outstanding Units: (i) a merger,
consolidation or share exchange of the Company requiring the approval of the
Company's shareholders or any merger, consolidation or partnership interest
exchange of the Operating Partnership, (ii) a sale, lease, transfer or other
disposition of all or substantially all of the Company's assets requiring the
approval of the Company's shareholders, a sale, lease, transfer or other
disposition of all or substantially all of the operating assets, or any
election to dissolve the Company requiring the approval of the Company's
shareholders, or (iii) an amendment to the Declaration of Trust requiring the
approval of the Company's shareholders.
Indemnification
The Partnership Agreement provides that each individual made a party to a
proceeding by reason of his status as a general partner or an officer of the
Operating Partnership or a trustee or officer of the Company or any other
person as the Company may designate from time to time in its sole and absolute
discretion (each, an "Indemnitee") will be indemnified and held harmless by the
Operating Partnership for any act relating to the operation of the Operating
Partnership unless it is established that (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of material active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
of money, property or services; or (iii) in the case of any criminal
proceeding, the Indemnitee had reasonable cause to believe that the act or
omission was unlawful. The Partnership Agreement provides that the termination
of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth above. The termination of any proceeding by conviction or upon a plea
of nolo contendre or its equivalent, or an entry of an order of probation prior
to judgment, would, under the Partnership Agreement, create a rebuttable
presumption that the individual acted in a manner contrary to that specified
above. Any indemnification so made shall be made only out of the assets of the
Operating Partnership.
Capital Contributions
When the Company contributes additional capital to the Operating
Partnership from the proceeds of issuance of Common Shares (or preferred shares
of beneficial interest) of the Company, the Company's interest in the Operating
Partnership will be increased on a proportionate basis based upon the number of
Common Shares (or preferred shares of beneficial interest) issued.
Tax Matters
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and, as such, will have the authority to
make certain tax related decisions and tax elections under the Code on behalf
of the Operating Partnership.
Operations
The Partnership Agreement allows the Company to operate the Operating
Partnership in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT. The Partnership Agreement also
requires the distribution of cash available for distribution by the Operating
Partnership quarterly in accordance with the Partnership Agreement.
Duties and Conflicts
The Partnership Agreement provides that the Company shall not enter into
or conduct any business other than in connection with the ownership,
acquisition and disposition of partnership interests in the Operating
Partnership and the management of the business and incidental activities of the
Operating Partnership. Therefore, all activities pertaining to the acquisition,
development, management and operation of any properties, must be conducted
through the Operating Partnership.
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Term
The Operating Partnership will continue in full force and effect until
December 31, 2098 or until sooner dissolved upon (i) the withdrawal of the
Company as a general partner (unless all of the Limited Partners elect to
continue the Operating Partnership), or (ii) by the election of the Company,
with the consent of a majority in interest of Limited Partners, (iii) in
connection with a merger or other combination of the Operating Partnership, or
(iv) by the sale or other disposition of all or substantially all of the assets
of the Operating Partnership, or (v) entry of a decree of judicial dissolution
of the Operating Partnership, or (vi) bankruptcy or insolvency of the Company.
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the
beneficial ownership of the Common Shares by (a) each person known by the
Company to be the beneficial owner of more than 5% of the Common Shares
immediately following the completion of the Offering, (b) each Trustee of the
Company, (c) each executive officer of the Company and (d) all Trustees and
executive officers of the Company as a group (excluding exercise of the
Underwriters' over-allotment option). Unless otherwise indicated in the
footnotes, all of such interests are owned directly, and the indicated person
or entity has sole voting and investment power. The number of shares represents
the number of Common Shares the person holds or the number of Common Shares
issuable upon exercise of vested options to acquire Common Shares. The
executive officers and Trustees of the Company have agreed not to sell Common
Shares (including Common Shares issued on redemption of Units) without the
consent of the Underwriter, for a period of two years following completion of
the Offering.
<TABLE>
<CAPTION>
Number Percentage of All
of Common Outstanding
Shares Owned (1) Common Shares
--------------------- --------------------
Before After Before After
Name Offering Offering Offering Offering
- -------------------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
O. Bruton Smith (2) ....................................... 702,000 817,000 100.0% 7.6%
Benjamin F. Bracy (3) ..................................... -- 35,000 -- *
Mark J. Iuppenlatz (3) .................................... -- 35,000 -- *
Virginia R. Dunn (3) ...................................... -- 17,500 -- *
All Trustees and executive officers as a group (6 persons) 702,000 904,500 100.0% 8.3%
</TABLE>
- ---------
* Less than one percent.
(1) Numbers and percentages set forth in this table exclude all outstanding
Units since the Units are not redeemable for Common Shares before the
first anniversary of the Offering.
(2) If the Underwriters' over-allotment option is exercised in full, then after
the Offering Mr. Smith will own approximately 6.6% of the Common Shares
then outstanding. Mr. Smith owns directly 702,000 Common Shares and, upon
completion of the Offering, will own options issued under the Plan to
purchase 115,000 Common Shares. Such options will be exercisable
immediately upon grant at the Offering Price. In addition, Mr. Smith has
sole voting and investment control over Class A Units and Class B Units
that are held by him directly or through his affiliates, although none of
such Units will be redeemable for Common Shares until the first
anniversary of the Offering.
(3) Common Shares shown underlie options that will be issued under the Plan
upon completion of the Offering, which options will be immediately
exercisable at the Offering Price. Messrs. Bracy and Iuppenlatz and Ms.
Dunn will also hold unvested options for 105,000, 105,000 and 52,500
Common Shares, respectively, after the Offering.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
General
The Declaration of Trust of the Company provides that the Company may
issue up to 100,000,000 Common Shares, which may be designated as any class or
series of classes of Shares as the Board may determine. See "--Classification
or Reclassification of Preferred Shares." Upon the closing of the Offering and
the consummation of the Formation Transactions, 10,702,000 Common Shares will
be issued and outstanding (12,202,000 shares if the Underwriters' over
allotment option is exercised in full) and no other Shares will be issued and
outstanding. As permitted by Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended (the "Maryland REIT
Law"), the Declaration of Trust contains a provision permitting the Board,
without any action by the shareholders of the Company, to amend the Declaration
of Trust to increase or decrease the aggregate number of Shares or the number
of Shares of any class of shares of beneficial interest that the Trust has
authority to issue. The Company believes that the power of the Board to issue
additional shares of beneficial interest will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs that might arise. The additional shares
of beneficial interest, including possibly Common Shares, will be available for
issuance without further action by the Company's shareholders, unless action by
the shareholders is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. Although the Board currently has no intention of doing so, it
could authorize the Company to issue a class or series that could, depending on
the terms of such class or series, delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Shares and might otherwise be in the best interests of the shareholders.
Both the Maryland REIT Law and the Company's Declaration of Trust provide
that no shareholder of the Company will be personally liable for any obligation
of the Company solely as a result of such shareholder's status as a shareholder
of the Company. The Company's Declaration of Trust further provides that the
Company will indemnify and hold each shareholder harmless against any claim or
liability to which the shareholder may become subject by reason of such
shareholder's being or having been a shareholder or former shareholder, subject
to such shareholder providing prompt notice to the Company and provided that no
indemnification will be provided if the claim or liability is finally adjudged
to have arisen out of the shareholder's bad faith, willful misconduct or gross
negligence. The Company must also pay or reimburse each shareholder for all
legal and other expenses reasonably incurred by such shareholder in connection
with any claim or liability unless it is established by a court that such claim
or liability arose out of such shareholder's bad faith, willful misconduct or
gross negligence.
The Common Shares
Subject to the preferential rights of any other shares or series of
beneficial interest and to the provisions of the Company's Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common
Shares are entitled to receive dividends on such shares if, as and when
authorized and declared by the Board of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all
known debts and liabilities of the Company.
The holders of outstanding Common Shares are entitled to one vote, for
each share held of record on all matters submitted to a vote of shareholders,
including the election of Trustees and, except as provided with respect to any
other class or series of the Shares, the holders of such Common Shares possess
the exclusive voting power. There is no cumulative voting in the election of
Trustees, which means that the holders of a majority of the outstanding Common
Shares can elect all of the Trustees then standing for election and the holders
of the remaining shares will not be able to elect any Trustees.
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Common Shares, Common Shares
have equal dividend, distribution, liquidation and other rights.
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Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in
the real estate investment trust's declaration of trust. The Company's
Declaration of Trust or Bylaws provide for approval by a majority of the votes
cast by holders of Common Shares entitled to vote on the matter in all
situations permitting or requiring action by the shareholders, except with
respect to: (i) the election of Trustees (which requires a plurality of all the
votes cast at a meeting of shareholders of the Company at which a quorum is
present), (ii) the removal of Trustees (which requires the affirmative vote of
two-thirds of the votes entitled to be cast in the election of Trustees or the
affirmative vote of two-thirds of the Trustees, which action can only be taken
by vote at a shareholder or Trustees' meeting), (iii) the merger of the Company
into a new entity, consolidation or sale (or other disposition) of all or
substantially all of the assets of the Company (which requires the affirmative
vote of the holders of two-thirds of the outstanding votes entitled to be cast
on the matter, which action can only be taken by vote at a shareholder
meeting), (iv) the amendment of the Declaration of Trust by shareholders,
including the amendment or repeal of the Independent Trustee provision (which
requires the affirmative vote of a majority of votes entitled to be cast on the
matter, except under certain circumstances specified in the Declaration of
Trust which require the affirmative vote of two-thirds of all the votes
entitled to be cast on the matter), and (v) the termination of the Company
(which requires the affirmative vote of two-thirds of the outstanding votes
entitled to be cast on the matter). The Company has agreed pursuant to the
Partnership Agreement that Limited Partners also have voting rights with
respect to certain of the foregoing actions for a limited period. See
"Partnership Agreement of Operating Partnership--Management." As allowed under
the Maryland REIT Law, the Company's Declaration of Trust permits the Trustees
by a two-thirds vote to amend the declaration of trust from time to time to
qualify as a real estate investment trust under the Code or the Maryland REIT
Law without the approval of the shareholders. As permitted by the Maryland REIT
Law, the Declaration of Trust contains a provision permitting the Board,
without any action by the shareholders of the Company, to amend the Declaration
of Trust to increase or decrease the aggregate number of Shares or the number
of Shares of any class that the Company has authority to issue.
Classification or Reclassification of Preferred Shares
The Declaration of Trust authorizes the Board to classify any unissued
Shares and to reclassify any previously classified but unissued Shares of any
series from time to time in one or more series, as authorized by the Board.
Prior to issuance of shares of each series, the Board is required by the
Maryland REIT Law and the Company's Declaration of Trust to set for each such
series, subject to the provisions of the Company's Declaration of Trust
regarding the restriction on transfer of shares of beneficial interest, the
terms, 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 Preferred Shares with terms and conditions which could have the
effect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for holders of Common
Shares or otherwise might be in their best interest. As of the date hereof, no
Preferred Shares are outstanding and the Company has no present plans to issue
any Preferred Shares.
Restrictions on Transfer; Excess Shares
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's outstanding
shares of beneficial interest 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 a taxable year (other than the first year the
election to be a REIT has been made), and the Company must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
twelve months or during a proportionate part of a shorter taxable year (other
than the first year the election to be a REIT has been made). See "Federal
Income Tax Consequences--Taxation of the Company."
For this reason, among others, the Declaration of Trust, subject to
certain exceptions described below and to possible limited exceptions regarding
certain contributing investors, provides that no person may own, or be deemed
to own by virtue of the ownership provisions of Section 13(d) of the Exchange
Act, more than (i) 9.8% of the Company's issued and outstanding Shares or (ii)
9.8% of the total value of such Shares (the "Ownership Limit"). While direct or
indirect ownership will be determined in accordance with the beneficial
ownership rules promulgated under Section 13(d) of the Exchange Act, beneficial
ownership for REIT qualification purposes also will be determined in accordance
with the constructive ownership
63
<PAGE>
rules of Sections 318 and 544 of the Code. Any transfer of Common or Preferred
Shares that would (i) result in any person owning, directly or indirectly,
Common or Preferred Shares in excess of the Ownership Limit, (ii) result in the
Common and Preferred Shares being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (iii) result in the Company
being "closely held" within the meaning of Section 856(h) of the Code, or (iv)
cause the Company to own, actually or constructively, 9.8% or more of the
ownership interests in a tenant of its real property, within the meaning of
Section 856(d)(2)(B) of the Code, shall be null and void, and the intended
transferee will acquire no rights in such Shares.
Subject to certain exceptions described below, if any purported transfer
of Shares is not null and void and would (i) result in any person owning,
directly or indirectly, Shares in excess of the Ownership Limit, (ii) result in
the Shares being owned by fewer than 100 persons (determined without reference
to corporate attribution), (iii) result in the Company being "closely held"
within the meaning of 856(h) of the Code or (iv) cause the Company to own,
actually or constructively, 9.8% or more of the ownership interests in a tenant
of its real property, within the meaning of Section 856(d)(2)(B) of the Code,
the Shares will be designated as excess shares (the "Excess Shares") and
transferred automatically to a trust (the "Excess Share Trust") effective as of
the close of business on the business day before the purported transfer of such
Shares. The record holder of the Shares that are designated as Excess Shares
(the "Purported Transferee") will have no rights in such shares except as
described below. The trustee of the Excess Share Trust (the "Share Trustee")
will be designated by the Company, but will not be affiliated with the Company.
The beneficiary of the Excess Share Trust (the "Beneficiary") will be one or
more charitable organizations that are named by the Board.
Excess Shares will remain issued and outstanding Common or Preferred
Shares and will be entitled to the same rights and privileges as all other
shares of the same class or series. The Excess Share Trust will receive all
dividends and distributions on the Excess Shares and will hold such dividends
and distributions in trust for the benefit of the Beneficiary. The Share
Trustee will vote all Excess Shares. The Purported Transferee may designate a
beneficiary of an interest in such Excess Shares held in the Excess Share
Trust, if such Excess Shares would not be Excess Shares in the hands of such
beneficiary, and the Purported Transferee does not receive a price for
designating such beneficiary in excess of the price paid by the Purported
Transferee for the Shares which were transferred to the Excess Share Trust.
Upon such a designation, the Excess Shares Trust shall terminate as to such
Shares, such Shares shall no longer be designated Excess Shares, and such
Shares shall be transferred of record to such beneficiary.
The Excess Shares will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Excess Shares (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Excess Shares and (ii) the date the
Company determines in good faith that a transfer resulting in such Excess
Shares occurred.
"Market Price" means the last reported sales price, regular way, reported
on the NYSE for a particular class of Shares on the trading day immediately
preceding the relevant date, or if not then traded on the NYSE, the last
reported sales price for such class of Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over or through which such class of Shares may be traded, or if not then traded
over or through any exchange or quotation system, then the market price of such
class of Shares on the relevant date as determined in good faith by the Board.
Any person who acquires or attempts to acquire Shares in violation of the
foregoing restrictions, or any person who owned Shares that were transferred to
a Share Trust, will be required (i) to give immediately written notice to the
Company of such event or, in the event of a proposed or attempted transfer, to
give at least 30 days prior written notice to the Company of such event, and
(ii) to provide to the Company such other information as the Company may
request in order to determine the effect, if any, of such transfer on the
Company's status as a REIT.
The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the number or value of the outstanding Shares,
within 30 days after January 1 of each year, to provide to the Company a
written statement stating the name and address of such direct or indirect
owner, the number of Shares owned directly or indirectly, and a description of
how such shares are held. In addition, each such direct or indirect shareholder
shall provide to the Company such additional information as the Company may
request in order to determine the effect, if any, of such ownership on the
Company's status as a REIT and to ensure compliance with the Ownership Limit.
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The Ownership Limit generally will not apply to the acquisition of Shares
by an underwriter that participates in a public offering of such shares in the
event that such shares are timely distributed by the underwriter. In addition,
the Board, upon receipt of a ruling from the Service or an opinion of counsel
and upon such other conditions as the Board may direct, may exempt a person
from the Ownership Limit under certain circumstances. However, the Board may
not grant an exemption from the Ownership Limit to any proposed transferee
whose ownership, direct or indirect, of shares of beneficial interest of the
Company in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT. The foregoing restrictions will continue to apply
until the Board determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT.
The Company must also satisfy certain gross income tests to maintain its
status as a REIT. See "Federal Income Tax Consequences--Taxation of
Company--Gross Income Tests." Rents received from "related party tenants" do
not constitute qualifying income. In general, for rents to qualify as
qualifying income for purposes of such gross income tests, among other things,
the Company must not own, directly or constructively, 10% or more of any
Initial Lessee or any other Lessee of the Properties. See "Federal Income Tax
Consequences--Taxation of the Company--Gross Income Tests--Rents from Real
Property." To reduce the risk that any Lessee will be treated as a related
party tenant, the Declaration of Trust generally provides that if there is a
purported sale or transfer of Shares which would cause any Related Tenant Owner
to constructively own shares in excess of 9.8% of the value of the outstanding
Shares of the Company (the "Related Tenant Limit"), any Shares purportedly
owned by the Related Tenant Owner which would cause such Related Tenant Owner
to constructively own shares in excess of the Related Tenant Limit shall be
automatically designated as Excess Shares and transferred to the Excess Share
Trust. For puposes of the preceding sentence, attribution rules under Section
318 of the Code (modified for purposes of the REIT rules) are applicable in
determining whether any Related Tenant Owner constructively owns Shares in
excess of the "Related Tenant Limit." Under Section 318(a)(3)(C) of the Code
(modified for purposes of the REIT rules), if 10% or more in value of the stock
in a REIT is owned, directly or indirectly, by or for any person, such REIT
shall be considered as owning the stock owned, directly or indirectly, by or
for such person. Under Section 318(a)(4) of the Code, if any person has an
option to acquire stock (such as the Shares in the Company), such stock shall
be considered as owned by such person. After the first anniversary after the
closing of the Offering (or earlier with the consent of the Company in its
capacity as general partner), any holder of Units may exchange one Unit for one
Common Share subject to the Company's right to pay cash in lieu of issuing
Common Shares. Separately, the Declaration of Trust provides, subject to
certain exceptions, that no person may own, or be deemed to own by virtue of
ownership provisions of Section 13(d) of the Exchange Act, more than 9.8% of
the number or value of the Company's issued and outstanding Shares. See
"Description of Shares of Beneficial Interest--Restriction on Transfer; Excess
Shares." Further, the Partnership Agreement provides that no conversion of
Units into Shares is permitted, and no Company right to pay cash in lieu of
conversion applies, if the Declaration of Trust would thereby be violated. To
the extent the Company's right (i) to pay cash in lieu of issuing Common Shares
to a holder of Units and (ii) to restrict ownership of Shares, prevents a
holder of Units from converting its Units into Shares, such Units should not be
counted as options for purposes of Section 318(a)(4) of the Code. Accordingly,
a person's ownership of Units that would be redeemable (absent such
restrictions) for Shares should not be taken into account in determining what
stock is constructively owned by the Company. The Declaration of Trust defines
a Related Tenant Owner to mean any person who owns, directly or constructively,
within the meaning of Section 318 of the Code, an interest in a tenant, which
interest is equal to or greater than (i) 9.8% of the combined voting power of
all classes of stock of such tenant, (ii) 9.8% of the total number of shares of
all classes of stock of such tenant, or (iii) if such tenant is not a
corporation, 9.8% of the assets or net profits of such tenant, in each case
only if such ownership would cause the Company to fail the 95% gross income
test set forth in Section 856(c)(2) of the Code or the 75% gross income test
set forth in Section 856(c)(3) of the Code.
Section 318 of the Code (modified for purposes of the REIT rules) provides
that partnerships are deemed to own any stock owned, directly or indirectly, by
or for a 25% or more partner in a partnership. To reduce the risk that any
Lessee will be treated as a related party tenant because of such rule, (i) the
Declaration of Trust provides that no direct or indirect partner or member of
an Excluded Holder (as defined in the Declaration of Trust) may beneficially or
constructively own Shares and (ii) the Partnership Agreement provides that no
partner (other than the General Partner) shall be permitted to own (actually or
constructively, through the application of Section 318 of the Code, modified
for purposes of the REIT rules) a 25% or greater percentage interest in the
Partnership. No assurance can be given that these restrictions will be complied
with.
The Ownership Limit and restrictions on transfer could have the effect of
delaying, deferring or preventing a transaction or a change in control of the
Company that might involve a premium price for the Common Shares or otherwise
be in the best interest of the shareholders of the Company.
All certificates representing Common or Preferred Shares will bear a
legend referring to the restrictions described above.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete,
although the Company believes all material provisions thereof are described,
and is qualified in its entirety by reference to Maryland law and to the
Declaration of Trust and Bylaws of the Company, copies of which are exhibits to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."
Classification of the Board
The Company's Declaration of Trust provides that the number of Trustees of
the Company cannot be less than three nor more than 15. At the closing of the
Offering, there will be five Trustees. The Trustees are divided into three
classes, with terms of three years each and with one class to be elected at
each annual meeting of shareholders. The classified Board could have the effect
of making the removal of incumbent Trustees time-consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to effect a change in control of the Company that a majority of
shareholders may believe to be beneficial to the Company and its shareholders.
Vacancies
Any vacancy on the Board arising for any cause may be filled (i) by the
Trustees then in office, (ii) at the next annual meeting of shareholders or
(iii) at a special meeting of shareholders called for such purpose. Any Trustee
elected by the Trustees to fill a vacancy will hold office until the next
annual meeting of shareholders.
Removal of Trustees
The Declaration of Trust provides that, subject to the rights of holders
of one or more classes or series of Shares to elect or remove Trustees, a
Trustee may be removed with or without cause by the shareholders upon the
affirmative vote of at least two-thirds of the votes entitled to be cast in the
election of Trustees. This provision has the effect of limiting shareholders'
power to remove incumbent Trustees.
Business Combinations
Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including mergers, consolidations, share
exchanges and asset transfers and certain issuances or reclassifications of
equity securities) between a Maryland real estate investment trust and any
person who beneficially owns ten percent or more of the voting power of the
trust's shares or an affiliate or associate of the trust 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
shares of the trust (an "Interested Shareholder"), or an affiliate of such an
Interested Shareholder, are prohibited for five years after the most recent
date on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such business combination must be recommended by the Board of
such trust and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust, voting together as a single voting group, and (ii)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected or by an affiliate
or associate of the Interested Shareholder, voting together as a single group,
unless, among other conditions, the trust's common shareholders 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
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the Board of
the trust prior to the time that the Interested Shareholder becomes an
Interested Shareholder. As permitted by the MGCL, the Declaration of Trust
exempts any "Business Combinations" involving the Company and Mr. Smith or any
of his affiliates. In addition, the Board has adopted a resolution exempting a
business combination with Mr. Smith or any of his affiliates from the
applicable provisions of the MGCL.
Control Share Acquisitions
The MGCL, as applicable to Maryland real estate investment trusts,
provides that "control shares" (as defined below) of a Maryland real estate
investment trust acquired in a "control share acquisition" (as defined below)
have no voting rights except to the extent approved by a vote of two-thirds of
the votes entitled to be cast on the matter, excluding shares of beneficial
interest owned by the acquiror, by officers or by trustees who are employees of
the trust. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously
acquired by
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the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing trustees within
one of the following ranges of voting power: (i) one-fifth or more but less
than one-third, (ii) one-third or more but less than a majority, or (iii) a
majority or more of all voting power. Control Shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of the trust to call a special meeting of
shareholders to be held within 50 days of the Company's receipt of the demand
and undertaking to consider the voting rights of the shares. If no request for
a meeting is made, the trust may itself present the question at any
shareholders meeting.
If an acquiring person statement has been delivered within ten days after
the control shares acquisition, and voting rights are not approved at the
meeting or if the acquiring person does not deliver an acquiring person
statement as required by the statute, then, subject to certain conditions and
limitations, the trust may redeem any or all of the Control Shares (except
those for which voting rights have previously been approved) at their fair
value, determined without regard to the absence of voting rights for the
Control Shares, as of the date of the last Control Share Acquisition by the
acquiror or of any meeting of shareholders at which the voting rights of such
shares are considered and not approved. If voting rights for Control Shares are
approved at a shareholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other shareholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.
The Control Share Acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party
to the transaction or (b) to acquisitions approved or exempted by the
declaration of trust or bylaws of the trust prior to such acquisition. The
Declaration of Trust provides that the Control Shares Acquisition statute does
not apply to Shares owned or acquired by Mr. Smith or any affiliate of Mr.
Smith (but the statute shall apply to Shares acquired by such person after Mr.
Smith or any of his affiliates no longer directly holds any equity interest in
such person).
Shareholders' Meetings
The Declaration of Trust and Bylaws provide for an annual meeting of
Shareholders to be held upon proper notice and within a reasonable period
following delivery of the Company's annual report. Special meetings of
Shareholders may be called by a majority of the Trustees or by the Chairman of
the Board or the President of the Company and must be called upon the written
request of Shareholders holding in the aggregate not less than 25% of the
voting power of the outstanding Shares of the Company entitled to vote. Written
notice stating the place, date and time of the Shareholders' meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, is required to be delivered not less than 10 nor more than 60 days
before the day of the meeting to each holder of record entitled to vote at such
meeting.
Annual Report
Under the Maryland REIT Law, the Company is required to deliver to
shareholders an annual report concerning its operations for the preceding
fiscal year containing financial statements which are certified by independent
certified public accountants. The report must include a balance sheet, an
income statement and a surplus statement. Annual reports must be submitted to
the shareholders at or before the annual meeting and must be placed on file at
the principal office of the Company within the time prescribed by the Maryland
REIT Law.
Amendment
The Trustees, by a two-thirds vote, may amend the provisions of the
Company's Declaration of Trust, without shareholder approval, to qualify the
Company as a REIT under the Code or under the Maryland REIT Law. The Board may
also amend the Declaration of Trust, without shareholder approval, to increase
or decrease the aggregate number of Shares that the Company has the authority
to issue. Otherwise, the Company's Declaration of Trust may be amended only by
the affirmative vote or written consent of the holders of not less than a
majority of the votes entitled to be cast thereon. The Company's Bylaws may be
amended by the Board or by the Shareholders at any annual or special meeting of
the Shareholders.
Limitation of Liability and Indemnification
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability
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resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty material to the
cause of action as established by a final judgment. The Company's Declaration
of Trust contains such a provision limiting such liability to the maximum
extent permitted by the Maryland REIT Law.
The Declaration of Trust provides that the Company, to the fullest extent
permitted by Maryland law, may indemnify each Trustee, officer, employee and
agent in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person was a Trustee, officer, employee or agent of the
Company or is or was serving at the request of the Company as a trustee,
director, officer, partner, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, from all claims and liabilities to which such person may become
subject by reason of service in that capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each Trustee, officer,
employee or agent in connection with any such action, suit or proceeding.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees, officers, employees and
agents to the same extent as permitted by the MGCL for directors and officers
of Maryland corporations. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in 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 (i)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (a) was committed in bad faith or (b) was the
result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit in money, property or services
or (iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a 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 such person's good faith belief that he or she has met the standard
of conduct necessary for indemnification by the corporation and (b) a written
undertaking by or on behalf of such person to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met. The Declaration of Trust permits
indemnification of the Company's Trustees, officers, employees and agents to
the fullest extent permitted by Maryland law. Insofar as indemnification for
liability arising under the Securities Act may be permitted to Trustees,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Operations; Maryland Asset Requirements
The Company is generally prohibited from acquiring or holding property or
engaging in any activity that would cause the Company to fail to qualify as a
real estate investment trust. To maintain its qualification as a Maryland real
estate investment trust, the Maryland REIT Law requires that the Company hold,
either directly or indirectly, at least 75% of the value of its assets in real
estate assets, mortgages or mortgage related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables. The Maryland REIT Law also prohibits using or applying land for
farming, agriculture, horticulture or similar purposes.
Terminations of the Trust and REIT Status
The Company's Declaration of Trust permits (i) the termination of the
Company and the discontinuation of the operations of the Company at any meeting
of the Shareholders by the affirmative vote of the holders of two-thirds of the
votes entitled to be cast thereon after approval by a majority of the entire
Board, and (ii) the termination of the Company's qualification as a REIT by the
Board.
Advance Notice of Trustee Nominations and New Business
For nominations of persons for election to the Board or other business to
be properly brought before an annual meeting of shareholders, the Company's
Bylaws require such shareholder to deliver a notice to the secretary, absent
specified circumstances, not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting setting forth: (i)
as to each person whom the shareholder proposes to nominate for election or
reelection as a trustee, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
trustees pursuant to Regulation 14A of the Exchange Act; (ii) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business proposed to be brought before the meeting, the
reasons for conducting such
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business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal
is made; and (iii) as to the shareholder 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 shareholder as it appears on the Company's books and of
such beneficial owner and (y) the number of Shares which are owned beneficially
and of record by such shareholder and such beneficial owner, if any. For
nominations of persons for election to the Board at special meetings of
shareholders (provided the Board has determined that Trustees shall be elected
at such meeting), the information described above must also be delivered to the
secretary of the Company not less than 60 days nor more than 90 days before the
date of any special meeting of shareholders or not later than the tenth day
following the day on which public announcement is first made of the date of
such meeting and of the nominees for election of Trustees. In the event of an
advancement of 30 days or more or in a postponement of 60 days or more of an
annual meeting of shareholders, the notice requirements are similar to those
for a special meeting. As a result, the advance notice provisions could have
the effect of discouraging a takeover or other transaction in which holders of
some or a majority of the Common Shares might receive a premium over the
then-prevailing market price for such Common Shares.
Possible Antitakeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws
The provisions of the Declaration of Trust on classification of the Board,
the removal of Trustees and the restrictions on the transfer of shares of
beneficial interest and the advance notice provisions of the Bylaws, among
others, could have the affect of delaying, deferring or preventing a
transaction or change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be considered by shareholders
to be in their best interest.
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COMMON SHARES ELIGIBLE FOR FUTURE SALE
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. The Company has applied for trading of the Common Shares on
the NYSE. No prediction can be made as to the effect, if any, that future sales
of Common Shares (including sales pursuant to Rule 144) or the availability of
Common Shares for future sale will have on the market price prevailing from
time to time. Sales of substantial amounts of Common Shares (including Common
Shares issued upon the exercise of options or the exchange of Units), or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares and impair the Company's ability to obtain
additional capital through the sale of equity securities. See "Risk
Factors--Common Shares Eligible for Future Sale May Cause Share Prices to
Decline." For a description of certain restrictions on transfers of Common
Shares held by certain shareholders of the Company, see "Underwriting" and
"Description of Shares of Beneficial Interest."
The executive officers and Trustees of the Company have agreed not,
directly or indirectly, to offer, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise sell or dispose (or announce any offer,
sale, offer of sale, contract of sale, grant of any option to purchase or other
sale or disposition) of any Units or Common Shares or other shares of
beneficial interest of the Company, or any securities convertible into, or
exercisable or exchangeable for, any Units or Common Shares or other shares of
beneficial interest of the Company (other than pursuant to the Plan and the
Formula Plan, including the exercise of options granted thereunder, and
pursuant to the redemption of Units) for a period of two years from the
completion of the Offering without the prior written consent of the
Underwriters. The Underwriters, at any time and without notice, may release all
or any portion of the Common Shares subject to the foregoing lock-up
agreements.
The Common Shares owned by Mr. Smith and the Common Shares issuable upon
redemption of Units will be "restricted securities" under Rule 144 promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated with them
in accordance with Rule 144) who has beneficially owned "restricted securities"
(defined generally as securities acquired from the issuer or an affiliate of
the issuer in a transaction not involving a public offering) for at least one
year, including the holding period of any seller of such securities, unless
such seller is an affiliate, in which case the affiliate must have held the
restricted securities for at least two years, would be entitled to sell within
any three-month period a number of Common Shares that does not exceed the
greater of 1% of the then-outstanding number of Common Shares or 1% of the
average weekly trading volume of the Common Shares on the NYSE during the four
calendar weeks preceding each such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated with them in accordance with Rule 144) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least two years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or public
information requirements. An "affiliate" of the Company is a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or under common control with, the Company. Mr. Smith would be
deemed to be an affiliate of the Company.
The Company has established the Plan and the Formula Plan for the purpose
of attracting and retaining executive officers, Trustees and other key
employees. See "Management--1998 Shares Option Plan." Contemporaneously with
the completion of the Offering, the Company will issue options to purchase an
aggregate of 465,000 Common Shares to Mr. Smith and the Company's executive
officers and will reserve an additional 635,000 and 200,000 Common Shares on a
fully diluted basis for future issuance under the Plan and the Formula Plan,
respectively. The Company intends to file a registration statement under the
Securities Act registering the Common Shares reserved for issuance upon the
exercise of options granted under the Plan and the Formula Plan. See
"Management--1998 Shares Option Plan." This registration statement is expected
to be filed shortly after the completion of the Offering.
Pursuant to the Contribution Agreement, the Company has entered into the
Registration Rights Agreement with the holders of 1,860,311 Units. Under the
terms of the Registration Rights Agreement, holders of such Units have agreed
that such Units are not redeemable by the Company for Common Shares or cash
until one year after the date of the consummation of the Offering. The
Registration Rights Agreement also prohibits Unit holders from offering,
pledging, selling or otherwise disposing of any Units or Shares for a period of
one year. Certain exceptions include certain transactions among related
parties, bona fide gifts and customary estate planning transactions. Subject to
certain limitations, the Company has agreed to use its best efforts to file a
registration statement under the Securities Act one year after the consummation
of the
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Offering, at its expense, which would allow the sale of any and all Common
Shares issued in connection with the redemption of Units held by such holders.
These registration rights are limited or restricted to the extent an
underwriter of the offering determines that the amount of Common Shares to be
registered by such holders exceeds the number of Common Shares that can be sold
without adversely affecting the market for the Common Shares.
FEDERAL INCOME TAX CONSEQUENCES
The Company intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a summary of the federal income tax consequences for the
Company and its shareholders with respect to the treatment of the Company as a
REIT. The information set forth below, to the extent that it constitutes
matters of law or legal conclusions, is based on the opinion of Mayer, Brown &
Platt, special tax counsel to the Company.
Based upon the matters described below, in the opinion of Mayer, Brown &
Platt, counsel to the Company, the Company has been organized in conformity
with the requirements for qualification as a REIT beginning with its taxable
year ending December 31, 1998, and its proposed method of operation as
represented by the Company to Mayer, Brown & Platt and as described in this
Prospectus will enable it to satisfy the requirements for such qualification.
This opinion is based on certain assumptions relating to the organization and
operation of the Company and the Operating Partnership, including that the
Formation Transactions will be consummated in accordance with the operative
documents and such documents accurately reflect the material facts of such
transactions, and that the Company and the Operating Partnership will each be
operated in the manner described in their applicable organizational documents
and in this Prospectus, and that all terms and provisions of such documents and
other documents to which the Company or Operating Partnership is a party, will
be complied with by all parties thereto. This opinion is also conditioned upon
certain representations made by the Company as to certain factual matters
relating to the Company's organization and intended or expected manner of
operation. In addition, this opinion is based on the law existing and in effect
on the date hereof, and the Company's qualification and taxation as a REIT will
depend on compliance with such law existing and in effect on the date hereof
and as the same may hereafter be amended. The Company's qualification and
taxation as a REIT will further depend upon the Company's ability to meet, on a
continuing basis through actual operating results, asset composition,
distribution levels and diversity of share ownership, the various qualification
tests imposed under the Code discussed below. Counsel will not review
compliance with these tests on a continuing basis, and thus no assurance can be
given that the Company will satisfy such tests on a continuing basis.
In brief, a corporation that invests primarily in real estate can, if it
meets the REIT provisions of the Code described below, claim a tax deduction
for the dividends it pays to its shareholders. Such a corporation generally is
not taxed on its "REIT taxable income" to the extent such income is currently
distributed to shareholders, thereby substantially eliminating the "double
taxation" (i.e., at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the
dividends it paid to its shareholders and would be subject to full federal
income taxation on its earnings, thereby significantly reducing or eliminating
the cash available for distribution to its shareholders. See "--Taxation of the
Company--General" and "--Taxation of the Company--Failure to Qualify."
The Board of the Company currently expects that the Company will operate
in a manner that permits it to elect, and that it will timely and effectively
elect, REIT status for its taxable year ending December 31, 1998, and in each
taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled since qualification as a REIT depends on the
Company continuing to satisfy the numerous asset, income and distribution tests
described below, which in turn will be dependent on the Company's operating
results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, financial institutions and
broker-dealers, and, except as discussed below, foreign corporations and
persons who are not the citizens or residents of the United States) subject to
special treatment under the federal income taxation laws.
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Taxation of the Company
General
In any year in which the Company qualifies as a REIT, in general it will
not be subject to federal income tax on that portion of its REIT taxable income
or capital gain which is distributed to shareholders. The Company may, however,
be subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed. Under recently enacted legislation, to the extent that
the Company elects to retain and pay income tax on its net long-term capital
gain, shareholders are required to include their proportionate share of the
Company's undistributed long-term capital gain in income but receive a credit
for their share of any taxes paid on such gain by the Company.
Notwithstanding its qualification as a REIT, the Company also may be
subject to taxation in certain other circumstances. If the Company should fail
to satisfy either the 75% or the 95% gross income test (each as discussed
below), and nonetheless maintain its qualification as a REIT because certain
other requirements are met, it will be subject to a 100% tax on the greater of
the amount by which the Company fails either the 75% or the 95% test,
multiplied by a fraction intended to reflect the Company's profitability. The
Company will also be subject to a tax of 100% on net income from any
"prohibited transaction" (as described below), and if the Company has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to
tax on such income from foreclosure property at the highest corporate rate. In
addition, if the Company should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. To the extent that the Company elects to retain and pay income tax
on its long-term capital gain, such retained amounts will be treated as having
been distributed for purposes of the 4% excise tax. The Company also may be
subject to the corporate alternative minimum tax, as well as to tax in certain
situations not presently contemplated. The Company will use the calendar year
both for federal income tax purposes, as is required of a newly organized REIT,
and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Tests
The Company's shares of beneficial interest (which term, in the case of
the Company, currently means the Common Shares) must be held by a minimum of
100 persons for at least 335 days in each taxable year (or a proportional
number of days in any short taxable year). In addition, at all times during the
second half of each taxable year, no more than 50% in value of the outstanding
shares of beneficial interest of the Company may be owned, directly or
indirectly and including the effects of certain constructive ownership rules,
by five or fewer individuals, which for this purpose includes certain tax-exempt
entities. However, for purposes of this test, any shares of beneficial interest
held by a qualified domestic pension or other retirement trust will be treated
as held directly by its beneficiaries in proportion to their actuarial interest
in such trust rather than by such trust. These share ownership requirements
need not be met until the second taxable year of the Company for which a REIT
election is made.
In order to attempt to ensure compliance with the foregoing share
ownership tests, the Company has placed certain restrictions on the ownership
and transfer of its shares of beneficial interest to prevent additional
concentration of stock ownership. Moreover, to evidence compliance with these
requirements, Treasury regulations require the Company to maintain records
which disclose the actual ownership of its outstanding shares of beneficial
interest. In fulfilling its obligations to maintain records, the Company must
and will demand written statements each year from the record holders of
designated percentages of its shares of beneficial interest disclosing the
actual owners of such shares of beneficial interest (as prescribed by Treasury
regulations). A list of those persons failing or refusing to comply with such
demand must be maintained as part of the Company's records. A shareholder
failing or refusing to comply with the Company's written demand must submit
with his tax return a similar statement disclosing the actual ownership of the
Company's shares of beneficial interest and certain other information. In
addition, the Company's Declaration of Trust provides restrictions regarding
the ownership and transfer of its shares of beneficial interest that are
intended to assist the Company in continuing to satisfy the share ownership
requirements. See "Description of Shares of Beneficial Interest--Restrictions
on Ownership and Transfer; Excess Shares."
Asset Tests
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles). First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in
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other REITs, cash, cash items, government securities and qualified temporary
investments. Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed (i) in the case of securities of any one non-government issuer, 5% of
the value of the Company's total assets (the "Value Test") or (ii) 10% of the
outstanding voting securities of any one such issuer (the "Voting Stock Test").
Where the Company invests in a partnership (such as the Operating Partnership),
it will be deemed to own a proportionate share of the partnership's assets and
the partnership interest does not constitute a security for purposes of these
tests. See "--Tax Aspects of the Company's Investments in
Partnerships--General." Accordingly, the Company's investment in the Properties
through its interest in the Operating Partnership is intended to constitute an
investment in qualified assets for purposes of the 75% asset test.
Gross Income Tests
There are two separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the
Company will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the
partnership. See "--Tax Aspects of the Company's Investments in
Partnerships--General" below. The two tests are separately described below:
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii)
gains from the sales or other disposition of interests in real property and
real estate mortgages, other than gain from property bought primarily for sale
to customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage secured by
such property ("foreclosure property"); and (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to purchase or
lease real property.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income or from
dividends, interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% gross income test.
The Company intends to closely monitor its non-qualifying income and
anticipates that non-qualifying income from its other activities will not
result in the Company failing to satisfy either the 75% or 95% gross income
test.
Characterization of Rent
Rents under the Leases (the "Rent") will not constitute "rents from real
property" if the Leases are characterized as service contracts, joint ventures,
financing arrangements or some other type of arrangement other than true leases
for federal income tax purposes. The determination of whether the Leases are
true leases depends on an analysis of all surrounding facts and circumstances.
In making such a determination, courts have considered a variety of factors,
including the following: (i) the intent of the parties; (ii) the form of the
agreement; (iii) the degree of control over the property that is retained by
the property owner (e.g., whether the lessee has substantial control over the
operation of the business conducted on the property); (iv) the extent to which
the property owner retains the risk of loss with respect to the operation of
the business conducted on the property (e.g., whether the lessee bears the risk
of increases in operating expenses and decreases in operating revenues); and
(v) the extent to which the property owner retains the burdens and benefits of
ownership of the property.
Mayer, Brown & Platt is of the opinion that, subject to the receipt of
certain documentation with respect to the Advance Leases, each Initial Lease
will be treated as a true lease for federal income tax purposes. Such opinion
is not binding on the IRS and is based, in part, on the following facts: (i)
the Operating Partnership and each Lessee intend for their relationship to be
that of a lessor and lessee and such relationship will be documented by lease
agreements; (ii) each Lessee will have the right to exclusive possession and
use and quiet enjoyment of the Properties during the term of the Lease; (iii)
each Lessee will bear the costs of, and be responsible for, day-to-day
maintenance and repair of the Property, and will control how the business
conducted on the Property is operated; (iv) each Lessee will bear all of the
costs and expenses of operating the Property during the term of the Lease; (v)
each Lessee will benefit from any savings in expenses and costs of operating
the Property during the term of the Lease; (vi) the Lessee will generally
indemnify the Operating Partnership against all liabilities imposed on the
Operating Partnership during the term of the Lease by reason of (a) injury to
persons or damage to property occurring at the Property, or (b) the Lessee's
use, management, maintenance or repair of the Property; (vii) the
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Lessee is obligated to pay material fixed rent for the period of use of the
Properties; (viii) the Lessee stands to incur substantial losses (or reap
substantial gains) depending on how successfully it operates the business
conducted on the Property; (ix) the useful life of each Property is
significantly longer than the term of the Lease to which it relates; and (x)
the Operating Partnership will receive the benefit of any increase in value,
and will bear the risk of any decrease in value, of the Property during the
term of each Lease.
If the IRS were to challenge successfully the characterization of the
Initial Leases as true leases, the Operating Partnership would not be treated
as the owner of the Property for federal income tax purposes and the Operating
Partnership would lose tax depreciation deductions with respect to such
Property, which in turn could cause the Company to fail to qualify as a REIT.
Prospective investors should be aware that there are no controlling
Treasury regulations, published rulings, or judicial decisions involving leases
with terms substantially similar to those contained in the Leases that address
whether such leases constitute true leases for federal income tax purposes. If
the Leases are recharacterized as financing or partnership arrangements, rather
than true leases, part or all of the payments that the Operating Partnership
receives from the Lessees may not be considered rent or may not otherwise
satisfy the various requirements for qualification as "rents from real
property." In that case, the Company likely would not be able to satisfy either
the 75% of 95% gross income tests and, as a result, would lose its REIT status.
Although the Operating Partnership intends to structure any leasing
transaction for Properties acquired in the future such that the Lease will be
characterized as a "true lease" and the Operating Partnership will be treated
as the owner of the Property in question for federal income tax purposes, the
Operating Partnership will not seek an advance ruling from the IRS and may not
seek an opinion of counsel (except with respect to the Initial Leases) that the
Operating Partnership will be treated as the owner of any leased Properties for
federal income tax purposes, and thus there can be no assurances that future
leases will be treated as true leases for federal income tax purposes.
Rents from Real Property
Rents received by the Company will qualify as "rents from real property"
for purposes of the gross income tests only if several requirements are
satisfied. First, the amount of rent must not be based in whole or in part on
the income or profits derived by any person from the property being leased.
However, an amount received or accrued generally will not be excluded from the
terms "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. The Company will structure the
Leases so that Rent paid by the Lessees for the Properties will be a fixed
amount, and will not be based in whole or in part on the net income of any
person with respect to the Properties.
Second, for Rents to qualify as "rents from real property," the Company
must not own, actually or constructively, 10% of more of any Initial Lessee or
any other Lessee of the Properties (a "Related Party Tenant"). The constructive
ownership rules generally provide that if 10% or more in value of the Shares of
the Company are owned, directly or indirectly, by or for any person, the
Company is considered as owning the shares owned, directly or indirectly, by or
for such person. The applicable attribution rules, however, are complex and
difficult to apply on account of factual uncertainty and other reasons, and the
Company may enter into leases with Lessees who, through application of such
rules, constitute Related Party Tenants. In such event, rent paid by the
Related Party Tenant will not qualify as "rents from real property," which may
jeopardize the Company's status as a REIT. To reduce the risk that any Lessee
will be treated as a related party tenant, the Company's Declaration of Trust
prohibits transfers of Shares that could cause a Lessee to be a related party
tenant of the Company. In addition, the Sonic Leases prohibit Lessees from
owning, directly or indirectly, 10% or more in value of the Shares of the
Company and the Company will obtain certain documentation from Advance Auto
which will provide for similar restrictions. In addition, to reduce the risk
that any Lessee will be treated as a related party tenant (i) the Declaration
of Trust provides that no direct or indirect partner or member of an Excluded
Holder (as defined in the Declaration of Trust) may beneficially or
constructively own Shares and (ii) the Partnership Agreement provides that no
partner (other than the General Partner) shall be permitted to own (actually or
constructively, through the application of Section 318 of the Code, modified
for purposes of the REIT rules) a 25% or greater percentage interest in the
Partnership. No assurance can be given that these restrictions will be complied
with. See "Description of Shares of Beneficial Interest--Restrictions on
Transfer--Excess Shares."
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 to such personal property will
not qualify as "rents from real property." The Rent attributable to the
personal property associated with a property is the amount that bears the same
ratio to total rent for the taxable year as the average of the adjusted bases
of the personal property in the property at
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the beginning and at the end of the taxable year bears to the average of the
aggregate adjusted bases of both the real and personal property comprising the
property at the beginning and at the end of such taxable year.
Finally, for rents received to qualify as rents from real property for
purposes of the 75% and 95% gross income tests, the Company generally must not
operate or manage the property or furnish or render services to customers,
other than through an "independent contractor" from whom the Company derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy
only, or are not otherwise considered "rendered to the occupant for his
convenience" or the amounts received with respect to such services do not
exceed 1% of all amounts received or accrued, directly or indirectly, by the
Company during the taxable year with respect to such property. The Operating
Partnership will provide certain services at the Properties that it owns and
possibly at any newly acquired Properties of the Operating Partnership. The
Company believes that any services provided at such Properties and any other
services and amenities provided by the Operating Partnership or its agents with
respect to such Properties will be of the type usually or customarily rendered
in connection with the rental of space for occupancy only and not rendered to
the occupant for his convenience. The Company intends that services that cannot
be provided directly by the Operating Partnership or other agents will be
performed by independent contractors.
Foreclosure Property Rules and Certain Other Rules
REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would generally 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) as to which the related lease or loan was made or
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. Except as provided in the following paragraph, property
shall cease to be foreclosure property with respect to the Company as of the
close of the third taxable year following the taxable year in which the Company
acquired such property in foreclosure. If property is not eligible for the
election to be treated as foreclosure property ("ineligible property") because,
for example, the related lease was acquired by the REIT at a time when default
was imminent or anticipated, income received with respect to such ineligible
property may not be qualifying income for purposes of the 75% or 95% gross
income tests.
Any foreclosure property shall cease to be foreclosure property on the
first day (occurring on or after the day on which the Company acquired the
property in foreclosure) on which: (x) a lease is entered into with respect to
such property which, by its terms, will not give rise to qualifying income for
purposes of the 75% gross income test or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or after such day
which does not generate qualifying income for purposes of the 75% gross income
test; (y) any construction takes place on such property (other than completion
of a building, or completion of any other improvement, where more than 10
percent of the construction of such building or other improvement was completed
before default became imminent); or (z) if such day is more than 90 days after
the day on which such property was acquired by the Company and the property is
used in a trade or business which is conducted by the Company (other than
through an independent contractor (within the meaning of Section 856(d)(3) of
the Code) from whom the Company itself does not derive or receive any income).
For example, if the Company were to acquire a Dealership as foreclosure
property and operate the Dealership for more than 90 days, the Company would be
required to operate the Dealership through an independent contractor (within
the meaning of the Code) from whom the Company itself did not derive or receive
any income (which might include income from the Dealership). Otherwise, after
such 90th day, the property would cease to be foreclosure property.
In the event that a foreclosure with respect to any of the Company's
investments were to occur (or were anticipated to occur), the Company intends
to manage the actual or anticipated foreclosure with the intent of assuring
qualification under the REIT asset and gross income tests including, if
appropriate, the election to treat a foreclosed upon property as foreclosure
property and to pursue the continued treatment of such property under the
foreclosure property rules.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, a sale of property will not
be a prohibited transaction if such property is held by the Company for at
least four years and certain other requirements (relating to the number of
properties sold in a year, their tax
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bases, and the cost of improvements made thereto) are satisfied. See
"--Taxation of the Company--General" and "Tax Aspects of the Company's
Investments in Partnerships--Sale of the Properties."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Properties through the Operating
Partnership will in major part give rise to qualifying income in the form of
rents, and that gains on sales of the Properties, or of the Company's interest
in the Operating Partnership, generally will also constitute qualifying income.
Even if the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
is due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100%
tax on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
Annual Distribution Requirements
In order to quality as a REIT, the Company is required to distribute
dividends to its shareholders each year in an amount at least equal to (A) the
sum of (i) 95% of the Company's REIT taxable income (computed without regard to
the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, for foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after the declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gain or
ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Partnership Agreement authorizes the
Company in its capacity as general partner to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet the distribution requirements.
It is possible that the Company may not have sufficient cash or other liquid
assets to meet the 95% distribution requirement, due to timing differences
between the actual receipt of income and actual payment of expenses on the one
hand, and the inclusion of such income and deduction of such expense in
computing the Company's REIT taxable income on the other hand; due to the
Operating Partnership's inability to control cash distributions with respect to
any properties as to which its does not have decision making control; or for
other reasons. The Company will closely monitor the relationship between its
REIT taxable income and cash flow and, if necessary, intends to borrow funds
(or cause the Operating Partnership or other affiliates to borrow funds) in
order to satisfy the distribution requirement. However, there can be no
assurance that such borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year which the
Company fails to qualify as a REIT will not be deductible by the Company, nor
generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions
to shareholders will be taxable as ordinary income, and subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
Tax Aspects of the Company's Investments in Partnerships
General
The Company will hold a partnership interest in the Operating Partnership.
In general, a partnership is a "pass-through" entity which is not subject to
federal income tax. Rather, partners are allocated their proportionate shares
of the items of
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income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partnership received a
distribution from the partnership. The Company will include its proportionate
share of the foregoing partnership items for purposes of the various REIT gross
income tests and in the computation of its REIT taxable income. See "--Taxation
of the Company--General" and "--Gross Income Tests."
Each partner's share of a partnership's tax attributes is determined in
accordance with the partnership agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions
of Code Section 704(b) and the regulations thereunder. The Operating
Partnership's allocations of tax attributes are intended to comply with these
provisions. Notwithstanding these allocation provisions, for purposes of
complying with the gross income and asset tests discussed above, the Company
will be deemed to own its proportionate share of each of the assets of the
partnership and will be deemed to have received a share of the income of the
Partnership based on its capital interest in the Operating Partnership.
Accordingly, any resultant increase in the Company's REIT taxable income
from its interest in the Operating Partnership (whether or not a corresponding
cash distribution is also received from the Operating Partnership) will
increase its distribution requirements (see "--Taxation of the Company--Annual
Distribution Requirements"), but will not be subject to federal income tax in
the hands of the Company provided that an amount equal to such income is
distributed by the Company to its shareholders. Moreover, for purposes of the
REIT asset tests (see "--Taxation of the Company--Asset Tests"), the Company
will include its proportionate share of assets held by the Operating
Partnership.
Entity Classification
Based on the representations of the Company that the Operating Partnership
will be operated in accordance with its organizational documents and satisfies
certain conditions relating to "publicly traded partnership" status under the
Code, in the opinion of Mayer, Brown & Platt, under existing federal income tax
law and regulations, the Operating Partnership will be treated for federal
income tax purposes as a partnership, and not as an association taxable as a
corporation. Such opinion, however, is not binding on the Service.
Tax Allocations with Respect to the Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deductions
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership (such as certain of
the Properties or interests therein) must be allocated in a manner such that
the contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital amounts or other economic arrangements among the partners. The
formation of the Operating Partnership included contributions of appreciated
property (including certain of the Properties or interests therein).
Consequently, the Partnership Agreement requires certain allocations to be made
in a manner consistent with Section 704(c) of the Code.
In general, certain of the sellers of the Initial Properties as
contributors of certain of the Properties or interests therein will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership on the
contributed assets (including certain of such Properties). This will tend to
eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules of Section 704(c) do not always entirely
rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale, and accordingly variations from
normal Section 704(c) principles may arise, which could result in the
allocation of additional taxable income to the Company in excess of
corresponding cash proceeds in certain circumstances.
Treasury regulations under Section 704(c) provide partnerships with a
choice of several methods of accounting for Book-Tax Differences. The Operating
Partnership and the Company have not yet determined which of the alternative
methods of accounting for Book-Tax Differences will be elected, and
accordingly, such determination could have differing timing and other effects
on the Company.
Certain of the Properties acquired in taxable transactions will in general
have a tax basis equal to their fair market value. Section 704(c) of the Code
will not apply in such cases.
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Sale of the Properties
The Company's share of any gain realized by the Operating Partnership on
the sale of any "dealer property" generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "--Taxation
of the Company--General" and "Gross Income Tests--The 95% Test." Under existing
law, whether property is dealer property is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold (and, to the extent within its control,
to have any joint venture to which the Operating Partnership is a partner so
hold) the Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, owning, operating and developing the
Properties and other industrial properties, and to make such occasional sales
of the Properties and other properties acquired subsequent to the date hereof
as are consistent with the Company's investment objectives. Based upon the
Company's investment objectives, the Company believes that overall, the
Properties should not be considered dealer property and that the amount of
income from prohibited transactions, if any, will not be material.
Taxation of Domestic Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends or retained capital
gains) generally will be taxed to such shareholders as ordinary dividend income
and will not be eligible for the dividends received deduction for corporations.
Distributions of net capital gain designated by the Company as capital gain
dividends will be taxed to such shareholders as long-term capital gain (to the
extent they do not exceed the Company's actual net capital gain for the fiscal
year) without regard to the period for which the shareholder has held its
shares of beneficial interest of the Company. However, corporate shareholders
may be required to treat up to 20% of capital gain dividends as ordinary
income. To the extent that the Company makes distributions in excess of current
and accumulated earnings and profits, such distributions will be treated first
as a tax-free return of capital to the shareholder, reducing the tax basis of a
shareholder's Common Shares by the amount of such excess distribution (but not
below zero), with distributions in excess of the shareholder's tax basis being
taxed as capital gains (if the Common Shares are held by the shareholder as a
capital asset). See "Distribution Policy." In addition, any dividend declared
by the Company in October, November or December of any year that is payable to
a shareholder of record on a specific date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses of the Company. Federal
income tax rules may also require that certain minimum tax adjustments and
preferences be apportioned to Company shareholders.
The Company is permitted under the Code to elect to retain and pay income
tax on its net capital gain for any taxable year. Under the Taxpayer Relief Act
of 1997 (the "1997 Act"), however, if the Company so elects, a shareholder must
include in income such shareholder's proportionate share of the Company's
undistributed capital gain for the taxable year, and will be deemed to have
paid such shareholder's proportionate share of the income tax paid by the
Company with respect to such undistributed capital gain. Such tax would be
credited against the shareholder's tax liability and subject to normal refund
procedures. In addition, each shareholder's basis in such shareholder's shares
of Common Shares would be increased by the amount of undistributed capital gain
(less the tax paid by the Company) included in the shareholder's income.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), which was recently passed by Congress and signed into law by the
President, alters the holding period for capital gain income for individuals
(and for certain trusts and estates). Pursuant to the 1997 Act, gain from the
sale or exchange of Common Shares held for more than 18 months was taxed at a
maximum capital gain rate of 20%. Gain from the sale or exchange of Common
Shares held for more than one year, but not more than 18 months was taxed at a
maximum capital gain rate of 28%. The 1997 Act also provided a maximum rate of
25% for "unrecaptured section 1250 gain" recognized on the sale or exchange of
certain real estate assets held for more than 18 months. Pursuant to the 1998
Act, property held for more than one year (rather than for more than 18 months)
will be eligible for the 20% and 25% capital gains rates discussed above. The
1998 Act applies to amounts taken into account on or after January 1, 1998. On
November 10, 1997, the Service issued Notice 97-64, which provides generally
that the Company may classify portions of its designated capital gain dividends
and deemed distributions of retained capital gains as (i) a 20% rate gain
distribution (which would be taxed as capital gain in the 20% group), (ii) an
unrecaptured Section 1250 gain distribution (which would be taxed as capital
gain in the 25% group), or (iii) a 28% rate gain distribution (which would be
taxed as capital gain in the 28% group). If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate capital gain
distribution. Notice 97-64 provides that the Company must determine the maximum
amounts that it may designate as 20% and 25% rate capital gain dividends by
performing the computation required by the Code as if the Company were an
individual whose ordinary income was subject to a marginal tax
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rate of at least 28%. Notice 97-64 has not yet been modified to incorporate the
changes made to holding period requirements under the 1998 Act.
In general, any loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company required to be treated by
such shareholders as long-term capital gains.
Backup Withholding
The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid for each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at a rate of 31% with respect
to dividends paid unless such shareholder (i) is a corporation or comes with
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding is available as a credit against the shareholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See "--Certain United States Tax
Considerations for Non-U.S. Shareholders" below.
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not
constitute unrelated business taxable income ("UBTI"). Subject to the
discussion below regarding a "pension-held REIT," based upon such ruling and
the statutory framework of the Code, distributions by the Company to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, that the shares are
not otherwise used in an unrelated trade or business of the tax-exempt entity,
and that the Company, consistent with its present intent, does not hold a
residual interest in a real estate mortgage investment conduit ("REMIC") that
is an entity or arrangement that satisfies the standards set forth in Section
860D of the Code.
If any pension or other retirement trust that qualifies under Section
401(a) of the Code (a "qualified pension trust") holds more than 10% by value
of the interests in a "pension-held REIT" at any time during a taxable year, a
portion of the dividends paid to the qualified pension trust by such REIT may
constitute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT
(i) which would not have qualified as a REIT but for the provisions of the Code
which look through such a qualified pension trust in determining ownership of
shares of the REIT and (ii) as to which at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the interests in such
REIT.
The Company does not expect to constitute a "pension-held REIT"
immediately after the closing of the Offering and Formation Transaction.
However, no assurance can be given that the Company will not become a
"pension-held REIT" in the future.
Other Tax Considerations
Tax Legislation and Other Law Changes
The 1997 Act modifies many of the provisions relating to the requirements
for qualification as, and the taxation of, a REIT. Among other things, the 1997
Act (i) replaces the rule that disqualifies a REIT for any year in which the
REIT fails to comply with United States Treasury regulations that are intended
to enable a REIT to ascertain its ownership, with an intermediate penalty for
failing to do so; (ii) permits a REIT to render a de minimis amount of
impermissible services to tenants, or in connection with the management of
property, and still treat amounts received with respect to that property as
rents from real property; (iii) permits a REIT to elect to retain and pay
income tax on net long term capital gains; (iv) repeals a rule that required
that less than 30% of a REIT's gross income be derived from gain from the sale
or other disposition of stock or securities held for less than one year,
certain real property held for less than four years, and property that is sold
or disposed of in a prohibited transaction; (v) lengthens the original grace
period for foreclosure property from two years after the REIT acquired the
property to a period ending on the last day of the third full taxable year
following the taxable year in which the property was acquired; (vi) treats
income from all hedges that reduce the interest rate risk
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of REIT liabilities, not just interest rate swaps and caps, as qualifying
income under the 95% gross income test; and (vii) permits any corporation
wholly owned by a REIT to be treated as a qualified subsidiary, regardless of
whether the corporation has always been owned by a REIT.
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly in review by persons involved in the
legislative process and by the Service and the Treasury Department resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof can
adversely affect the tax consequences of an investment in the Company.
State and Local Taxes
The Company and its shareholders may be subject to state or local taxation
and the Company and the Operating Partnership may be subject to state or local
tax withholding requirements in various jurisdictions, including those in which
it or they transact business or reside. The state and local tax treatment of
the Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in Common Shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. federal income
and U. S. federal estate tax consequences of the ownership and disposition of
shares by a beneficial owner of shares of beneficial interest who is not a U.S.
person (a "Non-U.S. Shareholder"). For purposes of this discussion, a "U.S.
person" means a citizen or resident of the United States, a corporation or
partnership created or organized in the United States or under the law of the
United States or of any State or political subdivision of the foregoing (except
that the 1997 Act provides the IRS with the authority to issue regulations to
classify a foreign partnership as a domestic or foreign partnership where such
treatment is more appropriate without regard to where the partnership is
created or organized), any estate whose income is includible in gross income
for U.S. federal income tax purposes regardless of its source, or a "United
States Trust". A United States Trust is any trust if (i) a court within the
United States is able to exercise primary supervision over the administration
of the trust and (ii) one or more U.S. persons have the authority to control
all substantial decisions of the trust. The discussion is based on current law
and is for general information only. The discussion does not address other
aspects of U.S. Federal taxation other than income and estate taxation or all
aspects of U.S. Federal income and estate taxation. The discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING
THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF BENEFICIAL INTEREST.
Distributions From The Company
Ordinary Dividends
The portion of dividends received by Non-U.S. Shareholders payable out of
the Company's earnings and profits that are not attributable to capital gains
of the Company will be subject to U.S. withholding tax at the rate of 30%
unless reduced by treaty or the Non-U.S. Shareholder files an Internal Revenue
Service Form 4224 with the Company certifying that the investment to which the
distribution relates is effectively connected to a United States trade or
business of such Non-U.S. Shareholder (and, if certain tax treaties apply, is
attributable to a United States permanent establishment maintained by such
Non-U.S. shareholder). Under certain limited circumstances, the amount of tax
withheld may be refundable, in whole or in part, because of the tax status of
certain partners or beneficiaries of Non-U.S. Shareholders that are either
foreign partnerships or foreign estates or trusts. In general, Non-U.S.
Shareholders will not be considered engaged in a U.S. trade or business solely
as a result of their ownership of shares of beneficial interest. In cases where
the dividend income from a Non-U.S. shareholder's investment in shares of
beneficial interest is (or is treated as) effectively connected with the
Non-U.S. Shareholder's conduct of a U.S. trade or business (and, if certain tax
treaties apply, is attributable to a United States permanent establishment
maintained by such Non-U.S. shareholder), the Non-U.S. Shareholder generally
will be subject to U.S. tax at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to such dividends (and may also be
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subject to the 30% branch profits tax (unless reduced or eliminated by treaty)
in the case of a Non-U.S. Shareholder that is a foreign corporation).
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of the Treasury
Regulations, for purposes of determining the applicability of a tax treaty
rate. However, under recently finalized Treasury Regulations effective for
dividends paid after December 31, 1999 (the "New Regulations"), a Non-U.S.
Shareholder who wishes to claim the benefit of an applicable treaty rate will
be required to satisfy applicable certification requirements on Internal
Revenue Service Form W-8. The New Regulations will also permit a reduced rate
of withholding on payments of dividends to foreign partnerships whose partners
are entitled to a reduced rate of withholding if the partners and the foreign
partnership supply the appropriate Internal Revenue Service certifications or
if the foreign partnership elects to be treated as a "qualified intermediary"
for withholding tax purposes. Under the New Regulations, Non-U.S. Shareholders
who claim that the dividends are effectively connected with the conduct of a
U.S. trade or business will have to supply Form W-8A in lieu of Form 4224 (Form
W-8A to date has only been issued in proposed form and is subject to change).
Capital Gain Dividends
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"),
any distribution made by the Company to a Non-U.S. Shareholder, to the extent
attributable to gains from dispositions of United States Real Property
Interests ("USRPIs") by the Company ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Shareholder
and subject to U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, the Company will be required to withhold
tax equal to 35% of the amount of such distribution to the extent it
constitutes USRPI Capital Gains. Such distribution may also be subject to the
30% branch profits tax (unless reduced or eliminated by treaty) in the case of
a Non-U.S. shareholder that is a foreign corporation.
Non-Dividend Distributions
Any distributions by the Company that exceed both current and accumulated
earnings and profits of the Company will not be taxed as either ordinary
dividends or capital gain dividends. However, under current law, if it 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 distribution will be subject to withholding. Should this occur, the
Non-U.S. Shareholder may seek a refund of over-withholding from the Internal
Revenue Service once it is subsequently determined that such distribution was,
in fact, in excess of current and accumulated earnings and profits of the
Company. Under the New Regulations, the Company will be entitled to make a
reasonable estimate of the portion of the distribution that is not a dividend.
Dispositions of Shares of Beneficial Interest
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. shareholder generally
will not be subject to U.S. taxation under FIRPTA. The shares of beneficial
interest will not constitute USRPIs if the Company is a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which, at all
times during a specified testing period, less than 50% in value of its shares
of beneficial interest is held directly or indirectly by Non-U.S. shareholders.
Because the Common Shares will be publicly traded, no assurance can be given
that the Company will continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Shareholder's sale or exchange of shares of beneficial interest
generally will still not be subject to tax under FIRPTA as a sale of USRPIs
provided that (i) the Company's shares of beneficial interest are "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the NYSE, on which the Shares are listed) and (ii) the
selling Non-U.S. Shareholder held 5% or less of the Company's outstanding
shares of beneficial interest at all times during a specified testing period.
If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
U.S. income tax at the rates applicable to U.S. individuals or corporations
(subject to alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of shares of
beneficial interest could be required to withhold 10% of the purchase price and
remit such amount to the Internal Revenue Service. The branch profits tax would
not apply to such sales or exchanges.
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<PAGE>
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in shares of beneficial interest is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Shareholder,
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain or (ii) if the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States or an
office or other fixed place of business in the United States to which such gain
is attributable, the nonresident alien individual will be subject to 30% tax on
the individual's capital gain (unless reduced or eliminated by treaty).
Federal Estate Tax
Shares of beneficial interest owned or treated as owned by an individual
who is not a citizen or "resident" (as specifically defined for U.S. federal
estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. federal estate tax on the property
includable in the estate for U.S. federal estate tax purposes.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each Non-U.S.
Shareholder the amount of dividends (including any capital gain dividends) paid
to, and the tax withheld with respect to, each Non-U.S. Shareholder. These
reporting requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Copies of these returns may also be
made available under the provisions of a specific treaty or agreement with the
tax authorities in the country in which the Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
shares of beneficial interest to a Non-U.S. Shareholder at an address outside
the United States. However, under the New Regulations, a Non-U.S. Shareholder
may be required to provide a certification on Form W-8 to be exempt from backup
withholding.
The payment of the proceeds from the disposition of shares of beneficial
interest to or through a U.S. office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Shareholder, or
otherwise establishes an exemption. The payment of the proceeds from the
disposition of shares of beneficial interest to or through a non-U.S. office of
a non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of a payment of
proceeds from the disposition of shares of beneficial interest to or though a
non-U.S. office of a broker which is (i) a U.S. person, (ii) a "controlled
foreign corporation" for U.S. Federal income tax purposes or (iii) a foreign
person 50% or more of whose gross income for certain periods is derived from a
U.S. trade or business, information reporting (but not backup withholding) will
apply unless the broker has documentary evidence in its files that the holder
is a Non-U.S. Shareholder (and the broker has no actual knowledge to the
contrary) and certain other conditions are met, or the holder otherwise
establishes an exemption. A payment of the proceeds from the disposition of
shares of beneficial interest to or through such broker will be subject to
backup withholding if such broker has actual knowledge that the holder is a
U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. federal income tax liability, provided that required
information is furnished to the Internal Revenue Service.
These backup withholding and information reporting rules are currently
under review by the Treasury Department, and their application to shares of
beneficial interest is subject to change.
IT IS STRONGLY ADVISED THAT EACH PROSPECTIVE PURCHASER CONSULT WITH SUCH
PURCHASER'S TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH
PURCHASER OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY
ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for which Wheat First Union, a
division of Wheat First Securities, Inc., and NationsBanc Montgomery Securities
LLC, are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of Common Shares set forth opposite each
Underwriter's name below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ------------------------------------------------- -----------------
<S> <C>
Wheat First Securities, Inc. ...................
NationsBanc Montgomery Securities LLC ..........
----------
Total .......................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Common Shares are subject to approval of certain
legal matters by counsel and to certain other conditions. The nature of the
Underwriters' obligation is such that they are committed to purchase and pay
for all of the Common Shares if any Common Shares are purchased.
The Underwriters propose to offer the Common Shares directly to the public
at the Offering Price set forth on the cover page of the Prospectus and to
certain securities dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such selected dealers may reallow,
a concession not in excess of $ per share to certain brokers and dealers.
After the Offering, the Offering Price, concession, allowance and reallowance
may be changed by the Representatives. The Representatives have informed the
Company that the Underwriters do not intend to confirm sales to accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
1,500,000 additional Common Shares at the Offering Price. To the extent that
the Underwriters exercise this option, each of the Underwriters will be
committed, subject to certain conditions, to purchase such additional Common
Shares in approximately the same proportion as set forth in the table above.
The Underwriters may purchase such Common Shares only to cover over-allotments,
if any, made in connection with this Offering. If purchased, the Underwriter
will offer such additional Common Shares on the same terms as those on which
the initial 10,000,000 Common Shares are being offered.
The Company and its Trustees and executive officers have agreed not to
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise dispose (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or
disposition), directly or indirectly, any Units or Common Shares or other
shares of beneficial interest of the Company, or any securities convertible
into, or exercisable or exchangeable for, any Units or Common Shares or other
shares of beneficial interest of the Company, for a period of two years from
completion of the Offering without the prior written consent of the
Underwriters, other than, in the case of the Company, in connection with the
acquisition of Properties, pursuant to the Plan and the Formula Plan or
pursuant to the redemption of Units. The Underwriters, at any time and without
notice, may release all or any portion of the Units, Common Shares or other
shares of beneficial interest subject to the foregoing lock-up agreements. See
"Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares, which might be higher than the price that otherwise might
prevail in the open market. The Underwriters may over allot in connection with
the Offering, creating a short position in the Common Shares for their own
account. In addition, to cover over allotments, syndicate short positions or to
stabilize the price of the Common Shares, the Underwriters may bid for, and
purchase, Common Shares in the open market. The underwriting syndicate also may
reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Shares in the Offering, if the syndicate repurchases
previously distributed Common Shares in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Shares
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<PAGE>
above independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
Prior to the Offering, there has been no public market for the Common
Shares. The Offering Price, therefore, will be determined through negotiations
between the Company and the Representative. Among the factors to be considered
in such negotiations will be the prevailing market conditions, the expected
results of operations of the Company, evaluation of the Initial Properties,
estimates of the business potential and earnings prospects of the Company, the
current state of the Company's industry and the economy as a whole.
The Company intends to apply to list the Common Shares on the NYSE. In
order to meet one of the requirements for listing the Common Shares on the
NYSE, the Underwriters have undertaken to sell lots of 100 or more Common
Shares to a minimum of 2,000 beneficial holders.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North
Carolina, and Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, with
regard to matters of Maryland law, and for the Underwriters by Hunton &
Williams, Richmond, Virginia. In addition, the description of federal income
tax consequences contained in this Prospectus under "Federal Income Tax
Consequences" is based on, to the extent that it constitutes matters of law or
legal conclusions, the opinion of Mayer, Brown & Platt, special tax counsel for
the Company.
EXPERTS
The balance sheet of Mar Mar Realty Trust as of April 14, 1998 (date of
formation) included in this Prospectus has been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and has
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 under the Securities Act,
with respect to the Common Shares offered hereby (the "Registration
Statement"). This Prospectus, which is part of the Registration Statement, does
not contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Common Shares, reference is made to the Registration Statement and such
exhibits filed therewith. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
For further information with respect to the Company and the Common Shares,
reference is made to the Registration Statement and such exhibits, and
financial schedules, copies of which may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Public Reference
Section of the Commission at 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 7 World Trade Center, Suite 1300, New York, New York
10048. The Commission also maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that
file documents with the Commission, including the Company, and the address is
http://www.sec.gov. Moreover, the Company intends to apply to have its Common
Shares approved for listing on the New York Stock Exchange ("NYSE").
Accordingly, upon issuance and such approval by the NYSE, periodic reports,
proxy statements, and other information concerning the Company when filed, may
be inspected at the offices of the NYSE, Operations, 20 Broad Street, New York,
New York 10005.
Following the closing of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and will, therefore, be required to file reports, proxy
and information statements and other information with the Commission pursuant
to the reporting requirements of Section 13(a) thereof, in addition to any
other legal or NYSE requirements. Such reports, statements and information can
also be inspected and copied at the Commission's offices and web site listed
above.
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<PAGE>
Sonic Automotive is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission that can be obtained from the Commission
as described above.
The Company intends to furnish its shareholders 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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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ADA" means the Americans with Disabilities Act of 1990, as amended, and
the regulations promulgated under the authority conferred thereby.
"Advance Auto" means Advance Stores Company, Incorporated.
"Advance Lease" means a lease agreement between an Advance Lessee and the
Company.
"Advance Lessee" means Advance Auto in its capacity as Lessee of the
Advance Properties.
"Advance Properties" means the Properties acquired from Advance Auto Parts
Stores.
"APAA" means the Automotive Parts and Accessories Association.
"Automotive Aftermarket" means the market for products and services
purchased for motor vehicles after the original sale of the vehicles.
"Bankruptcy Code" means the Bankruptcy Code of 1978.
"Base Rent" means the annual base rent each Lessee or its assigns is
obligated to the Lessor each Lease year.
"Board" means the Board of Trustees of the Company.
"Business Combination" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, recapitalization or change of outstanding Common
Shares.
"Bylaws" means the bylaws of the Company, as amended.
"Cash Available for Distribution" means net earnings plus depreciation and
amortization and minus capital expenditures and principal payments on
indebtedness.
"Cash Flow Coverage Ratio" means the ratio of net income of a Lessee
before income taxes plus depreciation, amortization and rent expense to rent of
at least 1.5 to 1.0, computed as the aggregate of net income before taxes plus
mortgage interest, plus rent expense and depreciation, plus the annual LIFO
adjustment and other non-cash expenses, less recurring capital expenditures and
gain (loss) on the sale of real estate, dividends and/or profit taken out of
the Initial Lessees, divided by the aggregate of the Initial Lessee's
obligations under the Initial Leases.
"Class A Unit" means a limited partnership interest in the Operating
Partnership redeemable on a one-for-one basis for Common Shares or cash at the
Company's option.
"Class B Unit" means a limited partnership interest in the Operating
Partnership initially having no rights regarding voting, allocations or
distributions and subsequently attaining rights identical to the Class A Units
at the effective time the new Leases for the two Properties acquired from Mr.
Smith and his affiliates.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collision Repair Property" means the real estate occupied by ABRA Auto
Body & Class, an operator of a collision repair facility.
"Commission" or "SEC" means the United States Securities and Exchange
Commission.
"Common Shares" means the common shares of beneficial interest, par value
$1.00 per share, of the Company.
"Company" means Mar Mar Realty Trust, a Maryland REIT, and its
subsidiaries, including the Operating Partnership.
"Company Mortgagee" means any holder of a mortgage deed of trust or other
security instrument on a Dealership Property.
"Condemnation" means the acquisition of property by the government or a
subdivision thereof whether through the exercise of its power of eminent domain
or otherwise.
"Contribution Agreement" means the contribution agreement pursuant to
which the Company will acquire certain of the Initial Properties or interests
therein owned by the Initial Sellers.
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"Control Shares" means voting shares of beneficial interest of a Maryland
REIT, which, if aggregated with all other such shares of beneficial interest
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
revocable proxy) would entitle the acquiror to exercise voting power in
electing Trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority, or (iii) a majority of all voting power. Control Shares do not
include shares the acquiror is then entitled to vote as a result of having
previously obtained shareholder approval.
"Control Share Acquisition" means the acquisition of Control Shares,
subject to certain exceptions.
"CPI" means the Consumer Price Index, the economic index issued by the
U.S. Department of Labor indicating price increases or decreases for the U.S.
economy.
"Dealership Leases" means the agreements pursuant to which the Company
will lease Dealership Properties in the future.
"Dealership Properties" means real estate occupied by a motor vehicle
retail dealer.
"Declaration of Trust" means the Company's Amended and Restated
Declaration of Trust.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Shares" means Shares that upon their sale or other disposition
would (i) result in any person owning, directly or indirectly, Shares in excess
of the Ownership Limit, (ii) result in the Shares being owned by fewer than 100
persons (determined without reference to corporate attribution), (iii) result
in the Company being "closely held" within the meaning of 856(h) of the Code or
(iv) cause the Company to own, actually or constructively, 10% or more of the
ownership interests in a tenant of its real property, within the meaning of
Section 856(d)(2)(B) of the Code, and that are transferred automatically to the
Excess Shares Trust effective as of the close of business on the business day
before the purported transfer of such Shares.
"Excess Share Trust" means a trust that holds Common Shares or Preferred
Shares that have been designated as Excess Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Committee" means the executive committee of the Board.
"Executive Compensation Committee" means the executive compensation
committee of the Board.
"Formation Transactions" means those transactions described in "The
Formation Transactions" in this Prospectus.
"Formula Plan" means the Company's 1998 Formula Shares Option Plan.
"Franchise Agreements" means dealer sales and service agreements and
related agreements, and the standard terms and conditions incorporated by
reference in such agreements, entered into between Manufacturers and automobile
dealers.
"GAAP" means generally accepted accounting principles in the United
States.
"Improvement" means all improvements, additions, alterations and
replacements constructed upon Dealership Properties.
"Independent Trustee" means Trustees who are not affiliated with the
Company, any seller of Properties, any Lessee or the Underwriters.
"Initial Dealership Properties" means the Dealership Properties acquired
in the Formation Transactions.
"Initial Leases" means the Leases pursuant to which the Company will lease
the Initial Properties to the Initial Lessees on a triple-net and modified
triple-net basis.
"Initial Lessees" means the Lessees of the Initial Properties.
"Initial Term" means the initial term of the Initial Leases.
"Initial Properties" means the 54 Properties that the Company will acquire
in the Formation Transactions.
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"Interested Shareholder" means any person who beneficially owns 10% or
more of the voting power of a Maryland corporation's voting shares or an
affiliate of the REIT which, at any time within the two-year period prior to
the date in question, was the beneficial owner of 10% or more of the voting
power of the then outstanding voting common shares of beneficial interest.
"IRS" means the United States Internal Revenue Service.
"Lake Norman Properties" means the Properties associated with Lake Norman
Dodge and Lake Norman Chrysler-Plymouth.
"Lake Norman Leases" means the Sonic Leases relating to the Lake Norman
Properties.
"Lease" means any Lease pursuant to which the Company will lease
Properties to a Lessee.
"Lessee" means any owner or operator of a business to whom the Company
leases a Property.
"Line of Credit" means a line of credit that the Company anticipates
obtaining upon completion of the Offering in an aggregate principal amount of
$100 million.
"Manufacturers" means motor vehicle manufacturers (or authorized
distributors thereof).
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Mortgage Debt" means the indebtedness secured by certain Initial
Properties that will be assumed by the Company pursuant to the Contribution
Agreement.
"NADA" means the National Automobile Dealers Association.
"Net Worth" means the excess of a Lessee's tangible assets over its
liabilities.
"Non-U.S. Shareholder" means a holder of Common Shares who is a
nonresident alien individual, foreign corporation, foreign partnership, foreign
trust or estate or other foreign shareholder.
"NYSE" means The New York Stock Exchange, Inc.
"Offering" means the offering of Common Shares of the Company pursuant to
and as described in this Prospectus.
"Offering Price" means the price at which shares are offered for sale in
the Offering.
"Operating Partnership" means Mar Mar Realty, L. P., a Delaware limited
partnership having its principal offices at the same location as the Company.
"Ownership Limit" means the prohibition in the Declaration of Trust
limiting any person to direct or indirect ownership of no more than (i) 9.8% of
the number or value of outstanding Common Shares, or (ii) 9.8% of the number or
value of outstanding Preferred Shares or any series of Preferred Shares.
"Partnership Agreement" means the Amended and Restated Limited Partnership
Agreement of the Operating Partnership.
"Primax" means Primax Properties, L.L.C.
"Plan" means the Company's 1998 Shares Option Plan.
"Preferred Shares" means the preferred shares of beneficial interest of
the Company.
"Prohibited Owner" means any purported owner of Common Shares who would
otherwise violate the Ownership Limit or such other limit as provided in the
Declaration of Trust.
"Prohibited Transferee" means any purported transferee of Common Shares
who would otherwise violate the Ownership Limit or such other limit as provided
in the Declaration of Trust.
"Properties" means any real property and improvements acquired, or to be
acquired, from time to time, by the Company.
"Prospectus" means the prospectus used in connection with the Offering.
"Purchase Agreements" means the respective purchase agreements between the
Company and the sellers of certain Initial Properties pursuant to which the
Company is acquiring certain Initial Dealership Properties.
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"REIT" means a real estate investment trust as defined by the Code and the
applicable Treasury Regulations.
"Related Business Properties" means Properties associated with motor
vehicle related businesses.
"Related Party Tenant" means any Initial Lessee or any other Lessee of the
Properties in which the Company owns a 10% or greater interest.
"Related Tenant Limit" means 9.8% of the value of the outstanding Shares
of the Company.
"Renewal Term" means the term by which an initial term may be extended.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means a common share of beneficial interest or other beneficial
interest in the Company.
"Share Trustee" means a trustee of the Excess Share Trust.
"Sonic Automotive" means Sonic Automotive, Inc.
"Sonic Dealers" means the Sonic Lessees and their affilates operating on
the Initial Dealership Properties.
"Sonic Leases" means Leases relating to Initial Dealership Properties
leased to the Sonic Lessees.
"Sonic Lessees" means affiliates of Sonic Automotive that will lease the
Initial Dealership Properties under the Sonic Leases.
"Special Tax Counsel" means the law firm of Mayer, Brown & Platt, which
has acted as a special tax counsel to the Company in connection with the
Offering and the preparation of the Prospectus.
"Speedway Motorsports" means Speedway Motorsports, Inc.
"Treasury Regulations" means the rules and regulations promulgated by the
United States Department of the Treasury under the Code, as such rules and
regulations are amended from time to time.
"Trustees" means the members of the Company's Board.
"Units" means units of limited partnership interest in the Operating
Partnership.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTRODUCTION TO FINANCIAL STATEMENTS ..................................................... F-2
MAR MAR REALTY TRUST:
Independent Auditors' Report ........................................................... F-3
Consolidated Balance Sheets as of April 14, 1998 (Date of Formation) and unaudited as
of August 31, 1998 ..................................................................... F-4
Notes to Balance Sheets ................................................................ F-5
Introduction to Pro Forma Consolidated Financial Statements ............................ F-9
Pro Forma Consolidated Balance Sheet as of August 31, 1998 (Unaudited) ................. F-10
Pro Forma Consolidated Statement of Operations for the Year ended December 31, 1997
(Unaudited) ............................................................................ F-11
Pro Forma Consolidated Statement of Operations for the Eight Months ended August 31,
1998 (Unaudited) ....................................................................... F-12
Notes to Pro Forma Consolidated Financial Statements (Unaudited) ....................... F-13
SONIC AUTOMOTIVE, INC:
Summary Historical Financial Information ............................................... F-15
</TABLE>
F-1
<PAGE>
MAR MAR REALTY TRUST
INTRODUCTION TO FINANCIAL STATEMENTS
The following pages present the historical balance sheets of the Company
as well as summary historical financial information for Sonic Automotive. Sonic
Automotive is the parent company of the Sonic Lessees and guarantor of the
Sonic Leases. The Sonic Lessees will lease Properties with purchase prices
representing more than 20% of the expected proceeds of the Offering, or more
than 20% of the total assets of the Company upon consummation of the Offering
and, therefore, are considered significant. Sonic Automotive files periodic
reports with the Securities and Exchange Commission and only summary historical
financial information with respect to Sonic Automotive has been provided
herein. See "Additional Information" for a description of publicly available
information with respect to Sonic Automotive.
Financial statements of the Operating Partnership have not been presented,
as it has not had any significant activity since its inception in July 1998.
The Operating Partnership will commence activity concurrent with the closing of
the Offering. However, Unaudited Pro Forma Consolidated Financial Statements
are presented which give effect to the completion of the Offering and the
acquisition of the Initial Properties.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Trustees
Mar Mar Realty Trust
Charlotte, North Carolina
We have audited the accompanying balance sheet of Mar Mar Realty Trust
(the "Company") as of April 14, 1998 (date of formation). This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
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 balance sheet presentation. We
believe that our audit of the balance sheet 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 Mar Mar Realty Trust as of
April 14, 1998 (date of formation) in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
September 17, 1998
F-3
<PAGE>
MAR MAR REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
April 14, 1998 August 31,
(Date of Formation) 1998
--------------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Deferred offering costs ............................................................. $ -- $ 684
Property acquisition costs .......................................................... -- 156
-------- --------
Total assets ....................................................................... $ -- $ 840
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable ................................................................... $ -- $ 683
Due to affiliate ................................................................... -- 157
-------- --------
Total liabilities .................................................................. -- 840
-------- --------
Shareholder's equity:
Common shares, par value $1; 2,000,000 shares authorized; 1,000,000 shares issued
and outstanding ................................................................... 1,000 1,000
Less: share subscription receivable ................................................ (1,000) (1,000)
-------- --------
Total shareholder's equity ......................................................... -- --
-------- --------
Total liabilities and shareholder's equity .......................................... $ -- $ 840
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
MAR MAR REALTY TRUST
NOTES TO CONSOLIDATED BALANCE SHEETS
1. The Company
Mar Mar Realty Trust (the "Company") was formed as a self-managed Maryland
real estate investment trust on April 14, 1998 and was initially capitalized on
such date through the sale of 1,000,000 common shares of beneficial interest
for a $1,000,000 share subscription receivable from the Company's Chairman.
Through its ownership interest in Mar Mar Realty L.P. (the "Operating
Partnership"), which was formed on July 8, 1998, the Company intends to focus
primarily on investing in real estate associated with high quality, franchised
motor vehicle dealerships and, to a lesser extent, properties associated with
other motor vehicle related businesses, including stand alone auto parts and
services stores, auto rental facilities and fuel service stations located
throughout North America. The Company consolidates the Operating Partnership
due to its control as sole general partner and majority owner. The accompanying
consolidated balance sheets include all accounts of the Company and the
Operating Partnership.
The Company has filed a registration statement for 10,000,000 common
shares of beneficial interest, par value $1.00 per share (the "Common Shares"),
at an estimated price per share between $14.00 and $16.00, (the "Offering").
The Company will contribute the proceeds from the Offering to the Operating
Partnership in exchange for 10,000,000 Class A units of limited partnership
interest in the Operating Partnership (the "Class A Units" and together with
the Operating Partnership's Class B units of limited partnership interest (the
"Class B Units"), the "Units").
2. Summary of Significant Accounting Policies
Property -- Subsequent to completion of its pending acquisitions (see Note
4), the Company will capitalize land, buildings and improvements at cost based
upon the purchase prices paid in cash, debt assumed and the value of Units
issued to certain sellers. Building and improvements will be depreciated over
their estimated useful lives using the straight-line method, while maintenance
and repairs will be charged to operating expenses when incurred.
Income taxes -- The Company has elected to be taxed as an S Corporation.
As such, the Company is not subject to federal income taxes. Upon completion of
the Offering, the Company intends to make an election to be taxed as a real
estate investment trust under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"). As a real estate investment trust, the Company
generally will not be subject to federal and state income taxation to the
extent it distributes annually at least 95% of its taxable income, as defined
in the Code, to its shareholders and satisfies certain other requirements.
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.
Concentration of risk -- As a newly formed entity, the Company is subject
to certain risk factors, including the following:
o The lack of operating history of the Company and management's lack of
experience in operating a REIT;
o Dependence on the ability of the initial lessees for substantially all
of the Company's income;
o Taxation of the Company as a regular corporation if it fails to qualify
as a real estate investment trust;
o The Company's dependence on key officers and trustees of the Company;
o Ownership of the properties is subject to risks inherent in operating
automobile dealerships, retail automotive parts stores and other related
automotive businesses;
o The general risks related to commercial real estate ownership and
investment; and
o Conflicts of interest between the Company and the Company's Chairman who
is an affiliate of certain lessees.
3. Related Party Transactions
Concurrent with the closing of the Offering, the Company will acquire
seven properties from affiliates of the Company's Chairman in exchange for
$10.1 million in cash, the assumption of $1.6 million of mortgage debt and the
issuance of
F-5
<PAGE>
394,410 Class A Units (valued at $15.00 per unit) and 982,634 Class B Units
(valued at $12.86 per unit) assuming an initial public offering price of $15
per share. Class A Units will be redeemable for cash or, at the Company's
option, Common Shares on a one-for-one basis beginning one year after the
consummation of the Offering. Each Class B Unit will have no distribution,
allocation or voting rights. Concurrent with the increase in lease payments
from two of the acquired properties (expected to occur on January 1, 2000),
each Class B Unit will automatically attain rights identical to those of the
Class A Units. The Company will also use approximately $10.3 million of the
proceeds of the Offering to acquire two properties from Sonic Automotive, Inc.
("Sonic Automotive"). The Company's Chairman is the Chairman of the Board and
Chief Executive Officer of Sonic Automotive.
As part of its initial capitalization, the Company issued 1,000,000 Common
Shares to the Company's Chairman in exchange for a $1,000,000 share
subscription receivable. The number of shares is subject to reduction based on
the number of shares sold by the Company in the Offering. Because the Company
was in formation (and with no operations), no compensation expense has been
recorded in connection with the issuance of these shares.
The organizational and offering costs and other expenditures of the
Company prior to the Offering are being funded by an affiliate of the Company's
Chairman.
Sonic Automotive and certain of its wholly owned subsidiaries will lease
29 properties from the Company and will continue to control the operations of
the automobile dealerships operated on those properties.
4. Subsequent Events
Acquisitions -- Since April 14, 1998, the Company, through the Operating
Partnership, has committed to acquire real property and improvements for a
total purchase price of approximately $118.2 million, for which approximately
$25.8 million will be paid with Units, approximately $20.0 million will consist
of mortgage debt assumed by the Company, and the remaining $72.4 million
(excluding closing costs of $1.0 million) will be paid from the proceeds of the
Offering. The Company has agreed to close approximately $20.0 million of these
acquisitions by November 3, 1998 with closing of the remaining acquisitions
contingent on the completion of the Offering.
Rental Income -- As part of the planned acquisitions described above, the
Company will enter into new leases or assume existing lease agreements on the
acquired properties primarily with certain wholly owned subsidiaries of Sonic
Automotive and with Advance Stores Company, Incorporated ("Advance Auto"). The
leases with the Sonic Automotive subsidiaries generally will have initial terms
of ten years and generally may be extended for up to two additional five- or
ten-year terms, at the option of the lessee. The leases will be triple-net
leases and require the lessees to pay substantially all expenses associated
with operations, including taxes, insurance, utilities, service, maintenance
and ground lease payments. Under certain of such leases, base rent will be
increased at certain points during the term of the lease (generally at
five-year intervals) by a factor based on the consumer price index, from 1% to
3%, compounded annually. The leases with Advance Auto will have initial terms
of ten years with two additional five-year extension terms, at the option of
the lessee. The Advance Auto leases will be net leases as discussed above,
except that the Company will be responsible for the repair of structural walls
and foundations, parking lot and roof maintenance and one-half of HVAC repairs
or replacements that exceed $500. As part of the purchase agreement between the
Company and the seller of the Advance Auto properties, the seller will be
responsible for the above repair and maintenance costs for a period of one year
subsequent to the purchase date. Base rent on the leases with Advance Auto will
be fixed during the initial term and will increase by approximately 4 1/2
percent at the start of each extension term.
Future minimum rental payments will be received as follows (in thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31,
<S> <C>
1998 (A) .................. $ 1,872
1999 ...................... 11,232
2000 ...................... 12,743
2001 ...................... 12,743
2002 ...................... 12,743
Thereafter ................ 70,946
--------
$122,279
========
</TABLE>
- ---------
(A) Assumes leases in effect beginning November 1, 1998.
F-6
<PAGE>
The increase in minimum rents from 1999 to 2000 relates to two automobile
dealership leases. On January 1, 2000, the annual lease payments on these
properties are scheduled to increase to an aggregate rental of $2,280,000 as
compared to their initial aggregate rental of $769,200.
The Company's properties to be leased to Sonic Automotive and Advance Auto
are summarized as follows (in thousands, except number of properties):
<TABLE>
<CAPTION>
Sonic Automotive Advance Auto
------------------ -------------
<S> <C> <C>
Number of properties .......... 29 36
Purchase price ................ $84,515 $25,880
Initial base rent ............. $ 7,741 $ 2,717
</TABLE>
The Company has agreed with the sellers to restrictions on its ability to
sell the properties or repay the $1.6 million of mortgage debt assumed with two
of the Sonic Automotive properties and on its ability to sell all 36 of the
Advance Auto properties for a period of ten years following their purchase.
There are separate loan agreement restrictions on repayment of $3.3 million of
the debt assumed in connection with seven of the Advance Auto properties.
Sonic Automotive represents a significant lessee based upon the combined
cost of the related properties representing more than 20% of the Company's
initial assets (or amounts expected to be raised in the Offering) and, as such,
the financial statements of Sonic Automotive are considered to be more
meaningful than the financial statements of the properties given the net lease
arrangement. Sonic Automotive files periodic reports with the Security and
Exchange Commission. Summarized financial information for Sonic Automotive, for
each of the three years ended December 31, 1997 and as of December 31, 1996 and
1997 (derived from audited consolidated financial statements) and for the six
months ended June 30, 1997 and 1998 and as of June 30, 1998 (derived from
unaudited consolidated financial statements), is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Balance sheets
Current assets ...................................... $ 91,388 $197,372 $244,111
Property and equipment, net ......................... 12,467 19,081 22,040
Other assets ........................................ 7,121 74,997 103,472
-------- -------- --------
Total assets ....................................... $110,976 $291,450 $369,623
======== ======== ========
Current liabilities ................................. $ 71,608 $152,696 $194,134
Long-term debt ...................................... 5,286 49,982 54,644
Other liabilities ................................... 7,787 15,749 17,444
Stockholders' equity ................................ 26,295 84,365 103,401
-------- -------- --------
Total liabilities and stockholders' equity ......... $110,976 $291,450 $369,623
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statements of operations
Revenues ............................................. $310,981 $376,604 $536,001 $212,886 $648,840
Cost of sales ........................................ 270,878 331,047 471,253 188,422 564,195
-------- -------- -------- -------- --------
Gross profit ......................................... 40,103 45,557 64,748 24,464 84,645
Selling, general and administrative expense .......... 29,343 33,678 48,520 18,364 61,819
Other expense, net ................................... 5,324 6,858 10,230 3,597 70,071
-------- -------- -------- -------- --------
Income before income taxes and minority interest ..... 5,436 5,021 5,998 2,503 10,904
Provision for income taxes ........................... 2,176 1,924 2,249 916 4,100
-------- -------- -------- -------- --------
Income before minority interest ...................... 3,260 3,097 3,749 1,587 6,804
Minority interest .................................... (22) (114) (47) 47 --
-------- -------- -------- -------- --------
Net income ........................................... $ 3,238 $ 2,983 $ 3,702 $ 1,540 $ 6,804
======== ======== ======== ======== ========
</TABLE>
F-7
<PAGE>
1998 Shares Option Plan -- Prior to the consummation of the Offering, the
Board and the shareholders of the Company are expected to adopt the Company's
1998 Shares Option Plan (the "Plan") in order to attract and retain key
personnel. Under the Plan, options to purchase up to 1,100,000 of Common Shares
may be granted to key employees of the Company and its subsidiaries and to
officers, trustees, consultants and other individuals providing services to the
Company.
The Compensation Committee of the Board will administer the Plan and will
determine, among other things, the persons who are to receive options, the
number of shares to be subject to each option and the vesting schedule of
options. Options granted under the Plan must be exercised within a period fixed
by the Compensation Committee, which period may not exceed ten years from the
date of grant of the option. Options may be made exercisable in whole or in
installments, as determined by the Compensation Committee.
The Board, on or before the consummation of the Offering, intends to grant
nonstatutory share options to purchase an aggregate of 465,000 Common Shares
under the Plan at an offering price equal to the public offering price of the
Common Shares sold in the offering to trustees and executive officers of the
Company. Options for 115,000 shares to be issued to the Company's Chairman will
become exercisable upon their grant. The remaining options to be granted will
vest and become exercisable as follows: 25% on the date of grant and the
remaining 75% in three equal installments on the first, second and third
anniversaries of the date of grant. All options will expire ten years after the
date of grant.
1998 Formula Shares Option Plan -- Prior to the consummation of the
Offering, the Company's 1998 Formula Shares Option Plan (the "Formula Plan") is
expected to be adopted by the Board and the shareholders of the Company. The
Formula Plan is intended to be a "formula plan" under Note (3) to Rule 16b-3 of
the Securities and Exchange Commission. The Formula Plan is intended to promote
the interest of the Company and its shareholders by providing the trustees of
the Company who are not affiliated with the Company's management ("the
Independent Trustees"), but who are responsible in part for the Company's
growth and financial success, with the incentives inherent in Common Share
ownership and encouraging them to continue as trustees.
Under the Formula Plan, on January 31 of each year during the term of the
Formula Plan, each person who is then an Independent Trustee shall be awarded
an option to purchase 10,000 shares of Common Shares up to 200,000 shares to be
reserved under the Formula Plan (subject to further adjustment in certain
events). No options to purchase Common Shares have been issued under the
Formula Plan. An option granted under the Formula Plan entitles the participant
to purchase Common Shares at an option exercise price equal to the closing
sales price per Common Share on the last business day immediately preceding the
date of such award for which a closing price is available from the principal
trading market for the Common Shares.
F-8
<PAGE>
MAR MAR REALTY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1998
AND
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE EIGHT MONTHS ENDED AUGUST 31, 1998
The following unaudited pro forma consolidated balance sheet gives effect
to: (i) the completion of the Offering, (ii) the acquisition of the Initial
Properties, (iii) the commencement of the Initial Leases, and (iv) certain
other transactions described in the notes hereto as though such transactions
occurred on August 31, 1998.
The following unaudited pro forma consolidated statements of operations
give effect to (i) the completion of the Offering, (ii) the acquisition of the
Initial Properties, (iii) the commencement of the Initial Leases, and (iv)
certain other transactions described in the notes hereto as though such
transactions occurred at the beginning of the presented period.
The following unaudited pro forma data is not necessarily indicative of
what the actual financial position or results of operations of the Company
would have been as of the date or for the period indicated, nor does it purport
to represent the financial position or results of operations for the Company
for future periods.
F-9
<PAGE>
MAR MAR REALTY TRUST
PRO-FORMA CONSOLIDATED BALANCE SHEET
As of August 31, 1998
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
Historical Adjustments ProForma (a)
------------ --------------------- -------------
<S> <C> <C> <C>
ASSETS
Cash .............................................. $ -- $ 139,625(b) $ 51,127
(73,381)(c)
(15,117)(e)
Property:
Land ............................................. -- 57,359(c) 57,359
Building and improvements ........................ -- 61,806(c) 61,806
-------- --------
Total property ................................. -- 119,165
Deferred offering costs and other assets .......... 840 (840)(e) --
-------- --------
Total assets ..................................... $ 840 $170,292
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable .................................. $ 683 (683)(e) $ --
Due to affiliate .................................. 157 (157)(e) --
Mortgages payable ................................. -- 19,979(c) 4,862
(15,117)(c)
Total liabilities ................................ 840 4,862
Minority interest ................................. -- 25,805(c)(d) 25,805
Shareholders' equity:
Common shares .................................... 1,000 10,000(b) 10,702
(298)(f)
Additional paid-in capital ....................... -- 129,625(b) 129,923
298(f)
Less: share subscription receivable .............. (1,000) (1,000)
-------- --------
Total shareholders' equity ..................... -- 139,625
-------- --------
Total liabilities and shareholders' equity ....... $ 840 $170,292
======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated financial statement.
F-10
<PAGE>
MAR MAR REALTY TRUST
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
(Unaudited, In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical Adjustments ProForma (a)
------------ ---------------- -------------
<S> <C> <C> <C>
Lease revenue ..................................................... $-- $ 12,760(g) $ 12,760
Expenses:
Depreciation ..................................................... -- 3,090(c) 3,090
General and administrative ....................................... -- 2,000(h) 2,000
Interest ......................................................... -- 426(c) 426
--- --------
Total expenses ................................................... -- 5,516
--- --------
Income before minority interest ................................... -- 7,244
Minority interest ................................................. -- (660)(d) (660)
--- --------
Net income ........................................................ $-- $ 6,584
=== ========
Earnings per share -- basic and diluted ........................... $-- $ .94
=== ========
Weighted average common shares outstanding -- basic and diluted ... -- 7,040(i)
=== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated financial statement.
F-11
<PAGE>
MAR MAR REALTY TRUST
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the eight months ended August 31, 1998
(Unaudited, In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical Adjustments ProForma (a)
------------ --------------- -------------
<S> <C> <C> <C>
Lease revenue ..................................................... $-- $ 8,506(g) $ 8,506
Expenses:
Depreciation ..................................................... -- 2,060(c) 2,060
General and administrative ....................................... -- 1,333(h) 1,333
Interest ......................................................... -- 284(c) 284
--- --------
Total expenses ................................................... -- 3,677
--- --------
Income before minority interest ................................... -- 4,829
Minority interest ................................................. -- (440)(d) (440)
--- --------
Net income ........................................................ $-- $ 4,389
=== ========
Earnings per share -- basic and diluted ........................... $-- $ .62
=== ========
Weighted average common shares outstanding -- basic and diluted ... -- 7,040(i)
=== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated financial statement.
F-12
<PAGE>
MAR MAR REALTY TRUST
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) The Company, as sole general partner and majority owner of the Operating
Partnership, will have, subject to certain rights of the Limited Partners,
full, exclusive and complete responsibility and discretion in the
management and unilateral control of the Operating Partnership. Such
responsibilities permit the Company to enter into certain major
transactions including acquisitions, dispositions, and refinancings, and
to cause changes in the Operating Partnership's line of business and
distribution policies. Further, the Company may not be replaced as general
partner by the Limited Partners, except in certain limited circumstances.
Accordingly, for accounting purposes, the Company is considered to control
the Operating Partnership and the accompanying unaudited pro forma
financial statements consolidate the accounts of the Company and the
Operating Partnership.
(b) Represents 10,000,000 Common Shares assumed to be issued in the Offering,
at an assumed offering price of $15.00 per share with a par value of $1.00
per share. Adjustments consist of the following (in thousands):
<TABLE>
<S> <C>
Proceeds of the Offering ........... $ 150,000
Underwriters' discount ............. (9,375)
Offering expenses .................. (1,000)
---------
Net proceeds ....................... $ 139,625
=========
Common shares ...................... $ 10,000
Additional paid-in capital ......... 129,625
---------
Net proceeds ....................... $ 139,625
=========
</TABLE>
(c) Represents the acquisition of the Initial Properties in exchange for Units,
the assumption of mortgage debt and cash. In the opinion of management,
the purchase price of the real property acquired is equal to the estimated
fair value as of the date of commitment to acquire. For the purposes of
the unaudited pro forma consolidated financial statements, the purchase
price of the Initial Dealership Properties has been preliminarily
allocated 55 percent / 45 percent between land and buildings,
respectively, and 30 percent / 70 percent, respectively, for the Advance
Properties and the Collision Repair Property. Final allocations will be
calculated and recorded by the Operating Partnership upon closing.
Depreciation is computed using the straight-line method assuming estimated
useful lives of 20 years for the building and improvements. Adjustments
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Total Land Building
---------- ---------- ---------
<S> <C> <C> <C>
Initial Dealership Properties ..................... $ 90,910 $50,000 $40,910
Advance Properties ................................ 26,240 6,754 19,486
Collision Repair Property ......................... 2,015 605 1,410
-------- ------- -------
$119,165 $57,359 $61,806
======== ======= =======
Units issued -- minority interest ................. $ 25,805
Cash paid (including closing costs of $1,024)...... 73,381
Mortgage debt assumed ............................. 19,979
--------
$119,165
========
</TABLE>
Of the total mortgage debt of $20 million, $15.1 million is assumed to be
repaid with proceeds of the Offering. The remaining $4.9 million in assumed
debt bears interest at rates ranging from 8.13 percent to 10.625 percent
per annum and is payable in monthly installments through 2013.
(d) Represents the calculation of minority interest based on the ownership of
the Operating Partnership as follows (in thousands):
<TABLE>
<CAPTION>
Class B
Class A Units Units Total Units
------------------ -------- -------------------
Total
Amount Number % Number Number %
---------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Partners' capital:
Initial Sellers -- minority interest $ 25,805 878 7.6% 983 1,861 14.8%
The Company ......................... 140,625 10,702 92.4 10,702 85.2
-------- ------ ----- ------ -----
Total ............................. $166,430 11,580 100.0% 983 12,563 100.0%
======== ====== ===== === ====== =====
</TABLE>
F-13
<PAGE>
Class A Units are redeemable for cash or, at the Company's option, Common
Shares on a one-for-one basis beginning one year after the consummation of
the Offering. Each Class B Unit initially will have no distribution,
allocation or voting rights. Concurrent with an increase in rents with
respect to two properties expected to occur on January 1, 2000, each Class
B Unit will automatically attain rights identical to those of the Class A
Units. Class A Units are valued at $15.00 per unit and Class B Units are
valued at $12.86 per unit based upon the absence of distributions until the
scheduled rent increase on January 1, 2000. The combined aggregate values
comprise minority interest shown on the balance sheet.
Until January 1, 2000, the pro forma minority interest share of Operating
Partnership net income is attributable only to the Initial Sellers who hold
Class A Units (7.6%) except for the portion of net income attributable to
the straight-line rent adjustment which is allocated to the Initial Sellers
holding both Class A and Class B Units (14.8%), resulting in an initial
combined minority interest in pro forma net income of 9.1%.
(e) Represents deferred offering costs and other assets and related liabilities
incurred as of August 31, 1998, that are included in the total costs
reflected in notes (b) and (c) to be paid from the Offering proceeds.
(f) Represents the reduction in the number of shares issued to the Company's
Chairman on the date of formation based on the assumed proceeds of the
Offering.
(g) Represents rental income (based upon signed leases), computed on a
straight-line basis, from the Initial Lessees based on the terms of the
Initial Leases as if all Initial Properties had been subject to the
Initial Leases for the entire period. On January 1, 2000, the annual lease
payments on the Town & Country Ford and Lone Star Ford properties are each
scheduled to increase to $1,140,000 as compared to their current levels of
$409,200 and $360,000, respectively. Straight-line adjustments also include
the minimum level of CPI adjustment to the Sonic Automotive leases. The
approximate $1.5 million excess of straight-line rents over the initial
annual contractual rents of $11.2 million is primarily attributable to
those scheduled rent increases.
(h) Represents management's estimate for salaries, legal, audit, office costs,
and other general and administrative expenses to be incurred by the
Company, based on its expected level of operations and related
administrative requirements giving effect to the proposed acquisitions, as
follows (in thousands):
<TABLE>
<CAPTION>
Eight Months
Ended Year Ended
August 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Salaries and benefits -- executive officers ................... $ 640 $ 960
Other salaries and benefits ................................... 114 171
Directors and officers insurance .............................. 117 175
Legal and accounting .......................................... 167 250
Travel and entertainment ...................................... 115 172
Office rent, telephone, supplies and other administrative ..... 125 190
Other ......................................................... 55 82
------ -------
Total ......................................................... $1,333 $ 2,000
====== =======
</TABLE>
The above amounts may increase based on additional acquisition activity.
(i) Represent the number of Common Shares, the proceeds of which will be used
to acquire the Initial Properties along with the Common Shares issued to
the Company's Chairman. If the total number of shares expected to be
issued in the Offering had been used, pro forma weighted average common
shares outstanding would be approximately 10,702,000 for both the year
ended December 31, 1997 and the eight months ended August 31, 1998,
resulting in pro forma earnings per share outstanding of $0.62 and $.41
for the year ended December 31, 1997 and the eight months ended August 31,
1998, respectively. The potential redemption of the Class A Units and
Class B Units and the potential exercise of options granted to acquire
465,000 Common Shares under the Plan are not dilutive to pro forma
earnings per share.
F-14
<PAGE>
SONIC AUTOMOTIVE, INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
Summarized historical financial information for Sonic Automotive, Inc. for
each of the three years ended December 31, 1997 and as of December 31, 1996 and
1997 (derived from audited consolidated financial statements) and for the six
months ended June 30, 1997 and 1998 and as of June 30, 1998 (derived from
unaudited consolidated financial statements) is as follows (in thousands):
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- -----------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Current assets ............................. $ 91,388 $197,372 $244,111
Property and equipment, net ................ 12,467 19,081 22,040
Other assets ............................... 7,121 74,997 103,472
-------- -------- --------
Total assets .............................. 110,976 $291,450 $369,623
======== ======== ========
Current liabilities ........................ $ 71,608 $152,696 $194,134
Long-term debt ............................. 5,286 38,640 54,644
Other liabilities .......................... 7,787 15,749 17,444
Stockholders' equity ....................... 26,295 84,365 103,401
-------- -------- --------
Total liabilities and stockholders' equity $110,976 $291,450 $369,623
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended For the Six
December 31, Months Ended June 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $310,981 $376,604 $536,001 $212,886 $648,840
Cost of sales ........................................ 270,878 331,047 471,253 188,422 564,195
-------- -------- -------- --------
Gross profit ......................................... 40,103 45,557 64,748 24,464 84,645
Selling, general and administrative expense .......... 29,343 33,678 48,520 18,364 61,819
Other expense, net ................................... 5,324 6,858 10,230 3,597 10,071
-------- -------- -------- --------
Income before income taxes and minority interest ..... 5,436 5,021 5,998 2,503 10,904
Provision for income taxes ........................... 2,176 1,924 2,249 916 4,100
-------- -------- -------- --------
Income before minority interest ...................... 3,260 3,097 3,749 1,587 6,804
Minority interest .................................... (22) (114) (47) 47 --
-------- -------- -------- --------
Net income ........................................... $ 3,298 $ 2,983 $ 3,702 $ 1,540 $ 6,804
======== ======== ======== ========
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any 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 offer made by this prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the Common Shares offered by this prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the Common
Shares by anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that any
information contained herein is correct as of any time subsequent to the date
hereof.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary .................................... 1
Risk Factors .......................................... 12
Use of Proceeds ....................................... 24
Capitalization ........................................ 24
Dilution .............................................. 25
Selected Financial Information ........................ 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 27
Business of the Company and its Properties ............ 30
Automotive Retailing and Motor Vehicle Aftermarket
Industries ......................................... 45
Management ............................................ 48
Policies and Objectives with Respect to Certain
Activities ......................................... 54
The Formation Transactions ............................ 55
Certain Relationships and Transactions ................ 57
Partnership Agreement ................................. 59
Principal Shareholders of the Company ................. 61
Description of Shares of Beneficial Interest .......... 62
Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws .......... 66
Common Shares Eligible for Future Sale ................ 70
Federal Income Tax Consequences ....................... 71
Certain United States Tax Considerations for Non-U.S.
Shareholders ....................................... 80
Underwriting .......................................... 83
Legal Matters ......................................... 84
Experts ............................................... 84
Additional Information ................................ 84
Glossary .............................................. 86
Index to Financial Statements ......................... F-1
</TABLE>
--------------------------------
Until , 1998 (25 days after commencement of this offering), 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 when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
10,000,000 Common Shares
[Logo Appears Here]
Mar Mar Realty Trust
Common Shares of
Beneficial Interest
--------------------------
PROSPECTUS
--------------------------
Wheat First Union
NationsBanc Montgomery Securities LLC
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 31. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Company in
connection with the offering of the Common Shares being registered. All of the
amounts shown are estimates except the SEC registration fee, the NASD fee and
the NYSE Listing fee.
<TABLE>
<S> <C>
SEC registration fee ........................................... $54,280
NASD fee ....................................................... 18,900
NYSE Listing fee ...............................................
Blue Sky fees and expenses (including fees of counsel) .........
Printing and engraving expenses ................................
Legal fees and expenses (other than Blue Sky) ..................
Accounting fees and expenses ...................................
Underwriter's Reimbursement of Expenses ........................
Miscellaneous ..................................................
-------
Total ......................................................... $
=======
</TABLE>
Item 32. Sales To Special Parties.
See response to Item 33.
Item 33. Recent Sales Of Unregistered Securities.
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities Act
as transactions not involving a public offering. In this transaction, neither
the Common Shares nor the Units were required to be registered under the
Securities Act due to the sophistication of the purchasers, the purchaser's
access to material information, the disclosure actually made to them by the
Company and the absence of any general solicitation or advertising.
(1) On April 14, 1998, the Company sold an aggregate of 1,000,000 Common
Shares to O. Bruton Smith in connection with the formation of the Company.
(2) On July 9, 1998, the Operating Partnership agreed to issue in exchange
for certain of the Initial Properties and interests in entities that own
certain of the Initial Properties, subject to the completion of the
Offering and certain other conditions, (i) an aggregate of 394,410 Class A
Units and 982,634 Class B Units to Mr. Smith and affiliates of Mr. Smith
and Sonic Automotive, Inc., and (ii) an aggregate of 483,267 Class A Units
to Primax Properties, L.L.C. and affiliates thereof.
Item 34. Indemnification Of Trustees And Officers.
The Declaration of Trust and By-laws authorize the Company to indemnify
its present and former trustees and officers and to pay or reimburse expenses
for such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The MGCL, as
applicable to Maryland REITs, currently provides that indemnification of a
person who is a party, or threatened to be made a party, to legal proceedings
by reason of the fact that such a person is or was a trustee, officer, employee
or agent of a corporation, or is or was serving as a trustee, officer, employee
or agent of a corporation or other firm at the request of a corporation,
against judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, is mandatory in certain circumstances and permissive in others,
subject to authorization by the Board by a quorum consisting of trustees not
partial to the proceeding, a committee of the Board consisting of two or more
trustees not parties to the proceeding (if there does not exist a majority vote
quorum of the Board consisting of trustees not parties to the proceeding),
special legal counsel appointed by the Board or such committee of the Board, or
by the shareholders, so long as it is not established that the act or omission
of such person was material to the
II-1
<PAGE>
matter giving rise to the proceedings and was committed in bad faith, was the
result of active and deliberate dishonesty, involved such person receiving an
improper personal benefit in money, property or services, or, in the case of
criminal proceedings, such person had reason to believe that his or her act or
omission was unlawful.
It is the position of the Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to
Section 14 of the Securities Act.
The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.
The Company intends to purchase an insurance policy that purports to
insure the officers and trustees of the Company against certain liabilities
incurred by them in the discharge of their functions as such officers and
trustees, except for liabilities resulting from their own malfeasance.
The form of Underwriting Agreement, filed as Exhibit 1.1 hereto, provides
for the reciprocal indemnification by the Underwriters of the Company and its
directors, officers and controlling persons, and by the Company of the
Underwriters and their directors, officers and controlling persons, against
certain liabilities under the Securities Act.
Item 35. Treatment Of Proceeds From Common Shares Being Registered.
Not Applicable.
Item 36. Financial Statements And Exhibits.
(a) Index to Financial Statements
<TABLE>
<S> <C>
INTRODUCTION TO FINANCIAL STATEMENTS ..................................................... F-2
MAR MAR REALTY TRUST:
Independent Auditors' Report ........................................................... F-3
Balance Sheets as of April 14, 1998 (Date of Formation) and unaudited as of August 31, F-4
1998 Notes to Balance Sheets ........................................................... F-5
Introduction to Pro Forma Consolidated Financial Statements ............................ F-9
Pro Forma Consolidated Balance Sheet as of August 31, 1998 (Unaudited) ................. F-10
Pro Forma Consolidated Statement of Operations for the Year ended December 31, 1997
(Unaudited) ............................................................................ F-11
Pro Forma Consolidated Statement of Operations for the Eight Months Ended August 31,
1998 (Unaudited) ....................................................................... F-12
Notes to Pro Forma Consolidated Financial Statements (Unaudited) ....................... F-13
SONIC AUTOMOTIVE, INC:
Summary Historical Financial Information ............................................... F-15
</TABLE>
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- ---------------- -------------------------------------------------------------------------------
<S> <C>
1.1* Underwriting Agreement
3.1 Form of Mar Mar Realty Trust Articles of Amendment and Restatement
3.2 Bylaws of Mar Mar Realty Trust
4.1* Specimen Common Shares certificate
4.2 Registration Rights and Lock-Up Agreement dated as of , 1998 between
Mar Mar Realty Trust and certain other parties
5.1 Form of Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the
validity of the Common Shares being registered
8.1 Form of Opinion of Mayer, Brown & Platt regarding tax matters
10.1 Form of Amended and Restated Limited Partnership Agreement of Mar Mar
Realty L.P.
10.2 Form of Mar Mar Realty Trust 1998 Shares Option Plan
10.3 Form of Mar Mar Realty Trust 1998 Formula Shares Option Plan
10.4 Strategic Alliance Agreement and Agreement for the Mutual Referral of
Acquisition Opportunities dated as of July 9, 1998 between Mar Mar Realty L.P.
and Sonic Automotive, Inc.
10.5 Form of Sonic Lease Agreement
10.6 Form of Dealership Lease
10.7 Form of Advance Auto Lease
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- ---------------- --------------------------------------------------------------------------------
<S> <C>
10.8 Contribution Agreement dated July 9, 1998 among Mar Mar Realty, L.P.,
O. Bruton Smith, Town & Country Ford, Inc., Sonic Financial Corporation,
Primax Properties, L.L.C. and William and Emma Seymour
10.9 Contract to Purchase and Sell real property underlying Town & Country Toyota
dated as of June 26, 1998 between Mar Mar Realty Limited Partnership and
Sonic Automotive, Inc.
10.10 Contract to Purchase and Sell real property underlying Fort Mill Ford dated as
of June 26, 1998 between Mar Mar Realty Limited Partnership and Sonic
Automotive, Inc.
10.11 Agreement Regarding the Sale of Real Property dated as of June , 1998
between Mar Mar Realty Limited Partnership and Chartown
10.12 Letter dated as of August 14, 1998 from the Company to Mark J. Iuppenlatz
21.1 Subsidiaries of the Company
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit 5.1)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Mayer, Brown & Platt (included in Exhibit 8.1)
24.1 Power of Attorney (included on signature page in Part II of the initial filing)
27.1* Financial Data Schedule
</TABLE>
- ---------
* To be filed by amendment.
Item 37. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of the registrant pursuant to the provisions described under Item 34
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, 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 of 1933 and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-11 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of
North Carolina, on September 18, 1998.
MAR MAR REALTY TRUST
By: /s/ BENJAMIN F. BRACY
------------------------------------
Benjamin F. Bracy
President
We, Mark J. Iuppenlatz and Virginia R. Dunn, do hereby constitute and
appoint each of Messrs. Smith and Bracy, each with full power of substitution,
our true and lawful attorney-in-fact and agent to do any and all acts and
things in our names and in our behalf in our capacities stated below, which
acts and things either of them may deem necessary or advisable to enable Mar
Mar Realty Trust to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any or all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ * Chairman September 18, 1998
----------------------------------
O. Bruton Smith
/s/ BENJAMIN F. BRACY President (principal executive officer) September 18, 1998
----------------------------------
Benjamin F. Bracy
/s/ MARK J. IUPPENLATZ Executive Vice President, Chief September 18, 1998
----------------------------------
Mark J. Iuppenlatz Operating Officer and Director of
Acquisitions
/s/ VIRGINIA R. DUNN Vice President and Chief Financial September 18, 1998
----------------------------------
Virginia R. Dunn Officer (principal financial and
accounting officer)
/s/ * Trustee September 18, 1998
----------------------------------
James W. Johnston
/s/ * Trustee September 18, 1998
----------------------------------
Donald J. Carter
*By: /s/ BENJAMIN F. BRACY
------------------------------
Benjamin F. Bracy
(Attorney-in-fact for each of the persons indicated)
</TABLE>
II-4
<PAGE>
MAR MAR REALTY TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE TRUST..........................................................1
Section 1. Name.................................................1
Section 2. Resident Agent.......................................2
Section 3. Nature of Trust......................................2
Section 4. Powers and Purposes..................................2
Section 5. Conflicts of Interest................................2
ARTICLE II SHARES............................................................3
Section 1. Shares of Beneficial Interest........................3
Section 2. Sale of Shares.......................................3
Section 3. Dividends and Distributions..........................4
Section 4. General Nature.......................................4
Section 5. Acquired Shares......................................4
Section 6. Transferability......................................5
Section 7. Transfer Restrictions and Ownership Limitations......5
Section 8. Exemptions from Certain Provisions of Maryland Law..17
ARTICLE III SHAREHOLDERS....................................................18
Section 1. Meetings............................................18
Section 2. Voting..............................................18
Section 3. Distributions.......................................18
Section 4. Annual Report.......................................19
Section 5. Nonliability and Indemnification....................19
Section 6. Notice of Nonliability..............................19
ARTICLE IV THE TRUSTEES.....................................................20
Section 1. Number, Qualification, Compensation and Term........20
Section 2. Resignation, Removal and Death......................21
Section 3. Vacancies...........................................21
Section 4. Successor Trustees..................................21
Section 5. Meetings and Action Without a Meeting...............21
Section 6. Powers..............................................22
Section 7. Right to Own Shares.................................22
Section 8. Transactions with Trust.............................22
Section 9. Persons Dealing with Trustees.......................23
Section 10. Administrative Powers..............................23
ARTICLE V TERMINATION AND DURATION..........................................23
Section 1. Termination.........................................23
Section 2. Organization as a Corporation.......................24
i
<PAGE>
Section 3. Merger, Consolidation or Sale.......................24
Section 4. Duration............................................24
ARTICLE VI AMENDMENTS.......................................................24
Section 1. Amendment by Shareholders...........................24
Section 2. Amendment by Trustees...............................24
ARTICLE VII MISCELLANEOUS...................................................24
Section 1. Construction........................................25
Section 2. Headings for Reference Only.........................25
Section 3. Applicable Law......................................25
Section 4. Certifications......................................25
Section 5. Severability........................................25
Section 6. Bylaws..............................................26
Section 7. Recording...........................................26
ARTICLE VIII LIMITATION OF LIABILITY AND INDEMNIFICATION....................26
Section 1. Limitation of Liability of Trustees, Officers and
Employees.........................................26
Section 2. Indemnification of Trustees, Officers and Employees.26
Section 3. Insurance...........................................27
ii
<PAGE>
MAR MAR REALTY TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
These Articles of Amendment and Restatement of Mar Mar Realty Trust are
made as of _________________, 1998 by the undersigned Trustees and amend and
restate in its entirety the Declaration of Trust dated April 14, 1998.
RECITALS
1. The Trust is a real estate investment trust under the laws of the State
of Maryland.
2. The Trustees desire that the Trust qualify as a "real estate investment
trust" under the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and under Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland, as amended ("Title 8").
3. The beneficial interests in the Trust are divided into transferable
shares of one or more classes of shares of beneficial interest evidenced by
certificates.
4. These Articles of Amendment and Restatement have been advised by the
Board of Trustees and approved by the vote of shareholders of the Trust in the
manner provided by Maryland law.
5. The following provisions are all the provisions of the Declaration of
Trust currently in effect and as hereinafter amended:
ARTICLE I THE TRUST
SECTION 1. NAME.
(a) The name of the Trust is
"Mar Mar Realty Trust."
So far as may be practicable, legal and convenient, the affairs of the
Trust shall be conducted and transacted under such name, which name shall not
refer to the Trustees individually or personally or to the beneficiaries or
Shareholders of the Trust, or to any officers, employees or agents of the Trust.
Under circumstances in which the Board determines that the use of the name "Mar
Mar Realty Trust" is not practicable, legal or convenient, it may as appropriate
use some other suitable designation, or it may adopt another name under which
the Trust may hold property or operate in any jurisdiction, which name shall
not, to the knowledge of the Board, refer to beneficiaries or Shareholders of
the Trust.
1
<PAGE>
(b) Legal title to all of the properties of the Trust shall be transferred
to, vested in and held by the Trust in its own name, except that the Board shall
have the power to cause legal title to any property of the Trust to be held by
and/or in the name of one or more of the Trustees, or any other person as
nominee, on such terms, in such manner and with such powers as the Board may
determine, provided that the interest of the Trust therein is, in the judgment
of the Board, appropriately protected.
(c) The Trust shall have the authority to operate under an assumed name or
names in such state or states or any political subdivision thereof where it
would not be legal, practical or convenient to operate in the name of the Trust.
The Trust shall have the authority to file such assumed name certificates or
other instruments in such places as may be required by applicable law to operate
under such assumed name or names.
SECTION 2. RESIDENT AGENT. The name and address of the resident agent of
the Trust in the State of Maryland is The Corporation Trust Inc., 300 East
Lombard Street, Baltimore, Maryland 21202. The principal office of the Trust is
6407 Idlewild Road, Building 2, Suite 111, Charlotte, North Carolina 28212. The
Trust may have such other offices or places of business within or without the
State of Maryland as the Board may from time to time determine.
SECTION 3. NATURE OF TRUST. The Trust is a real estate investment trust
within the meaning of Title 8. The Trust is not intended to be, shall not be
deemed to be and shall not be treated as, a general partnership, limited
partnership, joint venture, joint stock association or a corporation (but
nothing herein shall preclude the Trust from being treated for tax purposes as
an association under the Code). The Shareholders shall be beneficiaries in such
capacity in accordance with the rights conferred on them hereunder.
SECTION 4. POWERS AND PURPOSES. The Trust is formed pursuant to the
provisions of, and shall have all of the powers provided in, Title 8, as it may
be amended from time to time, and shall have such additional powers as are not
inconsistent with, and are appropriate with respect to, the purposes of the
Trust as set forth in this Declaration of Trust. The purposes of the Trust are
to purchase, hold, lease, manage, sell, exchange, develop, subdivide, improve
and invest in real property and interests in real property and to invest in
notes, bonds and other obligations secured by mortgages on real property, and in
general, to do all other things in connection with the foregoing and to have and
exercise all powers conferred by Maryland law on real estate investment trusts
formed under Maryland law, and to do any or all of the things set forth herein
to the same extent as natural persons might or could do. In addition, it is
intended that the business of the Trust shall be conducted so that the Trust
will qualify (so long as such qualification, in the opinion of the Board, is
advantageous to the Shareholders) as a "real estate investment trust" as defined
in the Code.
SECTION 5. CONFLICTS OF INTEREST. Any transactions between the Trust and
any Trustee or any affiliates of a Trustee shall be approved by a majority of
the Trustees not otherwise interested in such transactions.
2
<PAGE>
ARTICLE II SHARES
SECTION 1. SHARES OF BENEFICIAL INTEREST.
(a) The units into which the beneficial interests in the Trust shall be
divided shall be designated as shares of beneficial interest ("Shares"). The
Trust has authority to issue 100,000,000 common shares of beneficial interest,
$1.00 par value per share ("Common Shares"). Ownership of Shares shall be
evidenced by certificates in such form as shall be determined by the Board from
time to time in accordance with Maryland law. The owners of the Shares, who are
the beneficiaries of the Trust, shall be designated as "Shareholders". If shares
of one class are classified or reclassified into shares of another class of
shares pursuant to this Article II, 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
beneficial interest of all classes that the Trust has the authority to issue
shall not be more than the total number of shares of beneficial interest set
forth in the second sentence of this paragraph. The Trustees may amend this
Declaration of Trust, without shareholder consent, to increase or decrease the
aggregate number of Shares or the number of Shares of any class that the Trust
has the authority to issue. Subject to the provisions of Section 7 of this
Article II, each Common Share shall entitle the holder thereof to one vote on
each matter upon which holders of Common Shares are entitled to vote. The
consideration paid for the issuance of Shares shall be determined by the Board
and shall consist of any consideration for which shares of stock of a
corporation could be issued under the Maryland General Corporation Law. Shares
shall not be issued until the full amount of the consideration has been received
by the Trust. The Board may authorize Share dividends or Share splits. All
Shares issued hereunder shall be, when issued, fully paid, and no assessment
shall ever be made on the Shareholders.
(b) The Board may classify or reclassify any unissued Shares from time to
time and, subject to the provisions of Section 7 of this Article II and subject
to the express terms of any class or series of shares then outstanding, may set
or change, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or distributions, qualifications or
terms or conditions of redemption of the Shares and may cause the Trust to the
articles supplementary pursuant to Maryland law. The Board is authorized to
cause the Trust to issue from the authorized but unissued Shares of the Trust
preferred Shares in classes or series and to establish from time to time the
number of preferred Shares to be included in each such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or distributions, qualifications and
terms and conditions of redemption of the Shares of each series.
SECTION 2. SALE OF SHARES. The Board, in its discretion, may from time to
time issue or sell or contract to issue or sell, Shares, including Shares
acquired and held by the Trust, to such party or parties and for such
consideration, as allowed by Maryland law, at such time or times, and on such
terms as the Board may deem appropriate. In connection with any issuance of
Shares, the Board, in its discretion, may provide for the issuance of fractional
Shares or may
3
<PAGE>
provide for the issuance of scrip for fractions of Shares and determine the
terms of such scrip, including, without limiting the generality of the
foregoing, the time within which any such scrip must be surrendered in exchange
for Shares and the right, if any, of holders of scrip upon the expiration of the
time so fixed to receive proportional distributions, and the right, if any, to
redeem scrip for cash, or the Board may, in its discretion, or if it sees fit at
the option of each holder, provide in lieu of scrip for the adjustment of
fractions in cash. Except as may be provided in any agreement between the Trust
and any of its Shareholders, the Shareholders shall have no preemptive rights of
any kind whatsoever (preemptive rights hereby defined as including, without
limitation, the right to purchase or subscribe for or otherwise acquire any
Shares of the Trust of any class, whether now or hereafter authorized, or any
securities or obligations convertible into or exchangeable for, or any right,
warrant or option to purchase such Shares, whether or not such Shares are issued
and/or disposed of for cash, property or other consideration of any kind).
SECTION 3. DIVIDENDS AND DISTRIBUTIONS. The Board may from time to time
authorize the payment to shareholders of such dividends or distributions, in
cash or other assets of the Trust or in securities of the Trust or from any
other source as the Board in its sole discretion shall determine, including
dividends and distributions necessary for the Trust to qualify as a real estate
investment trust under the Code; however shareholders shall have no right to any
dividend or distribution unless and until authorized and declared by the Board.
The exercise of the powers and rights of the Board pursuant to this Section 3 of
Article II shall be subject to the provisions of any class or series of Shares
at the time outstanding. Notwithstanding any other provision in the Declaration
of Trust, no determination shall be made by the Board nor shall any transaction
be entered into by the Trust which would cause any Shares or other beneficial
interest in the Trust not to constitute "transferable shares" or "transferable
certificates of beneficial interest" under Section 856(a)(2) of the Code or
which would cause any distribution to constitute a preferential dividend as
described in Section 562(c) of the Code.
SECTION 4. GENERAL NATURE. All Shares shall be personal property entitling
the Shareholders only to those rights provided in this Declaration of Trust. The
legal ownership of the property of the Trust and the right to conduct the
business of the Trust are vested exclusively in the Trustees; the Shareholders
shall have no interest therein other than beneficial interest in the Trust
conferred by their Shares and shall have no right to compel any partition,
division, dividend or distribution of the Trust or any of its property. The
death of a Shareholder shall not terminate the Trust or give his or her heir or
legal representative any rights against other Shareholders, the Trustees or the
Trust property, except the right, exercised in accordance with applicable
provisions of the Bylaws, to receive a new certificate for Shares in exchange
for the certificate held by the deceased Shareholder.
SECTION 5. ACQUIRED SHARES. The Trust may repurchase or otherwise acquire
its own Shares at such price or prices as may be determined by the Board, and
for such purpose the Trust may create and maintain such reserves as are deemed
necessary and proper. Shares issued hereunder and purchased or otherwise
acquired for the account of the Trust shall not, so long as they belong to the
Trust, either receive distributions (except that they shall be entitled to
receive
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distributions payable in Shares of the Trust) or be voted at any meeting of the
Shareholders. Such Shares may, in the discretion of the Board, be disposed of by
the Board at such time or times, to such party or parties, and for such
consideration, as the Board may deem appropriate or may be returned to the
status of authorized but unissued Shares of the Trust.
SECTION 6. TRANSFERABILITY. Shares in the Trust shall be transferable
(subject to the provisions of Section 7 of this Article II) in accordance with
the procedure prescribed from time to time in the Bylaws. The persons in whose
name the Shares are registered on the books of the Trust shall be deemed the
absolute owners thereof and may be treated as the record holders thereof by the
Trust. Until a transfer is effected on the books of the Trust, the Board shall
not be affected by any notice, actual or constructive, of any transfer. Any
issuance, redemption or transfer of Trust Shares which would operate to
disqualify the Trust as a REIT shall be null and void AB INITIO.
SECTION 7. TRANSFER RESTRICTIONS AND OWNERSHIP LIMITATIONS.
(a) DEFINITIONS. For purposes of this Section 7, the following terms shall
have the following meanings:
"Adoption Date" shall mean the date upon which these Articles of Amendment
and Restatement are accepted for record by the State Department of Assessments
and Taxation of Maryland.
"Beneficial Ownership" shall mean ownership of Shares by a Person as
defined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The terms "Beneficial Owner," "Beneficially Owns,"
"Beneficially Own" and "Beneficially Owned" shall have correlative meanings.
"Charitable Beneficiary" shall mean an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) and 501(c)(3) of the Code and
appointed by the Board to be the beneficiary or beneficiaries of the Excess
Share Trust.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Constructive Ownership" shall mean ownership of Shares by a Person who
would be treated as an owner of such Shares, either directly or constructively,
through the application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner", "Constructively Owns",
"Constructively Owning" and
"Constructively Owned" shall have correlative meanings.
"Excess Shares" shall mean Shares which are automatically transferred to
the Excess Shares Trust pursuant to subsection (c) of this Section 7.
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"Excess Share Trust" shall mean the trust created pursuant to subsection
(n) of this Section 7.
"Excess Share Trustee" shall mean a person, who shall be unaffiliated with
the Trust, any Purported Beneficial Transferee and any Purported Record
Transferee, appointed by the Board to serve as the trustee of the Excess Share
Trust.
"Excluded Holder" shall mean Mr. O. Bruton Smith and his affiliates,
successors or assignees or any other shareholder of the Trust for whom an
Excluded Holder Limit is created by the Board pursuant to subsection (k) this
Section 7. However, an affiliate, successor or assignee of Mr. O. Bruton Smith
shall be treated as an Excluded Holder only if Mr. O. Bruton Smith obtains an
opinion of counsel that any ownership of Shares by such affiliate, successor or
assignee will not jeopardize the status of the Trust as a REIT.
["Excluded Holder Limit" shall mean ______________________.]
"Market Price" shall mean the last reported sales price regular way,
reported on the New York Stock Exchange (the "NYSE") for Shares on the trading
day immediately preceding the relevant date, or if not then traded on the NYSE,
the last reported sales price for Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
or through which such Shares may be traded, or if not then traded over or
through any exchange or quotation system, then the market price of such Shares
on the relevant date as determined in good faith by the Board.
"Ownership Limit" shall initially mean 9.8 %, in number or value of the
outstanding Shares, and, after any adjustment as set forth in subsection (i) of
this Section 7, shall mean such lesser or greater percentage in number or value
of the outstanding Shares as so adjusted. The number and value of the
outstanding Shares of the Trust shall be determined by the Board in good faith,
which determination shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, limited liability company,
partnership, estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Exchange Act and a group to
which the Excluded Holder Limit applies; but does not include an underwriter
which participates in a public offering of the Shares (or rights to acquire
Shares) for a period of 30 days following the purchase by such underwriter of
the Shares, provided that the ownership of Shares by such underwriter would not
result in the Trust being "closely held" within the meaning of Section 856(h) of
the Code and would not otherwise result in the Trust failing to qualify as a
REIT.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which is void AB INITIO under subsections (b)(i) through
(b)(vii) of this Section 7, or which
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involves shares automatically transferable into Excess Shares, as defined in
subsection (c) of this Section 7, the beneficial holder of the Shares, if such
Transfer had been valid under subsection (b) of this Section 7.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results is void ab initio under subsection (b)(1) through
(b)(vii) of this Section 7, or which involves shares automatically transferable
into Excess Shares, as defined in subsection (c) of this Section 7, the record
holder of the Shares, if such Transfer had been valid under subsection (b) of
this Section 7.
"REIT" shall mean a real estate investment trust under Section 856 of the
Code.
"REIT Provisions of the Code" means Sections 856 through 860 of the Code
and any successor or other provisions of the Code relating to REITs (including
provisions as to the attribution of ownership of beneficial interests therein)
and the regulations promulgated thereunder.
"Related Tenant Limit" shall mean 9.8% in value of the outstanding Shares
of the Trust.
"Related Tenant Owner" shall mean any Constructive Owner who also owns,
directly or indirectly, an interest in a Tenant, which interest is equal to or
greater than (i) 9.8 % of the combined voting power of all classes of stock of
such Tenant, (ii) 9.8 % of the total number of shares of all classes of stock of
such Tenant or (iii) if such Tenant is not a corporation, 9.8 % of the assets or
net profits of such Tenant, in each case only if such ownership would cause the
Trust to fail the 95% gross income test set forth in Section 856(c)(2) of the
Code or the 75% gross income test set forth in Section 856(c)(3) of the Code.
"Restriction Termination Date" shall mean the first day after the Adoption
Date on which the Board determines that it is no longer in the best interests of
the Trust to continue to qualify as a REIT or that the restrictions on ownership
set forth herein are no longer required for the Trust to qualify as a REIT.
"Shares" shall mean the shares of beneficial interest of the Trust,
whether now authorized and issued or as may be authorized and issued from time
to time pursuant to this Article II.
"Tenant" shall mean any tenant (including a subtenant) of (i) the Trust,
(ii) a subsidiary of the Trust which is deemed to be a "qualified REIT
subsidiary" under Section 856(i)(2) of the Code or (iii) a partnership or
limited liability company in which the Trust or one or more of its qualified
REIT subsidiaries is a partner or a member.
"Transfer" shall mean any, issuance, sale, transfer, gift, assignment,
devise or other disposition of Shares (including (i) the granting or exercise of
any option or entering into any agreement for the sale, transfer or other
disposition of Shares, (ii) the sale, transfer, assignment or other disposition
of any securities or rights convertible into or exchangeable for Shares, but
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excluding the exchange of Units, debt or any security of the Trust for Shares
and (iii) any transfer or other disposition of any interest in Shares as a
result of a change in the marital status of the holder thereof), whether
voluntary or involuntary, whether of record, constructively or beneficially and
whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have correlative meanings.
"Units" shall mean units of any partnership which are convertible into or
exchangeable for Shares.
(b) OWNERSHIP LIMITATION.
(i) Except as provided in subsections (k) and (t) of this Section 7
and subject to subsection (b)(viii) of this Section 7, from the Adoption Date
until the Restriction Termination Date, no Person (other than an Excluded
Holder) shall Beneficially Own or Constructively Own Shares in excess of the
Ownership Limit.
(ii) Except as provided in subsections (k) and (t) of this Section 7
and subject to subsection (b)(viii) of this Section 7, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective, would
result in any Person (other than an Excluded Holder) Beneficially Owning Shares
in excess of the Ownership Limit shall be void ab INITIO as to the Transfer of
such Shares which would be otherwise Beneficially Owned by such Person in excess
of the Ownership Limit; and the intended transferee shall acquire no rights in
such Shares.
(iii) Except as provided in subsections (k) and (t) of this Section
7 and subject to subsection (b)(viii) of this Section 7, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective, would
result in any Excluded Holder Beneficially Owning Shares in excess of the
applicable Excluded Holder Limit shall be void ab INITIO as to the Transfer of
such Shares which would be otherwise Beneficially Owned by such Excluded Holder
in excess of the applicable Excluded Holder Limit; and such Excluded Holder
shall acquire no rights in such Shares.
(iv) Except as provided in subsections (k) and (t) of this Section 7
and subject to subsection (b)(viii) of this Section 7, from the Adoption Date
until the Restriction Termination Date, any Transfer which, if effective, would
result in the Shares being beneficially owned (as provided in Section 856(a) of
the Code) by fewer than 100 Persons (determined without reference to any rules
of attribution) shall be void AB INITIO as to the Transfer of such Shares which
would be otherwise beneficially owned (as provided in Section 856(a) of the
Code) by the transferee; and the intended transferee shall acquire no rights in
such Shares.
(v) Except as provided in subsection (k) of this Section 7 and
subject to subsection (b)(viii) of this Section 7, from the Adoption Date until
the Restriction Termination Date, any Transfer which, if effective, would result
in the Trust being "closely held" within the meaning of Section 856(h) of the
Code shall be void AB INITIO as to the Transfer of the Shares
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which would cause the Trust to be "closely held" within the meaning of Section
856(h) of the Code; and the intended transferee shall acquire no rights in such
Shares.
(vi) Subject to subsection (b)(viii) of this Section 7, from the
Adoption Date until the Restriction Termination Date, any Transfer of Shares
which, if effective, would result in any Related Tenant Owner Constructively
Owning Shares in excess of the Related Tenant Limit shall be void AB INITIO as
to the Transfer of such Shares which would be otherwise Constructively Owned by
such Related Tenant Owner in excess of the Related Tenant Limit, and the
intended transferee shall acquire no rights in such Shares.
(vii) Subject to subsection (b)(viii) of this Section 7, from the
Adoption Date until the Restriction Termination Date, any Transfer which, if
effective, would result in the disqualification of the Trust as a REIT by virtue
of actual, Beneficial or Constructive Ownership of Shares shall be void AB
INITIO as to such portion of the Transfer resulting in the disqualification, and
the intended transferee shall acquire no rights in such Shares.
(viii) Nothing contained in this Section 7 shall preclude the
settlement of any transaction entered into through the facilities of the NYSE.
The fact that the settlement of any transaction is permitted shall not negate
the effect of any other provision of this Section 7 and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Section 7.
(c) EXCESS SHARES.
(i) If, notwithstanding the other provisions contained in this
Section 7, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer which is not void AD INITIO pursuant to
subsection (b) of this Section 7 such that (i) any Person (other than an
Excluded Holder) would Beneficially Own Shares in excess of the applicable
Ownership Limit or (ii) any Excluded Holder would Beneficially Own Shares in
excess of the applicable Excluded Holder Limit, then, except as otherwise
provided in subsection (k) of this Section 7, such Excess Shares directly owned
by such Person or Excluded Holder, as the case may be, shall be automatically
transferred to the Excess Shares Trust until such Person or Excluded Holder, as
the case may be, does not own Shares in excess of the applicable Ownership Limit
or Excluded Holder Limit. Such automatic transfer shall be effective as of the
close of business on the business day prior to the date of the purported
Transfer. If, after the automatic transfer to the Excess Shares Trust of all of
the Shares owned directly by a Person or Excluded Holder, such Person or
Excluded Holder still owns Shares in excess of the applicable Ownership Limit or
Excluded Holder Limit, Shares owned by such Person or Excluded Holder
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code, shall be automatically transferred to the
Excess Shares Trust until such Person or Excluded Holder, as the case may be,
does not own Shares in excess of the applicable Ownership Limit or Excluded
Holder Limit. If such Person or Excluded Holder owns Shares constructively
through one or more Persons and the Shares held by such other Persons must be
automatically transferred to the Excess Shares Trust, the automatic transfer of
Excess Shares by
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such other Persons shall be pro rata. However, if such Person owns Shares
constructively through an Excluded Holder, the Excluded Holder shall not have to
automatically transfer its Shares for Excess Shares and the automatic transfer
shall be pro rata among the other Persons.
(ii) If, notwithstanding the other provisions contained in this
Section 7, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a direct
or indirect Shareholder of the Trust which is not void AB INITIO pursuant to
subsection (b) of this Section 7 and which, if effective, would cause the Trust
to become "closely held" within the meaning of Section 856(h) of the Code, then
any Shares being Transferred which would cause the Trust to be "closely held"
within the meaning of Section 856(h) of the Code (rounded up to the nearest
whole Share) shall be automatically transferred to the Excess Shares Trust and
such Excess Shares shall be treated as provided in this Section 7. Such
designation and treatment shall be effective as of the close of business on the
business day prior to the date of the purported Transfer. If, after the transfer
of any such Excess Shares, the Trust is still "closely held" within the meaning
of Section 856(h) of the Code, the Shares owned directly by any individual whose
Beneficial Ownership of Shares in the Trust increased as a result of the sale,
transfer, gift, assignment, devise or other disposition of shares or other
interests of a direct or indirect Shareholder of the Trust or any other event
and who is one of the five individuals who caused the Trust to be "closely held"
within the meaning of Section 856(h) of the Code, shall be deemed to
automatically transfer such Shares to the Excess Shares Trust until the Trust is
not "closely held" within the meaning of Section 856(h) of the Code. If
similarly situated individuals exist, the transfer shall be pro rata. If, after
applying the foregoing provisions the Trust is still "closely held" within the
meaning of Section 856(h) of the Code, then any Shares constructively owned by
such individuals shall be automatically transferred (other than Shares held by
an Excluded Holder), on a pro rata basis among similarly situated individuals,
until the Trust is not "closely held" within the meaning of Section 856(h) of
the Code.
(iii) If, at any time after the Adoption Date until the Restriction
Termination Date, an event other than a purported Transfer (an "Event") occurs
which would (i) cause any Person (other than an Excluded Holder) to Beneficially
Own Shares in excess of the Ownership Limit or (ii) cause an Excluded Holder to
Beneficially Own Shares in excess of the Excluded Holder Limit, then, except as
otherwise provided in subsection (k) of this Section 7, Shares Beneficially
Owned by such Person or Excluded Holder, as the case may be, shall be
automatically transferred to the Excess Shares Trust to the extent necessary to
eliminate such excess ownership. Such automatic transfer of Excess Shares shall
be effective as of the close of business on the business day prior to the date
of the Event. In determining which Shares are transferred, Shares Beneficially
Owned by any Person who caused the Event to occur shall be automatically
transferred before any Shares not so held are automatically transferred. If
similarly situated Persons exist, the automatic transfer shall be pro rata. If
any Person is required to transfer Shares pursuant to this subsection (c)(iii),
such Person shall first transfer to the Excess Shares Trust Shares directly held
by such Person before transferring Shares held constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code. If such Person or Excluded Holder owns Shares constructively through
one or more
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Persons and the Shares held by such other Persons must be automatically
transferred to the Excess Shares Trust, the automatic transfer of Shares by such
other Persons shall be pro rata. However, if such Person owns Shares
constructively through an Excluded Holder, the Excluded Holder shall not have to
transfer its Shares and the automatic transfer shall be pro rata among the other
Persons.
(iv) If, at any time after the Adoption Date until the Restriction
Termination Date, an Event occurs which would cause the Trust to become "closely
held" within the meaning of Section 856(h) of the Code, then Shares Beneficially
Owned by any Person (other than an Excluded Holder), as the case may be, shall
be automatically transferred to the Excess Shares Trust to the extent necessary
to eliminate such excess ownership. Such automatic transfer of Excess Shares
shall be effective as of the close of business on the business day prior to the
date of the Event. In determining which Shares are automatically transferred to
the Excess Shares Trust, Shares Beneficially Owned by any Person (other than an
Excluded Holder) who caused the Event to occur shall be automatically
transferred before any Shares not so held are transferred. If similarly situated
Persons exist, the automatic transfer shall be pro rata. If any Person is
required to transfer Shares to the Excess Shares Trust pursuant to this
subsection (c)(iv), such Person shall first automatically transfer Shares
directly held by such Person before transferring Shares held constructively
through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. If any Person (other than an Excluded Holder) owns
Shares constructively through one or more Persons and the Shares held by such
other Persons must be automatically transferred to the Excess Shares Trust, the
automatic transfer of Shares by such other Persons shall be pro rata. However,
if such Person owns Shares constructively through an Excluded Holder, the
Excluded Holder shall not have to transfer its Shares and the automatic transfer
shall be pro rata among the other Persons.
(v) If, notwithstanding the other provisions contained in this
Section 7, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a direct
or indirect Shareholder of the Trust which, if effective, would cause any
Related Tenant Owner to Constructively Own Shares in excess of the Related
Tenant Limit, then any Shares purportedly owned by such Related Tenant Owner
which would cause such Related Tenant to Constructively Own Shares in excess of
the Related Tenant Limit shall be automatically transferred to the Excess Shares
Trust and be treated as Excess Shares as provided in this Section 7. Such
designation and treatment as Excess Shares shall be effective as of the close of
business on the business day prior to the date of the purported Transfer or
event described in the preceding sentence. In determining which Shares are
automatically transferred to the Excess Shares Trust, Shares owned directly or
indirectly by any Person (other than an Excluded Holder) who caused the Related
Tenant Event to occur shall be automatically transferred before any Shares not
so held are transferred. If similarly situated Persons exist, the automatic
transfer to the Excess Shares Trust shall be pro rata. If the Related Tenant
Limit is still exceeded and the Related Tenant Event was not caused by the
Related Tenant Owner in question, Shares owned directly or indirectly by such
Related Tenant Owner (other than Shares owned directly or indirectly by an
Excluded Holder) shall be automatically transferred to the
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Excess Shares Trust until the Related Tenant Owner does not own Shares in excess
of the Related Tenant Limit. If, after the automatic transfers described above
in this subsection (c)(v), the Related Tenant Owner still owns Shares in excess
of the Related Tenant Limit, Shares owned directly or indirectly by the Excluded
Holders shall be automatically transferred pro rata until the Related Tenant
Owner does not own Shares in excess of the Related Tenant Limit.
(vi) If, at any time after the Adoption Date until the Restriction
Termination Date, there is an event (a "Related Tenant Event") which would cause
any Related Tenant Owner to Constructively Own Shares in excess of the Related
Tenant Limit, then Shares which cause the Related Tenant Limit to be exceeded
shall be automatically transferred to the Excess Shares Trust to the extent
necessary to eliminate such excess ownership. Such automatic transfer of Excess
Shares shall be effective as of the close of business on the business day prior
to the date of the Related Tenant Event. In determining which Shares are
automatically transferred to the Excess Shares Trust, Shares owned directly or
indirectly by any Person (other than an Excluded Holder) who caused the Related
Tenant Event to occur shall be automatically transferred before any Shares not
so held are transferred. If similarly situated Persons exist, the automatic
transfer to the Excess Shares Trust shall be pro rata. If the Related Tenant
Limit is still exceeded and the Related Tenant Event was not caused by the
Related Tenant Owner in question, Shares owned directly or indirectly by such
Related Tenant Owner (other than Shares owned directly or indirectly by an
Excluded Holder) shall be automatically transferred to the Excess Shares Trust
until the Related Tenant Owner does not own Shares in excess of the Related
Tenant Limit.
(vii) If, notwithstanding the other provisions contained in this
Section 7, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a direct
or indirect Shareholder of the Trust which, if effective, would result in the
disqualification of the Trust as a REIT by virtue of actual, Beneficial or
Constructive Ownership of Shares, then any Shares being Transferred which would
result in such disqualification shall be automatically transferred to the Excess
Shares Trust and shall be treated as provided in this Article II. Such
designation and treatment as Excess Shares shall be effective as of the close of
business on the business day prior to the date of the purported Transfer.
(viii) If, at any time after the Adoption Date until the Restriction
Termination Date, notwithstanding the other provisions contained in this Section
7, there is an event (a "Prohibited Owner Event") which would result in the
disqualification of the Trust as a REIT by virtue of actual, Beneficial or
Constructive Ownership of Shares, then Shares which result in the
disqualification of the Trust shall be automatically transferred to the Excess
Shares Trust to the extent necessary to avoid such disqualification. Such
automatic transfer of Excess Shares shall be effective as of the close of
business on the business day prior to the date of the Prohibited Owner Event. In
determining which Shares are automatically transferred, Shares owned directly or
indirectly by any Person (other than the Excluded Holder) who caused the
Prohibited Owner Event to occur shall be automatically transferred before any
Shares not so held are transferred. If similarly situated Persons exist, the
automatic transfer to the Excess Shares Trust shall be pro
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rata. If the Trust is still disqualified, Shares owned directly or indirectly by
Persons who did not cause the Prohibited Owner Event to occur (other than Shares
owned directly or indirectly by an Excluded Holder) shall be chosen by random
lot and automatically transferred to the Excess Shares Trust until the Trust is
no longer disqualified as a REIT. If, after the automatic transfers described
above in this subsection (c)(viii), the Trust is still disqualified as a REIT,
Shares owned directly or indirectly by the Excluded Holders shall be
automatically transferred to the Excess Shares Trust until the Trust is no
longer disqualified as a REIT.
(d) PREVENTION OF TRANSFER. If the Board or its designee shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of subsection (b) of this Section 7 or that a Person
intends to acquire or has attempted to acquire Beneficial or Constructive
Ownership (determined without reference to any rules of attribution) of any
Shares in violation of subsection (b) of this Section 7, the Board or its
designee shall take such action as it deems advisable to refuse to give effect
to or to prevent such Transfer, including, but not limited to, causing the Trust
to redeem Shares, refusing to give effect to such Transfer on the books of the
Trust or instituting proceedings to enjoin such Transfer; provided, however,
that any Transfers or attempted Transfers in violation of subsection (b) of this
Section 7 shall automatically result in the designation and treatment described
in subsection (c) of this Section 7, irrespective of any action (or non-action)
by the Board.
(e) NOTICE TO TRUST. Any Person who acquires or attempts to acquire Shares
in violation of subsection (b) of this Section 7, or any Person who is a
transferee such that Excess Shares result under subsection (c) of this Section
7, shall immediately give written notice or, with respect to a proposed or
attempted Transfer, give at least 30 days prior written notice to the Trust of
such event and shall provide to the Trust such other information as the Trust
may request in order to determine the effect, if any, of such Transfer or
attempted Transfer on the Trust's status as a REIT.
(f) INFORMATION FOR TRUST. From the Adoption Date until the Restriction
Termination Date:
(i) Every Beneficial Owner of more than 5% (or such other
percentage, between 1/2 of 1% and 5%, as provided in the income tax regulations
promulgated under the REIT Provisions of the Code) of the number or value of
outstanding Shares of the Trust shall, within 30 days after January 1 of each
year, give written notice to the Trust stating the name and address of such
Beneficial Owner, the number of Shares Beneficially Owned and a description of
how such Shares are held; and each such Beneficial Owner shall provide to the
Trust such additional information as the Trust may reasonably request in order
to determine the effect, if any, of such Beneficial Ownership on the Trust's
status as a REIT; and
(ii) Each Person who is a Beneficial or Constructive Owner of Shares
and each Person (including the stockholder of record) who is holding Shares for
a Beneficial or Constructive Owner shall provide to the Trust in writing such
information with respect to direct, indirect and constructive ownership of
Shares as the Board deems reasonably necessary to
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comply with the RE1T Provisions of the Code, to determine the Trust's status as
a REIT, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
(g) OTHER ACTION BY BOARD. Subject to subsection (b) of this Section 7,
nothing contained in this Section 7 shall limit the authority of the Board to
take such other action as it deems necessary or advisable to protect the Trust
and the interests of its Shareholders by preservation of the Trust's status as a
REIT; provided, however, that no provision of this Section 7 shall preclude the
settlement of any transaction entered into through the facilities of the NYSE.
(h) Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Section 7, including any definition contained in
subsection (a) of this Section 7, the Board shall have the power to determine
the application of the provisions of this Section 7 with respect to any
situation based on the facts known to it.
(i) INCREASE OR DECREASE IN OWNERSHIP LIMIT. Subject to the limitations
provided in subsection (j) of this Section 7, the Board may from time to time
increase or decrease the Ownership Limit; provided, however, that any decrease
may only be made prospectively as to subsequent holders (other than a decrease
as a result of a retroactive change in existing law which would require a
decrease to retain REIT status, in which case such decrease shall be effective
immediately).
(j) LIMITATIONS ON CHANGES IN EXCLUDED HOLDER AND OWNERSHIP LIMITS.
(i) Neither the Ownership Limit nor any Excluded Holder Limit may be
increased (nor may any additional Excluded Holder Limit be created) if, after
giving effect to such increase (or creation), five individual Beneficial Owners
of Shares (including all of the then Excluded Holders) could Beneficially Own,
in the aggregate, more than 49.9% in number or value of the outstanding Shares.
(ii) Prior to the modification of any Excluded Holder Limit or
Ownership Limit pursuant to subsection (i) of this Section 7, the Board may
require such opinions of counsel, affidavits, undertakings or agreements as it
may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
(iii) No Ownership Limit may be increased to a percentage which is
greater than 9.8%.
(k) WAIVERS BY THE BOARD. The Board, upon receipt of a ruling from the
Internal Revenue Service, an opinion of counsel to the effect that such
exemption will not result in the Trust being "closely held" within the meaning
of Section 856(h) of the Code or otherwise adversely affect the Trust's ability
to qualify as a RE1T or such other evidence as the Board deems necessary in its
sole discretion, may exempt, on such conditions and terms as the Board deems
necessary in its sole discretion, a Person from the Ownership Limit or the
Excluded
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Holder Limit, as the case may be, if the Board obtains such representations and
undertakings from such Person as the Board may deem appropriate and such Person
agrees that any violation or attempted violation shall result in, to the extent
necessary, the automatic transfer of Shares held by such Person to the Excess
Shares Trust in accordance with subsection (c) of this Section 7.
(l) LEGEND. Each certificate for Shares shall bear substantially the
following legend:
The securities represented by this certificate are subject to
restrictions on ownership and transfer for purposes of the Trust's maintenance
of its status as a real estate investment trust under the Internal Revenue Code
of 1986, as amended. Except as otherwise provided pursuant to these Articles of
Amendment and Restatement, (i) no Person may Beneficially or Constructively Own
Shares in excess of 9.8% (or such greater percentage as may be determined by the
Board of the Trust) of the number or value of the outstanding Shares of the
Trust (unless such Person is an Excluded Holder, in which case the Excluded
Holder Limit shall be applicable) and (ii) no Person may Beneficially or
Constructively Own or Transfer Shares if such Ownership or Transfer would result
in the Trust failing to qualify as a REIT. Any Person who attempts or proposes
to Beneficially or Constructively Own Shares in excess of the above limitations
or to Transfer Shares in violation thereof must notify the Trust in writing at
least 30 days prior to such proposed or attempted Ownership or Transfer. In
addition, Share ownership by and transfers of Shares to certain tenants of the
Trust are subject to certain restrictions. All capitalized terms in this legend
have the meanings defined in the Declaration of Trust of the Trust, a copy of
which, including the restrictions on transfer, shall be furnished to each
Shareholder on request and without charge. If the restrictions on transfer are
violated, the securities represented hereby shall be automatically transferred
to the Excess Shares Trust which shall be held in trust by the Excess Share
Trustee for the benefit of the Charitable Beneficiary.
Instead of the foregoing legend, the certificate may state that the Trust
will furnish a full statement about certain restrictions on transferability to a
shareholder on request and without charge.
(m) SEVERABILITY. If any provision of this Section 7 or any application of
any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall be affected only to the extent necessary to comply
with the determination of such court.
(n) TRANSFER OF EXCESS SHARES. Upon any purported Transfer which results
in Excess Shares pursuant to subsection (c) of this Section 7, such Excess
Shares shall be deemed to have been transferred to the Excess Share Trustee, as
trustee of a special trust for the exclusive benefit of the Charitable
Beneficiary or Charitable Beneficiaries to whom an interest in such Excess
Shares may later be transferred pursuant to subsection (c) of this Section 7.
Excess Shares so held in trust shall be issued and outstanding Shares of the
Trust. The Purported Record Transferee or Purported Beneficial Transferee shall
have no rights in such Excess Shares except as provided in subsection (q) of
this Section 7. The Excess Share Trustee shall be appointed by
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the Board and shall be a Person unaffiliated with the Trust and any Purported
Record Transferee or Purported Beneficial Transferee. No Purported Record
Transferee or Purported Beneficial Transferee shall benefit economically from
ownership of any shares held in trust by the Excess Share Trustee, or have any
rights to dividends or other distributions or possess any rights to vote or
other rights attributable to the Shares held in the Excess Shares Trust.
(o) DISTRIBUTIONS ON EXCESS SHARES. Any dividends or other distributions
(whether taxable as a dividend, return of capital or otherwise) on Excess Shares
shall be paid to the Excess Share Trust for the benefit of the Charitable
Beneficiary. Upon liquidation, dissolution or winding up, the Purported Record
Transferee shall receive the lesser of (i) the amount of any distribution made
upon liquidation, dissolution or winding up or (ii) the price paid by the
Purported Record Transferee for the Shares, or if the Purported Record
Transferee did not give value for the Shares, the Market Price of the Shares on
the day of the event causing the Shares to be held in trust. Any dividend or
distribution paid to the Purported Record Transferee prior to the discovery by
the Trust that the Shares with respect to which the dividend or distribution was
made had been automatically transferred to the Excess Shares Trust shall be
repaid to the Excess Share Trust for the benefit of the Charitable Beneficiary.
(p) VOTING OF EXCESS SHARES. The Excess Share Trustee shall be entitled to
vote the Excess Shares for the benefit of the Charitable Beneficiary on any
matter. Any vote cast by a Purported Record Transferee prior to the discovery by
the Trust that the Shares with respect to which the vote had been cast had been
automatically transferred to the Excess Shares Trust may, subject to Maryland
law, be rescinded as void by the Excess Share Trustee and recast in accordance
with the desires of the Excess Share Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Trust has already taken
an irrevocable trust action, then the Excess Share Trustee shall not have the
authority to rescind and recast such vote.
(q) RESTRICTIONS ON TRANSFER OF EXCESS SHARES; DESIGNATION OF BENEFICIARY.
(i) Excess Shares shall not be transferable. The Purported Record
Transferee may freely designate a Beneficiary of an interest in the Excess
Shares Trust (representing the number of Excess Shares held by the Excess Shares
Trust attributable to a purported Transfer or other event that resulted in the
Excess Shares) if (i) the Excess Shares held in the Excess Shares Trust would
not be Excess Shares in the hands of such Beneficiary and (ii) the Purported
Beneficial Transferee does not receive a price, as determined on a
Share-by-Share basis, for designating such Beneficiary that reflects a price for
such Excess Shares that exceeds (x) the price such Purported Beneficial
Transferee paid for the shares in the Purported Transfer that resulted in the
creation of Excess Shares, or (y) if the Purported Beneficial Transferee did not
give value for such Shares (through a gift, devise or other transaction), a
price per share equal to the Market Price of such Shares on the date of the
Purported Transfer that resulted in the Excess Shares. Upon such a transfer of
an interest in the Excess Shares Trust, the Excess Shares Trust shall
automatically terminate as to an equal number of Shares (depending upon the type
and class of Shares that were originally automatically transferred to the Excess
Shares Trust), and such Shares shall be transferred of record to the transferee
of the interest in the Excess Shares
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Trust if such Shares would not be automatically transferable to the Excess
Shares Trust in the hand of such transferee. Prior to any transfer of any
interest in the Excess Shares Trust, the Purported Record Transferee must give
advance notice to the Trust in writing of the intended transfer, and the Trust
must have waived in writing its purchase rights under subsection (t) of this
Section 7.
(ii) Notwithstanding the foregoing, if a Purported Beneficial
Transferee receives a price for designating a Beneficiary of an interest in the
Excess Shares Trust that exceeds the amounts allowable under subsection (q)(i)
of this Section 7, such Purported Beneficial Transferee shall pay, or cause such
Beneficiary to pay, such excess to the Trust.
(r) ACTING AS AGENT. If any of the foregoing restrictions on transfer of
Excess Shares is determined to be void, invalid or unenforceable by any court of
competent jurisdiction, then the Purported Record Transferee may be deemed, at
the option of the Trust, to have acted as an agent of the Trust in acquiring
such Excess Shares and to hold such Excess Shares on behalf of the Trust.
(s) CALL BY TRUST ON EXCESS SHARES. Excess Shares shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per Share equal
to the lesser of (i) the price per Share in the transaction which created such
Excess Shares (or, in the case of a devise, gift or other transaction in which
no value was given, the Market Price at the time of such devise, gift or other
transaction) and (ii) the Market Price of the Shares to which such Excess Shares
relate on the date the Trust, or its designee, accepts such offer (the
"Redemption Price"). The Trust shall have the right to accept such offer for a
period of ninety days after the later of (A) the date of the Transfer which
resulted in such Excess Shares and (B) the date the Board determines in good
faith that a Transfer resulting in Excess Shares has occurred, if the Trust does
not receive a notice of such Transfer pursuant to subsection (e) of this Section
7 but in no event later than a permitted Transfer pursuant to and in compliance
with the terms of subsection (q) of this Section 7. Unless the Board determines
that it is in the interests of the Trust to make earlier payments of all of the
amount determined as the Redemption Price per Share in accordance with the
preceding sentence, the Redemption Price may be payable at the option of the
Board at any time up to but not later than five years after the date the Trust
accepts the offer to purchase the Excess Shares. In no event shall the Trust
have an obligation to pay interest to the Purported Record Transferee.
(t) UNDERWRITTEN OFFERINGS. The Ownership Limit shall not apply to the
acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering, provided that
the underwriter makes a timely distribution of such Shares or rights, options or
warrants for, or securities convertible into, Shares, and provided, further,
that the ownership of Shares by such underwriter would not result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code and would
not otherwise result in the Trust failing to qualify as a REIT.
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SECTION 8. EXEMPTIONS FROM CERTAIN PROVISIONS OF MARYLAND LAW. [The
provisions of Title 3, Subtitle 6 of the Corporations and Associations Article
of the Annotated Code of Maryland entitled "Special Voting Requirements"
(Section 3-601 through and including Section 3-604), or any successor statute,
shall not apply to any business combination between (i) the Trust and (ii) Mr.
O. Bruton Smith or any affiliate of Mr. O. Bruton Smith.][To be effective
immediately, the foregoing provision should be adopted by board resolution
rather than contained in the Declaration of Trust.] The provisions of Title 3,
Subtitle 7 of the Corporations and Associations Article of the Annotated Code of
Maryland entitled "Voting Rights of Certain Control Shares" (Section 3-701
through and including Section 3-709), or any successor statute, shall not apply
to any Shares owned or acquired by Mr. O. Bruton Smith or any affiliate of Mr.
Smith (but such provisions shall apply to any Shares acquired by such person
after Mr. O. Bruton Smith or any affiliate of Mr. Smith no longer directly holds
an equity interest in such person).
ARTICLE III SHAREHOLDERS
SECTION 1. MEETINGS.
(a) There shall be an annual meeting of the Shareholders at such time and
place, either within or without the State of Maryland, for the election of
Trustees and for the transaction of any other proper business. The annual
meeting of Shareholders shall be held upon reasonable notice and within a
reasonable period following delivery of the annual report as shall be determined
by or in the manner prescribed in the Bylaws. Special meetings of Shareholders
may be called in the manner provided in the Bylaws. If there shall be no
Trustees, the officers of the Trust shall promptly call a special meeting of the
Shareholders for the election of successor Trustees. Any meeting may be
adjourned and reconvened as the Trustees determine or as provided in the Bylaws.
(b) A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at any such meeting.
Whenever any action is to be taken by the Shareholders, it shall, except as
otherwise required by law or this Declaration of Trust or the Bylaws, be
authorized by a majority of all of the votes cast at a meeting at which a quorum
is present.
SECTION 2. VOTING. At each meeting of the Shareholders, each Shareholder
entitled to vote shall have the right to vote, in person or by proxy, the number
of Shares of the Trust owned by him or her on each matter on which the vote of
the Shareholders is taken. In any election of Trustees in which more than one
vacancy is to be filled, each Shareholder may vote the number of Shares of the
Trust owned by him or her for each vacancy to be filled. There shall be no right
of cumulative voting. Each outstanding Share shall be entitled to one vote on
each matter submitted to a vote at a meeting of Shareholders, except as
otherwise provided by this Declaration of Trust or any articles supplementary.
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SECTION 3. DISTRIBUTIONS. The Board may from time to time authorize the
payment to Shareholders of such dividends or distributions in cash, property or
other assets of the Trust or in securities of the Trust or from any other source
as the Board in its discretion shall determine. The Board shall endeavor to
authorize the payment of such dividends and distributions as shall be necessary
for the Trust to qualify as a REIT under the REIT Provisions of the Code (so
long as such qualification, in the opinion of the Board, is in the best
interests of the Shareholders); however, Shareholders shall have no right to any
dividend or distribution unless and until authorized by the Board. The exercise
of the powers and rights of the Board pursuant to this Section 3 shall be
subject to the provisions of any class or series of Shares at the time
outstanding. The receipt by any Person in whose name any Shares are registered
on the records of the Trust or by his or her duly authorized agent shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability with respect to the application
thereof. Notwithstanding any other provision in this Declaration of Trust, no
determination shall be made by the Board nor shall any transaction be entered
into by the Trust which would cause any Shares or other beneficial interest in
the Trust not to constitute "transferable shares" or "transferable certificates
of beneficial interest" under Section 856(aX2) of the Code or which would cause
any distribution to constitute a preferential dividend as described in Section
562(c) of the Code.
SECTION 4. ANNUAL REPORT. The Trust shall prepare an annual report
concerning its operations for the preceding fiscal year in the manner and within
the time prescribed by Title 8.
SECTION 5. NONLIABILITY AND INDEMNIFICATION. Shareholders shall not be
personally or individually liable by reason of being a Shareholder in any manner
whatsoever for any debt, act, omission or obligation incurred by the Trust or
the Board and shall be under no obligation to the Trust or its creditors with
respect to their Shares other than the obligation to pay to the Trust the full
amount of the consideration for which the Shares were issued or to be issued.
The Shareholders shall not be liable to assessment and the Board shall have no
power to bind the Shareholders personally. The Trust shall indemnify and hold
each Shareholder harmless from and against all claims and liabilities, whether
they proceed to judgment or are settled or otherwise brought to a conclusion, to
which such Shareholder may become subject by reason of his or her being or
having been a Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him or her in connection with any such
claim or liability; provided, however, that no such Shareholder shall be
indemnified or reimbursed if such claim, obligation or liability is finally
adjudged by a competent court of law to have arisen out of the Shareholder's bad
faith, willful misconduct or gross negligence; and provided, further, that such
Shareholder must give prompt notice as to any such claims or liabilities or
suits and must take such action as will permit the Trust to conduct the defense
thereof. The rights accruing to a Shareholder under this Section 6 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically herein provided; provided, however, that the Trust shall have no
liability to reimburse Shareholders for taxes assessed against them by reason of
their ownership of Shares, nor for any losses suffered by reason of changes in
the market value of Shares or other securities of the
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Trust. No amendment to this Declaration of Trust increasing or enlarging the
liability of the Shareholders shall be made without the unanimous vote or
written consent of all of the Shareholders.
SECTION 6. NOTICE OF NONLIABILITY. The Board shall use every reasonable
means to assure that all persons having dealings with the Trust shall be
informed that the private property of the Shareholders and the Trustees shall
not be subject to claims against and obligations of the Trust to any extent
whatever. The Board shall cause to be inserted in every written agreement,
undertaking or obligation made or issued on behalf of the Trust, an appropriate
provision to the effect that the Shareholders and the Trustees shall not be
personally liable thereunder, and that all parties concerned shall look solely
to the Trust property for the satisfaction of any claim thereunder, and
appropriate reference shall be made to this Declaration of Trust. The omission
of such a provision from any such agreement, undertaking or obligation, or the
failure to use any other means of giving such notice, shall not, however, render
the Shareholders or the Trustees personally liable or such agreement,
undertaking or obligation invalid or unenforceable.
ARTICLE IV THE TRUSTEES
SECTION 1. NUMBER, QUALIFICATION, COMPENSATION AND TERM. The Board shall
be comprised of not less than three nor more than fifteen Trustees. The current
number of Trustees is _________________, which may be changed from time to time
pursuant to the Bylaws within the limits provided in the preceding sentence.
Except for the initial terms of Class I and Class II Trustees, as set forth
below, the term of office of each Trustee shall be three years and until the
election and qualification of his or her successor. Trustees may succeed
themselves in office. Trustees shall be individuals who are at least 21 years
old and not under any legal disability. No Trustee shall be required to give
bond, surety or securities to secure the performance of his or her duties or
obligations hereunder. No reduction in the number of Trustees shall have the
effect of removing any Trustee from office prior to the expiration of his or her
term. Whenever a vacancy among the Trustees shall occur, until such vacancy is
filled as provided in Section 3, the Trustee or Trustees continuing in office,
regardless of their number, shall have all of the powers granted to the Board
and shall discharge all of the duties imposed on the Board by this Declaration
of Trust. The Trustees shall receive such fees for their services and expenses
as they shall deem reasonable and proper. After the Trust has registered Shares
pursuant to Section 12(b) or Section 12(g) of the Exchange Act, a majority of
the Trustees shall not be affiliates of the Trust or with any organization which
is an affiliate of the Trust.
The current Trustees shall be divided by the Board into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of Trustees constituting
the entire Board. The current Class I Trustees shall serve until the annual
meeting of Shareholders in 1999 and until the election and qualification of
their successors. The current Class II Trustees shall serve until the annual
meeting of Shareholders in 2000 and until the election and qualification of
their successors. The current Class III Trustees shall serve until the annual
meeting of Shareholders in 2001 and until the election and qualification of
their successors. At the 1999, 2000 and 2001 annual meetings of Shareholders,
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Class I Trustees, Class II Trustees and Class III Trustees, respectively, shall
be elected for three-year terms. At each succeeding annual meeting of
shareholders, beginning in 2002, successors to the class of Trustees whose term
expires at that annual meeting shall be elected for a three-year term. If the
authorized number of Trustees is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of Trustees in each
class as nearly equal as possible, and any additional Trustee of any class
elected to fill a vacancy resulting from an increase in such class, subject to
Section 3, shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of Trustees
shorten the term of any incumbent Trustee. A majority of the entire Board shall
constitute a quorum for the transaction of business. The name address and class
of each of the initial Trustees is set forth below.
Name Class Address
- ---- ----- -------
0. Bruton Smith III 5401 East Independence Boulevard
Charlotte, North Carolina 28218
SECTION 2. RESIGNATION, REMOVAL AND DEATH. A Trustee may resign at any
time by giving written notice thereof to the Trust at the principal office of
the Trust. The acceptance of a resignation shall not be necessary to make it
effective. Subject to the rights of holders of one or more classes or series of
Shares to elect or remove Trustees, a Trustee may be removed with or without
cause by the Shareholders by the affirmative vote of two-thirds of all of the
votes entitled to be cast in the election of Trustees. Upon the resignation or
removal of any Trustee, he or she shall execute and deliver such documents and
render such accounting as the remaining Trustee or Trustees shall reasonably
require and shall thereupon be discharged as Trustee. Upon the incapacity or
death of any Trustee, his or her status as a Trustee shall immediately terminate
at such incapacity or death, and his or her legal representatives shall perform
the acts set forth in the preceding sentence.
SECTION 3. VACANCIES. The resignation, removal, incompetency or death of
any or all of the Trustees shall not terminate the Trust or affect its
continuity. During a vacancy, the remaining Trustee or Trustees may exercise the
powers of the Trustees hereunder. Whenever there shall be a vacancy or vacancies
among the Trustees (including vacancies resulting from an increase in the number
of Trustees) such vacancy or vacancies shall be filled (i) at a special meeting
of Shareholders called for such purpose (which may be by written consent), (ii)
by the Trustee or Trustees then in office or (iii) at the next annual meeting of
Shareholders. Trustees elected at special meetings of Shareholders shall hold
office for the remainder of the term of office for which such Trustee was
elected. Trustees appointed by the remaining Trustee or Trustees to fill
vacancies shall hold office until the next annual meeting of Shareholders.
SECTION 4. SUCCESSOR TRUSTEES. The right, title and interest, if any, of
the Trustees in and to the Trust property shall vest automatically in all
persons who may hereafter become Trustees upon their due election and
qualification without any further act, and thereupon they shall have the same
rights, privileges, powers, duties and immunities as though named as Trustees in
this Declaration of Trust. Appropriate written evidence of the election and
qualification of successor
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Trustees shall be filed with the records of the Trust and in such other offices
or places as the Board may deem necessary, appropriate or desirable. Upon the
resignation, removal or death of a Trustee, he or she (and upon his or her
death, his or her estate) shall automatically cease to have any right, title or
interest in or to any of the Trust property, and the right, title and interest
of such Trustee, if any, in and to the Trust property shall vest automatically
in the remaining Trustee or Trustees without any further act.
SECTION 5. MEETINGS AND ACTION WITHOUT A MEETING. The Board may act with
or without a meeting. Except as otherwise provided herein, any action of a
majority of Trustees present at a duly convened meeting of the Board shall be
conclusive and binding as an action of the Board. A quorum for meetings of the
Board shall be a majority of all of the Trustees in office. Action may be taken
without a meeting only by unanimous written consent of all of the Trustees in
office which consent shall be filed with the minutes of the proceedings of the
Board. Any action taken by the Board in accordance with the provisions of this
Section 5 shall be conclusive and binding on the Trust, the Trustees and the
Shareholders, as an action of all of the Trustees, collectively, and of the
Trust. Any deed, mortgage, evidence of indebtedness or other instrument,
agreement or document of any character, whether similar or dissimilar, executed
by one or more of the Trustees, when authorized at a meeting or by written
consent without a meeting in accordance with the provisions of this Section 5,
shall be valid and binding on the Trustees, the Trust and the Shareholders.
SECTION 6. POWERS. Subject to any express limitations contained in the
Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust
shall be managed under the direction of the Board of Trustees and (b) the Board
shall have full, exclusive and absolute power, control and authority over any
and all property of the Trust. The Board may take any action as in its sole
judgment and discretion is necessary or appropriate to conduct the business and
affairs of the Trust. The Declaration of Trust shall be construed with the
presumption in favor of the grant of power and authority to the Board. Any
construction of the Declaration of Trust or determination made in good faith by
the Board concerning its powers and authority hereunder shall be conclusive. The
enumeration and definition of particular powers of the Trustees included in the
Declaration of Trust or in the Bylaws shall in no way be limited or restricted
by reference to or inference from the terms of this or any other provision of
the Declaration of Trust or the Bylaws or construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the Board
or the Trustees under the general laws of the State of Maryland or any other
applicable laws.
The Board, without any action by the Shareholders, shall have and may
exercise, on behalf of the Trust, without limitation, the power to terminate the
status of the Trust as a real estate investment trust under the Code; to
determine that compliance with any restriction or limitations on ownership and
transfers of Shares set forth in Section 7 of Article II of the Declaration of
Trust is no longer required in order for the Trust to qualify as a REIT; to
adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in
the Bylaws; to solicit proxies from holders of Shares; and to do any other acts
and deliver any other documents necessary or appropriate to the foregoing
powers.
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SECTION 7. RIGHT TO OWN SHARES. A Trustee may acquire, hold and dispose of
Shares in the Trust for his or her individual account and may exercise all
rights of a Shareholder to the same extent and in the same manner as if he or
she were not a Trustee.
SECTION 8. TRANSACTIONS WITH TRUST. Subject to the provisions of Section 5
of Article I, and to any restrictions in this Declaration of Trust or adopted by
the Board in the Bylaws or by resolution, the Trust may enter into any contract
or transaction of any kind (including, without limitation, for the purchase or
sale of property or for any type of services, including those in connection with
underwriting or the offer or sale of securities of the Trust) with any person,
including any Trustee, officer, employee or agent of the Trust or any person
affiliated with a Trustee, officer, employee or agent of the Trust, whether or
not any of them has a financial interest in such transaction.
SECTION 9. PERSONS DEALING WITH TRUSTEES. No corporation, person, transfer
agent or other party shall be required to examine or investigate the trusts,
terms or conditions contained in this Declaration of Trust or otherwise
applicable to the Trust, and every such corporation, person, transfer agent or
other party may deal with Trust property and assets as if the Trustees were the
sole and exclusive owners thereof free of all trusts; and no such corporation,
person, transfer agent or other party dealing with the Trustees or with the
Trust or Trust property and assets shall be required to see to the application
of any money or property paid or delivered to any Trustee, or nominee, agent or
representative of the Trust or the Trustees. A certificate executed by or on
behalf of the Trustees or by any other duly authorized representative of the
Trust, delivered to any person or party dealing with the Trust or Trust property
and assets, or, if relating to real property, recorded in the deed records for
the county or district in which such real property lies, certifying as to the
identity and authority of the Trustees, agents, or representatives of the Trust
for the time being, or as to any action of the Trustees or of the Trust, or of
the Shareholders, or as to any other fact affecting or relating to the Trust or
this Declaration of Trust, may be treated as conclusive evidence thereof by all
persos dealing with the Trust. No provision of this Declaration of Trust shall
diminish or affect the obligation of the Trustees and every other representative
or agent of the Trust to deal fairly and act in good faith with respect to the
Trust and the Shareholders insofar as the relationship and accounting among the
parties to the Trust is concerned; but no third party dealing with the Trust or
with any Trustee, agent or representative of the Trust shall be obliged or
required to inquire into, investigate or be responsible for the discharge and
performance of such obligation.
SECTION 10. ADMINISTRATIVE POWERS. The Board shall have the power to pay
the expenses of administration of the Trust, including all legal and other
expenses in connection with the preparation and carrying out of the acquisition
of properties and the issuance of Shares; and to employ such officers, experts,
counsel, managers, salesmen, agents, workmen, clerks and other persons as they
deem appropriate.
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ARTICLE V TERMINATION AND DURATION
SECTION 1. TERMINATION. Subject to the provisions of any class or series
of Shares at the time outstanding, after approval by a majority of the entire
Board of Trustees, the Trust may be terminated at any meeting of the
Shareholders called for such purpose, by the affirmative vote of not less than
two-thirds of all of the votes entitled to be cast thereon. In connection with
any termination of the Trust, the Board, upon receipt of such releases or
indemnity as they deem necessary for their protection, may
(a) Sell and convert into cash the property of the Trust and distribute
the net proceeds among the Shareholders ratably; or
(b) Convey the property of the Trust to one or more persons, entities,
trusts or corporations for consideration consisting in whole or in part of cash,
shares of stock or other property of any kind, and distribute the net proceeds
among the Shareholders ratably, at valuations fixed by the Board, in cash or in
kind, or partly in cash and partly in kind.
Upon termination of the Trust and distribution to the Shareholders as herein
provided, the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
Shareholders shall cease and be canceled and discharged.
SECTION 2. ORGANIZATION AS A CORPORATION. If the Board deems it in the
best interests of the Shareholders that the Trust be organized as a corporation
under the laws of any state, the Board shall have full power to organize such
corporation, under the laws of such state as it may consider appropriate, in the
place and stead of the Trust without procuring the consent of any of the
Shareholders, in which event the capital stock of such corporation shall be and
remain the same as fixed under this Declaration of Trust and the Shareholders
shall receive and accept stock in such corporation on the same basis as they
hold Shares in the Trust.
SECTION 3. MERGER, CONSOLIDATION OR SALE. The Board shall have the power
to (i) merge the Trust into another entity, (ii) consolidate the Trust with one
or more other entities into a new entity or (iii) sell or otherwise dispose of
all or substantially all of the assets of the Trust; provided that such action
shall have been approved, at a meeting of the Shareholders called for such
purpose, by the affirmative vote of not less than two-thirds of all of the votes
entitled to be cast thereon except where approval of the Shareholders is not
required by Title 8 or would not be required by the Maryland General Corporation
Law if the Trust were a Maryland corporation.
SECTION 4. DURATION. Subject to possible earlier termination in accordance
with the provisions of this Article V, the duration of the Trust shall be
perpetual or, in any jurisdiction in which such duration is not permitted, then
the Trust shall terminate on the latest date permitted by the law of such
jurisdiction.
ARTICLE VI AMENDMENTS
SECTION 1. AMENDMENT BY SHAREHOLDERS. Except as provided in Section 2 of
this Article VI and in Section 1 of Articles III and V, this Declaration of
Trust may be amended by
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the Shareholders only by the affirmative vote or written consent of at least a
majority of the votes entitled to be cast thereon.
SECTION 2. AMENDMENT BY TRUSTEES. The Trustees by a two-thirds vote may
amend provisions of this Declaration of Trust from time to time without any
action by the Shareholders to enable the Trust to qualify as a real estate
investment trust under the REIT Provisions of the Code or under Title 8.
ARTICLE VII MISCELLANEOUS
SECTION 1. CONSTRUCTION. This Declaration of Trust shall be construed in
such a manner as to give effect to the intent and purposes of the Trust and this
Declaration of Trust. If any provisions hereof appear to be in conflict, more
specific provisions shall control over general provisions. This Declaration of
Trust shall govern all of the relationships among the Trustees and Shareholders
of the Trust; and each provision hereof should be effective for all purposes and
to all persons dealing with the Trust to the fullest extent possible under
applicable law in each jurisdiction in which the Trust shall engage in business.
In defining or interpreting the powers and duties of the Trust and the Trustees
and officers of the Trust, reference may be made by the Trustees and officers,
to the extent appropriate and not inconsistent with the Code, Title 8 and this
Declaration of Trust, to Titles 1 through 3 of the Corporations and Associations
Article of the Annotated Code of Maryland.
SECTION 2. HEADINGS FOR REFERENCE ONLY. Headings preceding the text,
articles, sections and subsections hereof have been inserted solely for
convenience and reference, and shall not be construed to affect the meaning,
construction or effect of this Declaration of Trust.
SECTION 3. APPLICABLE LAW. This Declaration of Trust has been executed
with reference to, and its construction and interpretation shall be governed by,
Maryland law, and the rights of all parties and the construction and effect of
every provision hereof shall be subject to and construed according to Maryland
law.
SECTION 4. CERTIFICATIONS. Any certificates signed by a Trustee or by any
officer of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trust or the Trustees or any
one or more of them, and the successors or assigns of such persons, which
certificate may certify to any matter relating to the affairs of the Trust,
including, but not limited to, any of the following: a vacancy among the
Trustees; the number and identity of Trustees; this Declaration of Trust and any
amendments or supplements thereto, or any restated declaration of trust and any
amendments or supplements thereto, or that there are no amendments to this
Declaration of Trust or any restated declaration of trust; a copy of the Bylaws
or any amendment thereto; the due authorization of the execution of any
instrument or writing; the vote or action taken, and the existence of a quorum,
at any meeting of the Board or a committee thereof or Shareholders; the fact
that the number of Trustees present at any meeting or executing any written
instrument satisfies the requirements of this Declaration of Trust; a copy of
any Bylaw adopted by the Shareholders or the identity of any officer elected by
the Board; or
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the existence or nonexistence of any fact or facts which in any manner relate to
the affairs of the Trust. If this Declaration of Trust or any restated
declaration of trust is filed or recorded in any recording office other than the
State Department of Assessments and Taxation of Maryland, anyone dealing with
real estate so located that instruments affecting the same should be filed or
recorded in such recording office may rely conclusively on any certificate of
the kind described above which is signed by a person who is a Trustee or officer
of the Trust.
SECTION 5. SEVERABILITY. If any provision of this Declaration of Trust
shall be invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other provision of this Declaration of Trust and
this Declaration of Trust shall be carried out, if possible, as if such invalid
or unenforceable provision were not contained herein.
SECTION 6. BYLAWS. The Bylaws may be altered, amended or repealed, and new
Bylaws may be adopted, at any meeting of the Board by a majority vote of the
Trustees, subject to repeal or change by action of the Shareholders of the Trust
entitled to vote thereon.
SECTION 7. RECORDING. This Declaration of Trust shall be filed in the
manner prescribed for real estate investment trusts under Maryland law and may
also be filed or recorded in such other places as the Board deems appropriate,
but failure to file for record this Declaration of Trust or any amendment hereto
in any office other than in the State Department of Assessments and Taxation of
Maryland shall not affect or impair the validity or effectiveness of this
Declaration of Trust or any amendment or supplement hereto.
ARTICLE VIII LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 1. LIMITATION OF LIABILITY OF TRUSTEES, OFFICERS AND EMPLOYEES. To
the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of Trustees, officers, employees or agents of a real
estate investment trust, no Trustee, officer, employee or agent of the Trust
shall be liable to the Trust or to any Shareholder for money damages. Neither
the amendment nor repeal of this Section 1, nor the adoption or amendment of any
other provision of this Declaration of Trust inconsistent with this Section 1,
shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption. In the absence of any Maryland statute limiting
the liability of Trustees, officers, employees or agents of a Maryland real
estate investment trust for money damages in a suit by or on behalf of the Trust
or by any Shareholder, no Trustee, officer, employee or agent of the Trust shall
be liable to the Trust or to any Shareholder for money damages except to the
extent that (i) the Trustee, officer, employee or agent actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received; or (ii) a
judgment or other final adjudication adverse to the Trustee, officer, employee
or agent is entered in a proceeding based on a finding in the proceeding that
the Trustee's, officer's, employee's or agent's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of the
action adjudicated in the proceeding.
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SECTION 2. INDEMNIFICATION OF TRUSTEES, OFFICERS AND EMPLOYEES. The Trust
shall have the power to obligate itself to indemnify each Trustee, officer,
employee and agent, to the fullest extent permitted by Maryland law, as amended
from time to time, in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, arising by reason of the fact that he or she was a Trustee,
officer, employee or agent of the Trust or is or was serving at the request of
the Trust as a director, trustee, officer, partner, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan, from all claims and liabilities to which
such person may become subject by reason of service in such capacity and to pay
or reimburse reasonable expenses, as such expenses are incurred, of each
Trustee, officer, employee or agent in connection with any such proceedings.
SECTION 3. INSURANCE. Notwithstanding any other provisions of this
Declaration of Trust, the Trust, for purposes of providing indemnification for
its Trustees, officers, employees and agents, shall have the authority, without
specific Shareholder approval, to enter into insurance or other arrangements,
with persons or entities which are regularly engaged in the business of
providing insurance coverage, to indemnify all Trustees, officers, employees and
agents of the Trust against any and all liabilities and expenses incurred by
them by reason of their being Trustees, officers, employees or agents of the
Trust, whether or not the Trust would otherwise have the power under this
Declaration of Trust or under Maryland law to indemnify such persons against
such liability. Without limiting the power of the Trust to procure or maintain
any kind of insurance or other arrangement, the Trust may (subject to any
limitations on the Trust's power to indemnify under Maryland law), for the
benefit of persons indemnified by it, (i) create a trust fund, (ii) establish
any form of self-insurance, (iii) secure its indemnity obligation by grant of
any security interest or other lien on the assets of the Trust or (iv) establish
a letter of credit, guaranty or surety arrangement. Any such insurance or other
arrangement may be procured, maintained or established within the Trust or with
any insurer or other person deemed appropriate by the Board regardless of
whether all or part of the stock or other securities thereof are owned in whole
or in part by the Trust. In the absence of fraud, the judgment of the Board as
to the terms and conditions of insurance or other arrangement and the identity
of the insurer or other person participating in any arrangement shall be
conclusive, and such insurance or other arrangement shall not be subject to
voidability, nor subject the Trustees approving such insurance or other
arrangement to liability, on any ground, regardless of whether Trustees
participating and approving such insurance or other arrangement shall be
beneficiaries thereof.
IN WITNESS WHEREOF, the Trust has caused this Declaration of Trust to be
signed in its name and on its behalf as of the date first written above, by its
President who acknowledges the Articles of Amendment and Restatement to be the
trust act of the Trust, and as to all matters of fact required to be verified
under oath, the undersigned President acknowledges that to the best of his
knowledge, information and belief, the matters and facts set forth herein are
true in all material respects and that this statement is made under the
penalties for perjury.
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MAR MAR REALTY TRUST
By: ________________________________
Benjamin F. Bracy
President
ATTEST:
___________________________________
Secretary
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EXHIBIT 3.2
MAR MAR REALTY TRUST
BYLAWS
ARTICLE 1.
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1 Annual Meetings. The Annual Meeting of Shareholders shall
be held for the purpose of electing Trustees and transacting such other business
as may properly be brought before the meeting. Annual Meetings of Shareholders
shall be held at such time, on such day and at such place, as the Trustees may
from time to time determine by resolution, but in any event shall be held within
the time prescribed in the Trust's Declaration of Trust, as in effect from time
to time (the "Declaration of Trust").
SECTION 1.2 Special Meetings. Special meetings of Shareholders may be
called by the Trustees, the Chairman of the Board of Trustees or the President,
and shall be called by the secretary of the Trust upon the written request of
the holders of not less than twenty-five percent (25%) of the voting power of
all the Shares entitled to vote at the meetings. A request of the holders of not
less than twenty-five percent (25%) of the voting power of all the Shares
entitled to vote at a meeting for a special meeting, shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such Shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Trust by
such Shareholders of such costs, the secretary shall give notice to each
Shareholder entitled to notice of the meeting.
SECTION 1.3 Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Board of Trustees or
any officer or person calling the meeting, to each Shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the Shareholder
at his address as it appears on the books of the Trust, with postage thereon
prepaid. Notwithstanding the foregoing provisions, each person who is entitled
to notice waives notice if he or she before or after the meeting signs a waiver
of the notice which is filed with the records of Shareholders' meetings, or is
present at the meeting in person or by proxy. Any business of the Trust may be
transacted at an annual meeting of Shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of Shareholders except as specifically designated in the notice.
SECTION 1.4 Chairman of the Meetings. The Chairman of the Board of
Trustees, if one be elected, shall preside at any Shareholders' meeting as
"Chairman of the Meeting" at which he or she shall be present or, in his or her
sole discretion, may select a person' who need not be a member of the Board of
Trustees, to preside at any Shareholders' meeting as Chairman of the Meeting. In
the Chairman's absence and in the absence of a person selected by the Chairman
to preside as Chairman of the Meetings the designated chief executive officer of
the Trust shall preside at any Shareholders' meeting as Chairman of the Meeting.
In the absence of the Chairman of the Board of Trustees, a person selected as
Chairman of the Meeting by the Chairman of the Board of Trustees, and the
designated chief executive officer of the Trust, the Trustees present at each
meeting shall elect one of their number as Chairman of the Meeting. Unless
otherwise provided for by the Trustees, the Secretary of the Trust shall be the
secretary of such meetings.
SECTION 1.5 Interpretation of ByLaws. At any Shareholders' meeting the
Chairman of the Meeting shall determine the construction or interpretation of
the ByLaws, or any part thereof, and the ruling of the Chairman of the Meeting
shall be final.
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SECTION 1.6 Quorum. A majority of the outstanding Shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of Shareholders.
SECTION 1.7 Adjournment. Whether or not a quorum is present, a meeting
of Shareholders convened on the date for which it was called may be adjourned
from time to time without further notice by a majority vote of the Shareholders
present in person or by proxy to a date not more than 120 days after the
original record date. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum is present.
SECTION 1.8 Shareholder Voting. A plurality of all the votes cast at a
meeting of Shareholders duly called and at which a quorum is present shall be
sufficient to elect a Trustee. Each Share may be voted for as many individuals
as there are Trustees to be elected and for whose election the Share is entitled
to vote. A majority of the votes cast at a meeting of Shareholders duly called
and at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the Declaration of Trust. At each
meeting of Shareholders and unless otherwise provided in the Declaration of
Trust, each outstanding Share shall be entitled to one vote on each matter
submitted to a vote at a meeting of Shareholders. A Shareholder may vote either
in person or by proxy executed in writing by the Shareholder or his duly
authorized attorney in fact. No proxy shall be valid after eleven (11) months
from the date of its execution unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable.
SECTION 1.9 Inspector of Elections. The Board of Trustees in advance of
any meeting of Shareholders may appoint one or more "Inspectors of Election" to
act at the meeting or any adjournment thereof. If Inspectors of Election are not
so appointed, the Chairman of the Meeting may, and on the request of any
Shareholder entitled to vote shall, appoint one or more Inspectors of Election.
Each Inspector of Election' before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of Inspector of
Election at such meeting with strict impartiality and according to the best of
his ability. If appointed, Inspectors of Election shall take charge of the polls
and, when the vote is completed, shall make a certificate of the result of the
vote taken and of such other facts as may be required by law.
SECTION 1.10 Election of Trustees by Ballot. Elections for Trustees
need not be by ballot unless a Shareholder demands election by ballot at the
election and before the voting begins.
SECTION 1.11 Voting by Holders of Record. The right of persons in whose
names Shares stand on the records of the Trust to vote or execute consents is
subject to the provisions of this Section of the ByLaws.
(a) Shares standing in the name of any person as pledgee, trustee, or
other fiduciary may be voted and all rights incident thereto may be exercised
only by the pledgee, trustee, or other fiduciary, in person or by proxy, and
without proof of authority. However, when a trust company has caused Shares to
be registered in the name of one or more nominees of the trust company, such
Shares may be voted and all rights incident thereto may be exercised by such
nominee or nominees without proof of authority.
(b) Shares standing in the name of a person adjudged incompetent may be
voted and all rights incident thereto may be exercised only by his guardian, in
person or by proxy.
(c) Shares standing in the name of a deceased person may be voted and
all rights incident thereto may be exercised only by his executor or
administrator, in person or by proxy.
(d) Shares standing in the name of a minor may be voted and all rights
incident thereto may be exercised by his guardian, in person or by proxy, or in
the absence of such representation by his guardian, by the minor, in person or
by proxy, whether or not the Trust has notice, actual or constructive, of the
nonage or the appointment of a guardian, and whether or not a guardian has been
in fact appointed.
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(e) Shares standing in the name of a corporation, partnership, trust or
other entity, domestic or foreign, may be voted or represented and all rights
incident thereto may be exercised on behalf of such entity by the persons
described in any of the following subdivisions:
(1) The president, a vice president or any other officer of a
corporation authorized to do so by the ByLaws of the corporation; a
general partner of a partnership; or any trustee of a trust.
(2) Any person authorized to do so by (i) a resolution of the
board of directors or executive committee of a corporation; (ii) the
partnership agreement of a partnership; (iii) the declaration of trust
or ByLaws of a trust; or (iv) the ByLaws or a resolution of the
governing body of any other entity.
(3) A proxy appointed by any of the foregoing individuals.
(f) Shares standing in the names of two or more persons shall be voted
or represented in accordance with the vote or consent of the majority of the
persons in whose names the Shares stand. If only one such person is present in
person or by proxy, he may vote all the Shares, and all the Shares standing in
the names of such persons are represented for the purpose of determining a
quorum. This Bylaw applies to the voting of Shares by two or more
administrators, executors, trustees, or other fiduciaries, unless the instrument
or order of court appointing them otherwise directs.
SECTION 1.12 Share Certificates. The Shares of the Trust shall be
represented by certificates. Each certificate for Shares shall be consecutively
numbered or otherwise identified. Certificates representing Shares shall be
signed by or in the name of the Trust by the Chairman of the Board or the
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Trust. Where a certificate is countersigned by a
transfer agent, other than the Trust or an employee of the Trust, or by a
registrar, the signatures of one or more officers of the Trust may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
w-hose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, the certificate may be issued by the Trust with the same effect as if
such officer, transfer agent or registrar were such officer, transfer agent or
registrar at the date of its issue.
SECTION 1.13 Lost. Stolen Destroyed or Mutilated Certificates. In the
event that any certificate for Shares is lost, stolen, destroyed or mutilated,
the Board of Trustees may authorize the issuance of a new certificate of the
same tenor and for the same number of Shares in lieu thereof. The Board may in
its discretion, before the issuance of such new certificate, require the owner
of the lost, stolen, destroyed or mutilated certificate, or the legal
representative of the owner, to make an affidavit or affirmation setting forth
such facts as to the loss, destruction or mutilation as it deems necessary, and
to give the Trust a bond in such reasonable sum as it directs to indemnify the
Trust.
SECTION 1.14 Record Date. In order that the Trust may determine the
Shareholders entitled to notice of or to vote at any meeting of Shareholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect to any change, conversion or exchange of Shares or for the purpose of
any other lawful action, the Trustees may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting, nor less than ten (10) or more than sixty (60) days prior to any
other action. If no record date is fixed (i) the record date for determining
Shareholders entitled to notice of or to vote at a meeting of Shareholders shall
be at the close of business on the day next preceding the day on which notice is
given, or if notice is waived, at the close of business on the day next
preceding the date on which the meeting is held; and (ii) the record date for
determining Shareholders for any other purpose shall be at the close of business
on the day on which the Board of Trustees adopts the resolution relating
thereto.
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A determination of Shareholders of record entitled to notice of or to
vote at a meeting of Shareholders shall apply to any adjournment of the meeting;
provided, however, that the Trustees may fix a new record date for the adjourned
meeting upon giving notice to the Shareholders of the adjournment and the new
record date.
Except where the Trustees fix a new record date for any adjourned
meeting as provided in the preceding paragraph, any Shareholder who was a
Shareholder on the original record date shall be entitled to receive notice of
and to vote at a meeting of the Shareholders or any adjournment thereof and to
receive such dividend or distribution even though he has since that date
disposed of his Shares, and no Shareholder becoming a Shareholder after said
date shall be so entitled to receive notice of or to vote at said meeting or any
adjournment thereof or to receive such dividend or distribution.
SECTION 1.15 Share Records. Share records shall be kept by the
Trustees, containing the names and addresses of the Shareholders, the number of
Shares held by each and the certificate numbers. The issuance and transfer of
all Shares shall be recorded in such Share records. The Trust shall be entitled
to treat the persons in whose names certificates are registered on such records
as the absolute owners of the Shares for all purposes of the Trust, but nothing
herein shall preclude the Trustee from inquiring as to the actual ownership of
Shares. Until a transfer is duly entered on the records of the Trust, the
Trustees shall not be affected by any notice of such transfer, either actual or
constructive.
Shares shall be transferable on the records of the Trust upon delivery
to the Trustees or a transfer agent of the certificate or certificates therefor,
properly endorsed or accompanied by proper evidence of succession, assignment,
or authority to transfer, and all necessary documentary stamps, together with
such evidence of the genuineness of each such endorsement, execution or
authorization and of other matters as may reasonably be required by the Trustees
or such transfer agent. Upon such delivery, the transfer shall be recorded in
the records of the Trust and a new certificate for the Shares so transferred
shall be issued to the transferee. Any person entitled to any Shares because of
the death of a Shareholder or by operation of law shall receive a new
certificate therefor upon delivery to the Trustees or a transfer agent of
satisfactory proof of the right of such person to the receipt of such Shares,
the existing certificate for such Shares and all necessary releases from
applicable governmental authorities. In case of the loss, mutilation or
destruction of any certificate for Shares, the Trustees may issue or cause to be
issued a replacement certificate on such terms and conditions as the Trustees
shall determine.
Any issuance, purchase or transfer of Shares which would operate to
disqualify the Trust as a real estate investment trust under Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland or for
purposes of Federal income tax is null and void, and such transaction will be
cancelled when so determined in good faith by the Trustees.
SECTION 1.16 Consent in Lieu of Meeting. Any action required or
permitted to be taken at a meeting of Shareholders may be taken without a
meeting if there is filed with the records of Shareholders' meetings a unanimous
written consent which sets forth the action and is signed by each Shareholder
entitled to vote on the matter and a written waiver of any rights to dissent
signed by each Shareholder entitled to notice of the meeting but not entitled to
vote at such meeting.
SECTION 1.17 Shareholder Proposal Procedures.
(a) Nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by the Shareholders may be made at an
annual meeting of Shareholders (i) pursuant to the Trust's notice of meeting,
(ii) by or at the direction of the Board of Trustees or (iii) by any Shareholder
who was a Shareholder of record both at the time of giving the notice provided
for in this subsection (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 subsection (a).
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For nominations or other business to be properly brought before an
annual meeting by a Shareholder pursuant to clause (iii) in the previous
paragraph, the Shareholder must have given timely notice thereof in writing to
the secretary of the Trust. To be timely, a Shareholder's notice shall be
delivered to the secretary at the principal executive offices of the Trust not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that 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, notice by the Shareholder to be timely
must be so delivered not earlier than the 60th 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. Such Shareholder's
notice shall set forth (i) as to each person whom the Shareholder proposes to
nominate for election or reelection as a Trustee all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Trustees, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
`'Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected), (ii) as to
any other business that the Shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such Shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the Shareholder 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 Shareholder, as they appear on the
Trust's books, and of such beneficial owner and (y) the number of shares of each
class of stock of the Trust which are owned beneficially and of record by such
Shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of the preceding
paragraph to the contrary, in the event that the number of Trustees to be
elected to the Board of Trustees is increased and there is no public
announcement naming all of the nominees for Trustee or specifying the size of
the increased Board of Trustees made by the Trust at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a Shareholder's notice
required by subsection (a) of this section shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the secretary at the principal executive offices of the
Trust not later than the close of business on the tenth day following the day on
which such public announcement is first made by the Trust.
(b) Only such business shall be conducted at a special meeting of
Shareholders as shall have been brought before the meeting pursuant to the
Trust's notice of meeting. Nomination of persons for election to the Board of
Trustees may be made at special meeting of Shareholders at which Trustees are to
be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the
direction of the Board of Trustee or (iii) provided that the Board of Trustees
has determined that Trustees shall be elected at such special meeting, by any
Shareholder of the Trust who is a Shareholder of record both at the time of
giving of the notice provided for in this subsection (b) and at the time of the
special meeting who is entitled to vote at the special meeting and who complied
with the notice procedures set forth in this subsection (b). In the event the
Trust calls a special meeting of the Shareholders for the purpose of electing
one or more Trustees to the Board of Trustees, any such Shareholder may nominate
a person or persons (as the case may be) for election to such position as
specified in the Trust's notice of meeting, if the Shareholder's notice
containing the information required by the second paragraph of subsection (a) of
this section shall be delivered to the secretary at the principal executive
offices of the Trust not earlier than the 60th 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 of the
nominees proposed by the Board of Trustees to be elected at such meeting.
(c) Subject to Article IV, Section 3 of the Declaration of Trust, only
such persons who are nominated in accordance with the procedures set forth in
this section shall be eligible to serve as Trustees and only such business shall
be conducted at a meeting of Shareholders as shall have been brought before the
meeting in
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accordance with the procedures set forth in the section. The presiding officer
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this section and, if any proposed nomination or
business is not in compliance with this section, to declare that such defective
nomination or proposal be disregarded.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the Trust
with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d)
of the Exchange Act.
Notwithstanding the foregoing provisions of this section, a Shareholder
shall also comply with all applicable requirements of Maryland law and of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this section. Nothing in this section shall be deemed to
affect any rights of Shareholders to request inclusion of proposals in the
Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE 2.
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1 Number of Trustees. The Board of Trustees shall consist of
not less than three (3) members and not more than fifteen (15) members; provided
that at such time as the Trust has less than ten (10) Shareholders, the Trust
may have less than three (3) Trustees. Within the limit above specified, the
number of Trustees shall be determined from time to time by resolution of the
Board of Trustees. The number of Trustees shall initially be fixed at one.
SECTION 2.2 Meetings of Trustees. An annual meeting of the Trustees
shall be held immediately following the Annual Meeting of Shareholders. Other
meetings of the Trustees may be called by the Chairman of the Board, the
designated chief executive officer or the President, or any two Trustees, or
less if permitted by Section 2.1, by telephone followed by written notice which
shall be given by mail, telegram, facsimile transmission, courier or delivered
personally. Unless otherwise specified in the notice, any and all business may
be transacted at any Trustees' meeting. The attendance of a Trustee at a meeting
shall constitute a waiver of notice of such meeting, except where such Trustee
attends a meeting for the express purpose of objecting to the transacting of any
business on the ground that the meeting has not been lawfully called or
convened.
Any notice hereinabove provided for may be waived at any time, whether
before or after the event, by written waiver, a signed copy of which waiver
shall be inserted in the minute book together with the minutes of the meeting.
SECTION 2.3 Location of Meetings. All meetings of the Trustees may be
held within or without the State of Maryland.
SECTION 2.4 Chairman of the Board. Subject to the provisions of Section
2.5 of this Article 2, the Chairman of the Board, if one be elected, shall
preside at all meetings of the Board of Trustees and of the Shareholders at
which he or she shall be present, unless otherwise provided for in these ByLaws.
In the absence of a designated chief executive officer, the Chairman of the
Board shall be the chief executive officer of the Trust.
SECTION 2.5 Chairman of Trustees' Meetings. The Chairman of the Board
of Trustees, if one be elected, in his or her sole discretion, may select a
person, who need not be a member of the Board of Trustees, to preside at any
meeting of Trustees. In the Chairman's absence and in the absence of a person
selected by the Chairman to preside at the meeting of Trustees, the designated
chief executive officer of the Trust shall preside
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at any meeting of Trustees. In the absence of the Chairman of the Board of
Trustees, a person selected by the Chairman to preside at the meeting of
Trustees, and the designated chief executive officer of the Trust, the Trustees
present at each meeting shall elect one of their number to preside at any
meeting of Trustees. Unless otherwise provided for by the Trustees, the
Secretary of the Trust shall be the secretary of such meetings.
SECTION 2.6 Voting by Trustees. Voting at Trustees' meetings may be
conducted orally, by show of hands, or, if requested by any Trustee, by written
ballot. The results of all voting shall be recorded by the Secretary in the
minute book.
SECTION 2.7 Other Rules. All other rules of conduct adopted and used at
Trustees' meetings shall be determined by the Chairman, or other person who is
presiding at the meeting if not the Chairman, whose ruling on all procedural
matters shall be final.
SECTION 2.8 Consent in Lieu of Meeting. Nothing in this Article 2 shall
limit the power of the Trustees to take action by means of a written instrument
without a meeting as provided in Article IV, Section 5, of the Declaration of
Trust.
SECTION 2.9 Compensation of Trustees. By resolution of the Board of
Trustees a fixed sum and expenses, if any, for attendance at each regular or
special meeting of the Board of Trustees or of committees thereof, and other
compensation or remuneration, of whatever kind, for their services as such or on
committees of the Board of Trustees, may be paid to Trustees. Trustees who are
full-time employees of the Trust need not be paid for attendance at meetings of
the Board of Trustees or committees thereof for which fees are paid to other
Trustees. A Trustee who serves the Trust in any other capacity also may receive
compensation or remuneration, of whatever kind, for such other services,
pursuant to a resolution of the Board of Trustees.
ARTICLE 3.
OFFICERS
SECTION 3.1 Executive and Other Officers. The Trust shall have a
President and a Secretary and may have a Chairman of the Board. The Board of
Trustees shall designate who shall serve as chief executive officer, who shall
have general supervision of the business and affairs of the Trust, and may
designate a chief operating officer, who shall have supervision of the
operations of the Trust. In the absence of any such designation, the Chairman of
the Board, if one is elected, shall be the chief executive officer and the
President shall serve as chief operating officer. If there is no designation of
chief executive officer by the Board of Trustees and there is no Chairman of the
Board, the President shall be the chief executive officer. The same person may
hold both offices. The Trust may also have a Treasurer, one or more Vice
Presidents, assistant officers and subordinate officers and such other officers
with such other titles as may be established by the Board of Trustees. The
Chairman of the Board shall be a Trustee; other officers may, but need not, be
Trustees.
SECTION 3.2 President. Unless otherwise specified by the Board of
Trustees, the President shall be the chief operating officer of the Trust and
perform the duties customarily performed by chief operating officers. He or she,
along with the designated chief executive officer of the Trust, may execute, in
the name of the Trust, all authorized deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall have been expressly delegated to some other officer or agent of the Trust.
In general, he or she shall perform such other duties customarily performed by a
president of a Trust and shall perform such other duties and have such other
powers as are from time to time assigned to him or her by the Board of Trustees
or the chief executive officer of the Trust.
SECTION 3.3 Vice-Presidents Each Vice-President shall perform such
duties and have such other powers, and have such additional descriptive
designations in their titles (if any), as are from time to time assigned to them
by the Board of Trustees, the Chairman of the Board or the President. Each Vice
President may execute, in the name of the Trust, all authorized deeds,
mortgages, bonds, contracts or other instruments, except
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in cases in which the signing and execution thereof shall have been expressly
delegated to some other officer of agent of the Trust.
SECTION 3.4 Secretary. The Secretary shall keep the minutes of the
meetings of the Shareholders, of the Board of Trustees and of any committees, in
books provided for the purpose; he or she shall see that all notices are duly
given in accordance with the provisions of the ByLaws or as required by law; he
or she shall be custodian of the records of the Trust; he or she may witness any
document on behalf of the Trust, the execution of which is duly authorized, see
that the corporate seal is affixed where such document is required or desired to
be under its seal, and, when so affixed, may attest the same. In general, he or
she shall perform such other duties customarily performed by a secretary of a
Trust, and shall perform such other duties and have such other powers as are
from time to time assigned to him or her by the Board of Trustees, the chief
executive officer, or the President.
SECTION 3.5 Treasurer. The Treasurer shall be the chief financial
officer of the Trust and shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Trust, and shall deposit, or cause
to be deposited, in the name of the Trust, all moneys or other valuable effects
in such banks, trust companies or other depositories as shall, from time to
time, be selected by the Board of Trustees; he or she shall render to the
President and to the Board of Trustees, whenever requested, an account of the
financial condition of the Trust. In general, he or she shall perform such other
duties customarily performed by the treasurer of the Trust, and shall perform
such other duties and have such other powers as are from time to time assigned
to him or her by the Board of Trustees, the chief executive officer, or the
President.
SECTION 3.6 Assistant and Subordinate Officers. The assistant and
subordinate officers of the Trust are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Trustees, the chief executive officer, or the President.
SECTION 3.7 Election, Tenure and Removal of Officers. The Board of
Trustees shall elect the officers of the Trust. The officers of the Trust need
not be Trustees. The Board of Trustees may from time to time authorize any
committee or officer to appoint assistant and subordinate officers. Election or
appointment of an officer, employee or agent shall not of itself create contract
rights. All officers shall be appointed to hold their offices, respectively,
during the pleasure of the Board of Trustees. All officers and agents of the
Trust shall have such authority and perform such duties in the management of the
Trust as may be provided in the ByLaws or as may be determined by the Board not
inconsistent with the ByLaws. The Board of Trustees (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board of
Trustees) may remove an officer at any time. The removal of an officer does not
prejudice any of his or her contract rights with the Trust, except as expressly
provided within the terms of such contracts. The Board of Trustees (or, as to
any assistant or subordinate officer, any committee or officer authorized by the
Board) may fill a vacancy which occurs in any office for the unexpired portion
of the term.
SECTION 3.8 Compensation. The Board of Trustees shall have power to fix
the salaries and other compensation and remuneration, of whatever kind, of all
officers of the Trust. No officer shall be prevented from receiving such salary
by reason of the fact that he or she is also a Trustee of the Trust. The Board
of Trustees may authorize any committee or officer, upon whom the power of
appointing assistant and subordinate officers may have been conferred, to fix
the salaries, compensation and remuneration of whatever kind, of such assistant
and subordinate officers.
ARTICLE 4.
COMMITTEES
SECTION 4.1 Committees of the Board. The Trustees may at any time, at
their discretion, elect an Executive Committee consisting of not less than three
Trustees, to serve for such terms as the Trustees may
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decide. The Executive Committee may exercise such powers of the Trustees as may
be delegated to it by the Trustees. Minutes of each meeting of the Executive
Committee shall be distributed by the Secretary to all of the Trustees at or
prior to the meeting of the Trustees next succeeding such meeting of the
Executive Committee. The presence in person of a majority of its members shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Executive Committee. Meetings shall be called upon request of any
member of the Executive Committee. The Trustees may appoint from among their
number such other committees, which shall consist of one or more members, as
they may from time to time deem desirable, to continue for such time and to
exercise such powers as the Trustees may prescribe.
The Board may designate one or more Trustees as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committees shall have and may exercise such
powers as shall be conferred or authorized by the resolution appointing them
(including, without limitation, the determination of the type and amount of
consideration at which Shares are to be issued). A majority of the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board shall otherwise provide. The Board, by resolution
passed by a majority of the Trustees, may at any time change the membership of
any such committee, fill vacancies on it or dissolve it.
SECTION 4.2 Committee Rules and Regulations. Each committee (including
the Executive Committee) elected or appointed by the Trustees may adopt such
standing rules and regulations for the conduct of its affairs as it may deem
desirable, subject to review and approval of such rules and regulations by the
Trustees at the next succeeding meeting of the Trustees. Any action permitted to
be taken at any meeting of any committee may be taken without a meeting in
accordance with Article IV of the Declaration of Trust.
ARTICLE 5.
FINANCE
SECTION 5.1 Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Trust, shall, unless otherwise provided by resolution of the Board of
Trustees, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 5.2 Fiscal Year. The fiscal year of the Trust shall be the
twelve calendar months period ending December 31 in each year, unless otherwise
provided by the Board of Trustees.
ARTICLE 6.
INDEMNIFICATION
SECTION 6.1 Procedure. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the Trustee or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Trust denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. To the maximum extent permitted by Maryland law, the Indemnified Party's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be reimbursed by the Trust. It shall be a defense to any action for an advance
of expenses that (a) a determination has been made that the facts then known to
those making the determination would preclude indemnification or (b) the Trust
has not received both (i) an undertaking as required by law to repay such
advances in the event it shall ultimately be determined that the standard of
conduct has not been met and (ii) a written affirmation by the Indemnified Party
of such Indemnified Party's good faith belief that the standard of conduct
necessary for indemnification by the Trust has been met.
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SECTION 6.2 Exclusivity, Etc. The indemnification and advance of
expenses provided by the Declaration of Trust and these ByLaws (i) shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or advance of expenses may be entitled under any law (common or statutory), or
any agreement, vote of Shareholders or disinterested Trustees or other provision
that is consistent with law, both as to action in his or her official capacity
and as to action in another capacity while holding office or while employed by
or acting as agent for the Trust, (ii) shall continue in respect of all events
occurring while a person was a Trustee or officer after such person has ceased
to be a Trustee or officer, and (iii) shall inure to the benefit of the estate,
heirs, executors and administrators of such person. All rights to
indemnification and advance of expenses under the Declaration of Trust and
hereunder shall be deemed to be a contract between the Trust and each Trustee or
officer of the Trust who serves or served in such capacity at any time while
this Bylaw is in effect. Nothing herein shall prevent the amendment of this
Bylaw, provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this Bylaw shall not in any way diminish
any rights to indemnification or advance of expenses of such Trustee or officer
or the obligations of the Trust arising hereunder with respect to events
occurring, or claims made, while this Bylaw or any provision hereof is in force.
SECTION 6.3 Severability, Definitions. The invalidity or
unenforceability of any provision of this Article 6 shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
Bylaw" in this Article 6 means this Article 6 in its entirety.
ARTICLE 7.
SUNDRY PROVISIONS
SECTION 7.1 Books and Records. The Trust shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceeds of its Shareholders and Board of Trustees and of any executive or other
committee when exercising any of the powers of the Board of Trustees. The books
and records of a Trust may be in written form or in any other form which can be
converted within a reasonable time into written form for visual inspection.
Minutes shall be recorded in written form but may be maintained in the form of a
reproduction. The original or a certified copy of the ByLaws shall be kept at
the principal office of the Trust.
SECTION 7.2 Seal. The Board of Trustees may adopt a suitable seal,
bearing the name of the Trust, which shall be in the charge of the Secretary.
The Board of Trustees may authorize one or more duplicate seals and provide for
the custody thereof. If the Trust is required to place its corporate seal to a
document, it is sufficient to meet the requirement of any law, rule, or
regulation relating to a seal to place the word "Seal" adjacent to the signature
of the person authorized to sign the document on behalf of the Trust.
SECTION 7.3 Bonds. The Board of Trustees may require any officer, agent
or employee of the Trust to give a bond to the Trust, conditioned upon the
faithful discharge of his or her duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Trustees.
SECTION 7.4 Voting Stock in Other Trusts. Stock of other Trusts or
associations, registered in the name of the Trust, may be voted by the
President, a Vice-President, or a proxy appointed by either of them. The Board
of Trustees, however, may by resolution appoint some other person to vote such
shares, in which case such person shall be entitled to vote such shares upon the
production of a certified copy of such resolution.
SECTION 7.5 Mail. Any notice or other document which is required by
these ByLaws to be mailed shall be deposited in the United States mail, postage
prepaid.
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SECTION 7.6 Execution of Documents. A person who holds more than one
office in the Trust may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.7 Amendments. Any and all provisions of these ByLaws may be
altered or repealed and new by-laws may be adopted at any annual meeting of the
Shareholders, or at any special meeting called for that purpose, and the Board
of Trustees shall have the power, at any regular or special meeting thereof, to
make and adopt new by-laws, or to amend, alter or repeal any of the ByLaws of
the Trust.
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EXHIBIT 4.2
===============================================
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
Dated as of ________ __, 1998
by and among
MAR MAR REALTY TRUST
and
the Persons Listed on
the Signature Page Hereto
===============================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. Definitions..............................................................................................1
2. Lock-Up Agreement........................................................................................4
(a) Lock-Up Period..................................................................................4
(b) Exceptions......................................................................................4
3. Shelf Registration Under the Securities Act..............................................................5
(a) Filing of Shelf Registration Statement..........................................................5
(b) Expenses........................................................................................6
(c) Inclusion in Shelf Registration Statement.......................................................6
(d) Underwritten Offering...........................................................................6
(e) Selection of Underwriters.......................................................................7
(f) Piggyback Right.................................................................................7
4. Holdback Agreement.......................................................................................8
5. Registration Procedures..................................................................................8
6. Repurchase by Company of Shares Subject to Registration Notice..........................................13
7. Indemnification; Contribution...........................................................................13
(a) Indemnification by the Company.................................................................13
(b) Indemnification by Holders.....................................................................14
(c) Conduct of Indemnification Proceedings.........................................................14
(d) Contribution...................................................................................15
8. Rule 144 Sales..........................................................................................16
(a) Compliance.....................................................................................16
(b) Cooperation with Holders.......................................................................16
9. Miscellaneous...........................................................................................16
(a) Amendments and Waivers.........................................................................16
(b) Notices........................................................................................17
(c) Successors and Assigns.........................................................................17
(d) Counterparts...................................................................................17
(e) Headings.......................................................................................17
(f) Governing Law..................................................................................17
(g) Specific Performance...........................................................................17
(h) Entire Agreement...............................................................................17
(i) Limitation of Liability of Shareholders, Trustees and Officers
of the Company.................................................................................18
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement") is
made and entered into as of _______ __, 1998, by and among MAR MAR REALTY TRUST
(the "Company") and the persons listed on the signature page hereto, including
their successors, assigns and transferees (herein referred to collectively as
the "Holders" and individually as a "Holder").
WHEREAS, on the date hereof each Holder is or will become the owner of
either Common Shares (as defined below) of the Company or Units (as defined
below) in the Operating Partnership (as defined below) in connection with the
"Formation Transactions" described in the IPO Registration Statement (as defined
below) or in connection with other grants, awards or transfers of Common Shares
or Units; and
WHEREAS, the Holders of Common Shares have agreed to enter into the
Lock-Up (as defined below) as provided in Section 2 below; and
WHEREAS, the Holders of Units in the Operating Partnership are subject,
pursuant to the terms of the Agreement of Limited Partnership of the Operating
Partnership, to substantially the same restrictions as are being agreed to by
the Holders of Common Shares pursuant to Section 2 below; and
WHEREAS, as a condition to receiving the consent or agreement of the
Holders to the Formation Transactions, the Company has agreed to grant the
Holders the registration rights provided for in Section 3 below; and
WHEREAS, as a condition to the initial public offering of the Common
Shares of the Company, the parties are willing to enter into the agreements
contained herein;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Closing Price" of the Common Shares for any given day shall mean (i)
if the Common Shares are listed or admitted to trading on a national securities
exchange, the reported last sale price of the Common Shares regular way on such
day or, in case no such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, on such national securities
exchange on such day or (ii) if the Common Shares are not listed or admitted to
trading on any
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national securities exchange but are traded in the over-the-counter market, the
average of the closing bid and asked prices in the over-the-counter market on
such day.
"Common Shares" shall mean the common shares of beneficial interest,
par value $.01 per share, of the Company.
"Company" shall mean Mar Mar Realty Trust, a Maryland real estate
investment trust, and its successors.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Holder" or "Holders" shall mean the persons listed on the signature
page hereto, including their successors, assigns and transferees.
"IPO Registration Statement" shall mean the Registration Statement on
Form S-11 (No. 333- _____) relating to the initial public offering of the Common
Shares by the Company.
"Lock-up" shall have the meaning set forth in Section 2(a) hereof.
"Lock-up Period" shall have the meaning set forth in Section 2(a)
hereof.
"Operating Partnership" shall mean Mar Mar Realty, L.P., a Delaware
limited partnership, and its successors.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust, unincorporated organization or other legal entity
or a government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in the Shelf
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Registrable Securities covered by the Shelf
Registration Statement, and in each case including all material incorporated by
reference therein.
"Registrable Securities" shall mean the Shares, excluding (i) Shares
that have been disposed of under the Shelf Registration Statement or any other
effective registration statement, (ii) Shares sold or otherwise transferred
pursuant to Rule 144 under the Securities Act, (iii) Shares that are held by
Holders who are not affiliates of the Company that are eligible for sale
pursuant to Rule 144(k) under the Securities Act, and (iv) Shares held by each
Holder who is an affiliate of the Company if all of such Shares are eligible for
sale pursuant to Rule 144 under the Securities Act and could be sold in one
transaction in accordance with the volume limitations contained in Rule
144(e)(1)(i) under the Securities Act.
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<PAGE>
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without limitation:
(i) all applicable registration and filing fees imposed by the SEC, the New York
Stock Exchange or the National Association of Securities Dealers, Inc. ("NASD"),
(ii) all fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws (including reasonable fees and disbursements of
counsel in connection with qualification of any of the Registrable Securities
under any state securities or blue sky laws 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, printing and
distributing the Shelf Registration Statement, any Prospectus, 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,
if any, of any of the Registrable Securities on any securities exchange or
exchanges pursuant to Section 4(1) hereof, and (v) the fees and disbursements of
counsel for the Company and of the independent public accountants of the
Company, including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance. Registration
Expenses shall specifically exclude underwriting discounts and commissions, the
fees and disbursements of counsel representing a Selling Holder or any
underwriter or agent acting on behalf of a Holder, and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Selling
Holder, all of which shall be borne by such Holder in all cases.
"Registration Notice" shall have the meaning set forth in Section 4(b)
hereof.
"Rule 144(f) Registrable Securities" shall mean that number of
Registrable Securities which, when aggregated with the number of Shares actually
sold pursuant to Rule 144 by the Holder, is equal to or less than the number
specified in paragraphs (1)(i), (ii) or (iii) of Rule 144(e), whichever is
greater, which Shares are sold in compliance with the "manner of sale"
requirement of Rule 144(f).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Selling Holder" shall mean any Holder who sells Registrable Securities
pursuant to a public offering registered hereunder.
"Shares" shall mean any Common Shares issued to the Holders in
connection with the Formation Transaction, either directly or issued or issuable
upon conversion of their Units and any additional Common Shares issued as a
dividend distribution or exchange for, or in respect of such Common Shares.
"Shelf Registration" shall mean a registration required to be effected
pursuant to Section 3 hereof.
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"Shelf Registration Statement" shall mean a registration statement of
the Company (and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the Securities Act)
that covers all of the Registrable Securities to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, and all amendments (including
post-effective amendments) to such registration statement, and all exhibits
thereto and materials incorporated by reference therein.
"Unit Holders" shall mean the Holders (other than the Company)
receiving Units in the Formation Transactions and their respective successors,
assigns and transferees.
"Units" shall mean the limited partnership interests of the Operating
Partnership issued to Unit Holders in the Formation Transactions, which
interests are exchangeable for Common Shares, or at the Company's option, cash.
2. Lock-Up Agreement.
(a) Lock-Up Period. Each of the Holders hereby agrees that, except as
set forth in Section 2(b) below, from the date hereof until one year, following
the closing of the sale of Common Shares in connection with the Company's
initial public offering (the "Lock-up Period"), without the prior written
consent of the Company, it will not offer, pledge, sell, contract to sell, grant
any options for the sale of or otherwise dispose of, directly or indirectly
(collectively, "Dispose of"), any Shares (the "Lock-up").
(b) Exceptions. The following transfers of Shares shall not be subject
to the Lock-up set forth in Section 2(a):
(i) a Holder who is a natural person may Dispose of Shares to
his or her spouse, siblings, parents or any natural or adopted children
or other descendants or to any personal trust in which such family
members or such Holder retain the entire beneficial interest;
(ii) a Holder who is a natural person may Dispose of Shares on
his or her death to such Holder's estate, executor, administrator or
personal representative or to such Holder's beneficiaries pursuant to a
devise or bequest or by the laws of descent and distribution;
(iii) a Holder that is a corporation, partnership, trust or
other business entity may (A) Dispose of Shares to one or more other
entities that are wholly owned and controlled, legally and
beneficially, by such Holder or by a Person or Persons that directly or
indirectly wholly owns and controls such Holder or (B) Dispose of
Shares by distributing such Shares in a merger, dissolution,
liquidation, winding up or otherwise without consideration to the
equity owners of such corporation, partnership or business entity or to
any other corporation, partnership or business entity that is wholly
owned by such equity owners;
(iv) a Holder may Dispose of Shares as a bona fide gift; and
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(v) a Holder may Dispose of Shares pursuant to a pledge, grant
of security interest or other encumbrance effected in a bona fide
transaction with an unrelated and unaffiliated pledgee;
provided, however, that in the case of any transfer of Shares pursuant
to clauses (i) and (iii), the transfers shall each be effected pursuant
to a bona fide exemption under the Securities Act.
In the event any Holder Disposes of Shares described in this Section 2(b), such
Shares shall remain subject to this Agreement and, as a condition of the
validity of such disposition, the transferee (and any pledgee who acquires
Shares upon foreclosure or any transferee thereof) shall be required to execute
and deliver a counterpart of this Agreement. Thereafter, such transferee shall
be deemed to be a Holder for purposes of this Agreement.
3. Shelf Registration Under the Securities Act.
(a) Filing of Shelf Registration Statement. The Company shall cause to
be filed on the first business day after the first anniversary of the
consummation of the IPO the Shelf Registration Statement providing for the sale
by the Holders of all, but not less than all, of their Registrable Securities in
accordance with the terms hereof and will use its best efforts to cause such
Shelf Registration Statement to be declared effective by the SEC as soon
thereafter as is practicable. The Company agrees to use its best efforts to keep
the Shelf Registration Statement with respect to the Registrable Securities
continuously effective for a period expiring on the earlier of (i) the date on
which all of the Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant thereto and (ii) the date on which (A) all
Shares (and all Shares that such Holders have the right to obtain in exchange
for Units) held by Holders who are not affiliates of the Company, in the opinion
of counsel for the Company, which counsel shall be reasonably acceptable to such
Holders, are eligible for sale pursuant to Rule 144(k) under the Securities Act
and (B) all Shares (and all Shares that such Holders have the right to obtain in
exchange for Units) held by each Holder who is an affiliate of the Company, in
the opinion of counsel for the Company, which counsel shall be reasonably
acceptable to such Holder, are eligible for sale pursuant to Rule 144 under the
Securities Act and could be sold in one transaction in accordance with the
volume limitations contained in Rule 144(e)(1)(i) under the Securities Act.
Subject to Sections 4(b), 4(i) and 5, the Company further agrees to amend the
Shelf Registration Statement if and as required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or any rules and
regulations thereunder.
(b) Expenses. Except as provided herein, the Company shall pay all
Registration Expenses in connection with the registration pursuant to Section
3(a) and the performance of the Company's obligations under this Section 3 and
Section 4. The Company shall not be liable for any underwriting discounts and
commissions, the fees and disbursements of counsel representing a Holder or any
underwriter or agent acting on behalf of a Holder, and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement or Rule 144 under the Securities
Act.
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(c) Inclusion in Shelf Registration Statement. Any Holder who does not
provide the information reasonably requested by the Company in connection with
the Shelf Registration Statement as promptly as practicable after receipt of
such request, but in no event later than ten (10) days thereafter, shall not be
entitled to have its Registrable Securities included in the Shelf Registration
Statement.
(d) Underwritten Offering. If any of the Registrable Securities covered
by the Shelf Registration are to be sold in an underwritten public offering, the
Holder intending to pursue such underwritten offering shall deliver a notice to
the Company of such intent, and within ten days after receipt of the notice of
intent from such Holder for an underwritten offering, the Company shall give
written notice (the "Notice") of such notice of intent to all other Holders and
such other Holders shall be entitled to include in such an underwritten offering
all or part of their respective Registrable Securities by notice to the Company
for inclusion therein within 15 days after the Notice is given. All notices made
pursuant to this Section 3(d) shall specify the aggregate number of Registrable
Securities to be included. The Company agrees to cooperate with any such request
for an underwritten offering and to take all such other reasonable actions in
connection therewith as provided in Section 5(o).
In the case of any firm commitment underwritten offering, if the
managing underwriter or underwriters of such offering advise the Company in
writing that in its or their opinion the number of Registrable Securities
proposed to be sold in such offering exceeds the number of Registrable
Securities that can be sold in such offering without adversely affecting the
market for the Company's Common Shares, the Company will include in such
offering the number of Registrable Securities that in the opinion of such
managing underwriter or underwriters can be sold without adversely affecting the
market for the Company's Common Shares. In such event, the number of Registrable
Securities to be offered for the account of each Holder requesting to include
Registrable Securities in such offering (including the Holder providing the
initial Notice) shall be reduced pro rata on the basis of the relative number of
Registrable Securities requested by each such Holder to be included in such
offering to the extent necessary to reduce the total number of Registrable
Securities to be included in such offering to the number recommended by such
managing underwriter or underwriters.
(e) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold in an underwritten offering,
the Company shall have the right to select the investment banker or investment
bankers and manager or managers that will underwrite the offering; provided,
however, that such investment bankers and managers must be reasonably acceptable
to the Selling Holders.
4. Registration Procedures.
In connection with the obligations of the Company with respect to the
Shelf Registration Statement contemplated by Section 3 hereof, the Company
shall:
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(a) prepare and file with the SEC a registration statement, which
registration statement shall (i) be available for the sale of the Registrable
Securities in accordance with the intended method or methods of distribution by
the Selling Holders thereof and (ii) comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith;
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments to such
registration statement as may be necessary to keep such registration statement
effective for the applicable period; (ii) cause the Prospectus to be amended or
supplemented as required and to be filed as required by Rule 424 or any similar
rule that may be adopted under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the SEC with respect to the
registration statement or any amendment thereto; and (iv) comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during the applicable period
in accordance with the intended method or methods of distribution by the selling
Holders thereof. Notwithstanding anything to the contrary contained herein, the
Company shall not be required to take any of the actions described in Section
4(a), clauses (i), (ii) or (iii) in this Section 4(b), Section 4(d) or Section
4(i) with respect to each Holder of Registrable Securities (x) for a period not
to exceed ninety (90) days from the date of the Suspension Notice (as defined
below) to the extent that the Company is in possession of material non-public
information that the Board of Trustees in good faith deems advisable not to
disclose or the Company is engaged in active negotiations or planning for a
merger or material acquisition or disposition transaction and, in either case,
the Company delivers written notice (each, a "Suspension Notice") to each such
Selling Holder of Registrable Securities to the effect that it would be
impractical or unadvisable to cause the registration statement or such filings
to be made or to become effective or to amend or supplement the registration
statement, and that such Selling Holder may not make offers or sales under the
registration statement for a period not to exceed ninety (90) days from the date
of such Suspension Notice; provided, however, that the Company may deliver only
two such Suspension Notices within any twelve-month period, or (y) unless and
until the Company has received a written notice (a "Registration Notice") from a
Selling Holder that such Selling Holder intends to make offers or sales under
the registration statement as specified in such Registration Notice; provided,
however, that the Company shall have ten (10) business days to prepare and file
any such amendment or supplement after receipt of the Registration Notice or
such longer period as is reasonably necessary if such preparation and filing are
not commercially practicable within ten (10) business days or (z) to the extent
the Company elects pursuant to Section 5 hereof to purchase the Shares which are
the subject of the Registration Notice. Once a Selling Holder has delivered a
Registration Notice to the Company, such Selling Holder shall promptly provide
to the Company such information as the Company reasonably requests in order to
identify such Selling Holder and the method of distribution in a post-effective
amendment to the Registration Statement or a supplement to the Prospectus. Such
Selling Holder also shall notify the Company in writing upon completion of such
offer or sale or at such time as such Selling Holder no longer intends to make
offers or sales under the Registration Statement;
(c) furnish to each Selling Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, as many copies
of each Prospectus and any
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amendment or supplement thereto as such Selling Holder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities; the Company consents to the use of the Prospectus and any amendment
or supplement thereto by each such Selling Holder of Registrable Securities in
connection with the offering and sale of the Registrable Securities covered by
the Prospectus or amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Securities by the time a registration statement is declared effective by the SEC
under all applicable state securities or blue sky laws of such jurisdictions in
the United States and its territories and possessions as any Holder of
Registrable Securities covered by the registration statement shall reasonably
request in writing, keep each such registration or qualification effective
during the period such registration statement is required to be kept effective
or during the period offers or sales are being made by a Holder that has
delivered a Registration Notice to the Company, whichever is shorter; provided,
however, that in connection therewith, the Company shall not be required to (i)
qualify as a foreign corporation to do business or to register as a broker or
dealer in any such jurisdiction where it would not otherwise be required to
qualify or register but for this Section 4(d), (ii) subject itself to taxation
in any such jurisdiction, or (iii) file a general consent to service of process
in any such jurisdiction;
(e) notify each Holder of Registrable Securities promptly and, if
requested by such Holder, confirm in writing, (i) when the registration
statement and any post-effective amendments thereto have become effective, (ii)
when any amendment or supplement to the Prospectus has been filed with the SEC,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of the registration statement or any part
thereof or the initiation of any proceedings for that purpose, (iv) if the
Company receives any notification with respect to the suspension of the
qualification of the Registrable Securities for offer or sale in any
jurisdiction or the initiation of any proceeding for such purpose, and (v) of
the happening of any event during the period the registration statement is
effective as a result of which (A) such registration statement 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
or (B) the Prospectus as then amended or supplemented contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement or any part thereof
as promptly as possible;
(g) furnish to each Selling Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, at least one
conformed copy of the applicable registration statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) cooperate with the Selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any Securities Act legend; and
enable certificates for such Registrable Securities to be issued for
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such numbers of shares and registered in such names as the Selling Holders may
reasonably request, upon at least ten business days prior to any sale of
Registrable Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of any event contemplated by clause (x) of Section 4(b) or clause
(v) of Section 4(e) hereof, use its reasonable efforts promptly to prepare and
file an amendment or a supplement to the Prospectus or any document incorporated
therein by reference or prepare, file and obtain effectiveness of a
post-effective amendment to the registration statement, or file any other
required document, in any such case to the extent necessary so that, as
thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus as then amended or supplemented will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading;
(j) make available for inspection by the Selling Holders of Registrable
Securities that have provided a Registration Notice to the Company and any
counsel, accountants or other represen tatives retained by such Selling Holders
all financial and other records, pertinent corporate documents and properties of
the Company and cause the officers, directors and employees of the Company to
supply all such records, documents or information reasonably requested by such
Holders, counsel, accountants or representatives in connection with the
registration statement; provided, however, that such records, documents or
information which the Company determines in good faith to be confidential and
notifies such Selling Holders, counsel, accountants or representatives in
writing that such records, documents or information are confidential shall not
be disclosed by such Selling Holders, counsel, accountants or representatives
unless (i) such disclosure is ordered pursuant to a subpoena or other order from
a court of competent jurisdiction, or (ii) such records, documents or
information become generally available to the public other than through a breach
of this Agreement;
(k) a reasonable time prior to the filing of any registration statement
or any amendment thereto, or any Prospectus or any amendment or supplement
thereto, provide copies of such document (not including any documents
incorporated by reference therein unless requested) to the Selling Holders of
Registrable Securities that have provided a Registration Notice to the Company;
(l) use its reasonable efforts to cause all Registrable Securities to
be listed on any securities exchange on which similar securities issued by the
Company are then listed;
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable registration statement;
(n) use its reasonable efforts to make available to its security
holders, as soon as reasonably practicable, an earning statement covering at
least 12 months which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder; and
(o) if requested by a Selling Holder or any underwriters engaged by
such Selling Holder for purposes of distributing the Registrable Securities,
enter into such agreements (including an
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underwriting agreement in form, scope and substance as is customary in
underwritten offerings) and take all such other reasonable actions in connection
therewith (including those reasonably requested by the underwriters or such
Selling Holder) in order to expedite or facilitate the disposition of such
Registrable Securities, and in such connection, (i) make such representations
and warranties to the underwriters with respect to the business of the Company
and the registration statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested; (ii) obtain
customary opinions of counsel to the Company and updates thereof (which shall be
in form and substance reasonably satisfactory to the Selling Holders or to the
underwriters and their counsel, as the case may be), addressed to such Selling
Holder and, if applicable, each of the underwriters; (iii) obtain "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company, addressed to such Selling Holder and, if applicable, each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with any such
offerings (in each case, to the extent permitted by applicable accounting rules
and guidelines); (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures no less favorable to the
underwriters than those set forth in Section 6 hereof and cross indemnification
by the underwriters in form and substance as is customary in connection with
such offering, in favor of the Company or the Selling Holders, as the case may
be; and (v) deliver such documents and certificates as may be reasonably
requested by the managing underwriters and their counsel to evidence the
continued validity of the representations and warranties made pursuant to clause
(i) above of this Section 4(o) and to evidence compliance with any customary
conditions contained in the underwriting agreement entered into by the Company.
The Company may require each Selling Holder of Registrable Securities
to furnish to the Company in writing such information regarding the proposed
distribution by such Selling Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 3 hereof and
this Section 4, each Selling Holder covenants and agrees that (i) it will not
offer or sell any Registrable Securities under the Shelf Registration Statement
until it has provided a Registration Notice pursuant to Section 4(b) and has
received copies of the Prospectus as then amended or supplemented as
contemplated by Section 4(c) and notice from the Company that the Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 4(e); (ii) upon receipt of any notice from the Company
contemplated by Section 4(b) (in respect of the occurrence of an event
contemplated by clause (x) of Section 4(b)) or Section 4(e) (in respect of the
occurrence of an event contemplated by clause (v) of Section 4(e)), such Selling
Holder shall not offer or sell any Registrable Securities pursuant to the Shelf
Registration Statement until such Selling Holder receives copies of the
supplemented or amended Prospectus contemplated by Section 4(i) hereof and
receives notice that any post-effective amendment has become effective, and, if
so directed by the Company, such Selling Holder will deliver to the Company (at
the expense of the Company) all copies in its possession, other than permanent
file copies then in such Selling Holder's possession, of the Prospectus as
amended or supplemented at the time of receipt of such notice; (iii) all offers
and sales
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by such Selling Holder under the registration statement must be completed within
sixty (60) days after the first date on which offers or sales can be made
pursuant to clause (i) above, and upon expiration of such sixty (60) day period,
the Selling Holder may not offer or sell any registrable securities under the
Registration Statement until it has again complied with the provisions of clause
(i) above; (iv) such Holder and any of its officers, directors or affiliates, if
any, must comply with the provisions of Regulation M under the Exchange Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Shelf Registration Statement; and (v) such Selling Holder and any of its
officers, directors or affiliates, if any, must enter into such written
agreements as the Company shall reasonably request to ensure compliance with
clause (iv) above.
5. Repurchase by Company of Shares Subject to Registration Notice.
(a) Upon receipt by the Company of a Registration Notice, the Company
may, but shall not be obligated to, purchase from such Selling Holder all, but
not less than all, of the Shares which are the subject of such Registration
Notice at a price per share equal to the greater of (i) the average of the
Closing Prices of the Common Shares for the five trading days immediately
preceding the date of the Registration Notice and (ii) the price offered to such
Selling Holder by any bona fide third-party offeror pursuant to a written
contract of sale. In the event the Company elects to purchase the Shares which
are the subject of a Registration Notice, the Company shall notify the Holder of
such Shares within five business days of the date of receipt of the Registration
Notice by the Company, which notice shall indicate: (i) that the Company will
purchase the Shares which are the subject of the Registration Notice, (ii) the
price per share, calculated in accordance with the preceding sentence, which the
Company will pay to such Holder and (iii) the date upon which the Company shall
repurchase such Shares, which date shall not be later than the tenth business
day after receipt of the Registration Notice relating to such Shares.
(b) If the Company elects to purchase the Shares which are the subject
of such Registration Notice in accordance with this Section 5, the Company shall
be relieved of its obligations under Section 4(b), (c), (d), (e), (g), (h), (i)
and (j) with respect to such Shares or as the result of such Registration
Notice.
6. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder and its officers and directors and each Person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to which such Holder, officer,
director or controlling Person may become subject under the Securities
Act or otherwise (A) that arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Shelf Registration Statement or any amendment thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading or (B) that arise out of or are based upon any untrue
statement or alleged untrue
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statement of a material fact contained in any Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense 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 alleged untrue
statement or any omission or alleged omission contained in the Shelf
Registration Statement, if such settlement is effected with the written
consent of the Company; and
(iii) subject to the limitations set forth in Section 6(c),
against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred 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 alleged untrue
statement or omission or alleged omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 6(a)
shall not apply to any Holder with respect to any loss, liability, claim, damage
or expense that arise out of or are based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Shelf Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto.
(b) Indemnification by Holders. Each Holder severally agrees to
indemnify and hold harmless the Company and the other Selling Holders, and each
of their respective directors and officers (including each director and officer
of the Company who signed the Registration Statement), and each Person, if any,
who controls the Company or any other Selling Holder within the meaning of
Section 15 of the Securities Act, to the same extent as the indemnity contained
in Section 6(a) hereof, but only insofar as such loss, liability, claim, damage
or expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Shelf Registration
Statement or any amendment thereto or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by such selling Holder for use therein relating to the
Holder's status as a selling security holder.
(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 (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 6(a) or (b) above, unless and to the extent it did not otherwise
learn
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of such action and the lack of notice by the indemnified party materially
prejudices the indemnifying party or results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided under Section 6(a) or
(b) above. After receipt of such notice, the indemnifying party shall be
entitled to participate in and, at its option, jointly with any other
indemnifying party so notified, to assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by such
indemnifying party and approved by the indemnified party, which approval shall
not be unreasonably withheld; provided, however, that, if the defendants in any
such action or proceeding include both the indemnified party and the
indemnifying party and the indemnified party reasonably determines, upon advice
of counsel, that a conflict of interest exists or that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, then the indemnified
party shall be entitled to one separate counsel, the reasonable fees and
expenses of which shall be paid by the indemnifying party. If the indemnifying
party does not assume the defense of any such action or proceeding, after having
received the notice referred to in the first sentence of this paragraph, the
indemnifying party will pay the reasonable fees and expenses of counsel (which
shall be limited to a single law firm in addition to any local counsel necessary
in connection with such action or proceeding) for the indemnified party. In such
event, however, the indemnifying party will not be liable for any settlement
effected without the written consent of such indemnifying party. If the
indemnifying party assumes the defense of any such action or proceeding in
accordance with this paragraph, such indemnifying party shall not be liable for
any fees and expenses of counsel for the indemnified party incurred thereafter
in connection with such action or proceeding except as set forth in the proviso
in the second sentence of this Section 6(c).
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 6 is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company and the Selling Holders shall contribute
to the aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the Selling
Holders, in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the Selling Holders on the other (in such
proportions that the selling Holders are severally, not jointly, responsible for
the balance), in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether the action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
the indemnified parties, and the parties' relative intent, pledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), no Selling Holder shall be
required to contribute
13
<PAGE>
any amount in excess of the amount by which the total price at which the
Registrable Securities of such Selling Holder were offered to the public exceeds
the amount of any damages which such Selling Holder would otherwise have been
required to pay by reason of such untrue 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. For purposes of this Section 6(d), each Person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder 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
shall have the same rights to contribution as the Company.
7. Rule 144 Sales.
(a) Compliance. The Company covenants that, so long as it is subject to
the reporting requirements of the Exchange Act, it will file the reports
required to be filed by it under the Exchange Act so as to enable any Holder to
sell Registrable Securities pursuant to Rule 144 under the Securities Act.
(b) Cooperation with Holders. In connection with any sale, transfer or
other disposition by any Holder of any Registrable Securities pursuant to Rule
144 under the Securities Act, the Company shall cooperate with such Holder to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any Securities Act legend, and
enable certificates for such Registrable Securities to be for such number of
shares and registered in such names as the selling Holders may reasonably
request. The Company's obligation set forth in the previous sentence shall be
subject to the delivery, if reasonably requested by the Company or its transfer
agent, by counsel to such Holder, in form and substance reasonably satisfactory
to the Company and its transfer agent, of an opinion that such Securities Act
legend need not appear on such certificate.
8. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified, supplemented or
waived, nor may consent to departures therefrom be given, without the written
consent of the Company and the Holders of at least 80% of the outstanding
Registrable Securities (treating for the purpose of such computation the Holders
of Units as the Holders of Registrable Securities issuable upon exchange of such
Units); provided, however, that no amendment, modification, supplement or waiver
of, or consent to the departure from, the provisions of this Agreement, which
has the purpose or effect of reducing, impairing or adversely affecting the
right of any Holder, shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities. Notice of any such amendment, modification, supplement, waiver or
consent adopted in
14
<PAGE>
accordance with this Section 8(a) shall be provided by the Company to each
Holder of Registrable Securities at least thirty (30) days prior to the
effective date of such amendment, modification, supplement, waiver or consent.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Holder, at such Holder's registered address appearing on
the share register of the Company or the Unit register of the Operating
Partnership or (ii) if to the Company, at Independence Office Park, 6407
Idlewild Road, Building 2, Suite 111, Charlotte, North Carolina, Attention:
President.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is knowledged, if telecopied; or at the
time delivered if delivered by an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding Registrable Securities
such Person shall be conclusively deemed to have agreed to be bound by all of
the terms and provisions hereof.
(d) 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.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland without giving effect to the
conflicts of law provisions thereof.
(g) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(h) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and
15
<PAGE>
understanding of the parties hereto in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(i) Limitation of Liability of Shareholders, Trustees and Officers of
the Company. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE COMPANY WHICH MAY
ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY
BE INCURRED BY IT PURSUANT TO ANY OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING
CONTEMPLATED HEREBY SHALL BE SATISFIED, IF AT ALL, OUT OF THE COMPANY'S ASSETS
ONLY. NO SUCH OBLIGATION OR LIABILITY, OTHER THAN THIS AGREEMENT AS IT RELATES
TO EACH OF THE HOLDERS, SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR
THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF ITS SHAREHOLDERS,
TRUSTEES, OFFICERS, EMPLOYEES OR AGENTS (SOLELY AS A RESULT OF THEIR STATUS AS
SHAREHOLDERS, TRUSTEES, OFFICERS, EMPLOYEES OR AGENTS), REGARDLESS OF WHETHER
SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.
NOTWITHSTANDING THE FOREGOING, THIS SECTION 8(I) SHALL NOT IN ANY WAY AFFECT OR
LIMIT ANY OBLIGATION OR LIABILITY OF ANY HOLDER UNDER THIS AGREEMENT.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
and Lock-Up Agreement as of the date first written above
MAR MAR REALTY TRUST
By: _____________________________________
Name: ____________________________________
Title: ____________________________________
HOLDERS:
SONIC FINANCIAL CORPORATION
By: _____________________________________
Name:
Title:
TOWN & COUNTRY FORD, INC.
By: _____________________________________
Name:
Title:
O. BRUTON SMITH
___________________________________________
PRIMAX PROPERTIES, LLC
By: _____________________________________
Name:
Title:
WILLIAM G. SEYMOUR
___________________________________________
EMMA C. SEYMOUR
___________________________________________
17
[Form of Opinion of Ballard Spahr Andrews
& Ingersoll, LLP]
September ___, 1998
Mar Mar Realty Trust
Independence Office Park
6407 Idlewild Road, Building 2, Suite 111
Charlotte, North Carolina 28212
Re: Registration Statement on Form S-11
Registration No. 333-58895
--------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Mar Mar Realty Trust, a
Maryland real estate investment trust (the "Company"), in connection with
certain matters of Maryland law arising out of the registration of up to
11,500,000 common shares of beneficial interest, par value $1.00 per share (the
"Shares") covered by the above-referenced registration statement, and all
amendments thereto (the "Registration Statement"), under the Securities Act of
1933, as amended (the "1933 Act"). Capitalized terms used but not defined herein
shall have the meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a
basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):
1. The Registration Statement, including the related form of
prospectus included therein, in the form in which it was transmitted to the
Securities and Exchange Commission (the "Commission") under the 1933 Act;
2. The Declaration of Trust of the Company (the "Declaration
of Trust"), certified as of a recent date by the State Department of Assessments
and Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of the date hereof
by an officer of the Company;
<PAGE>
Mar Mar Realty Trust
September ___, 1998
Page 2
4. Resolutions adopted by the Board of Trustees of the Company
relating to the sale, issuance and registration of the Shares, certified as of
the date hereof by an officer of the Company;
5. The form of certificate representing a common share of
beneficial interest, certified as of the date hereof by an officer of the
Company;
6. A certificate of the SDAT, as of the date hereof, as to the
good standing of the Company;
7. A certificate executed by an officer of the Company, dated
the date hereof; and
8. Such other documents and matters as we have deemed
necessary or appropriate to express the opinion set forth in this letter,
subject to the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed,
and so far as is known to us there are no facts inconsistent with, the
following:
1. Each individual executing any of the Documents, whether on
behalf of such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of
a party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any
of the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations set
forth therein are legal, valid and binding and are enforceable in accordance
with all stated terms.
4. All Documents submitted to us as originals are authentic.
The form and content of the Documents submitted to us as unexecuted drafts do
not differ in any respect relevant to this opinion from the form and content of
such Documents as executed and delivered. All Documents submitted to us as
certified or photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records reviewed or
relied upon by us or on our behalf are true and complete. All statements and
information contained in the Documents are true and complete. There has been no
oral or written modification or amendment to any of the Documents, and there has
been no waiver of any provision of any of the Documents, by action or omission
of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
<PAGE>
Mar Mar Realty Trust
September ___, 1998
Page 3
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed
and existing under and by virtue of the laws of the State of Maryland and is in
good standing with the SDAT.
2. The Shares are duly authorized and, when and if delivered
against payment therefor in accordance with the Resolutions, will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of
the State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to the applicability or effect of any
federal or state securities laws, including the securities laws of the State of
Maryland, or as to federal or state laws regarding fraudulent transfers. To the
extent that any matter as to which our opinion is expressed herein would be
governed by any jurisdiction other than the State of Maryland, we do not express
any opinion on such matter.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may not
be relied upon by, quoted in any manner to, or delivered to any other person or
entity (other than Parker Poe Adams & Bernstein L.L.P. and Mayer, Brown & Platt,
counsel to the Company) without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
EXHIBIT 8.1
____________, 1998
[Form of Opinion of Mayer, Brown & Platt]
Mar Mar Realty Trust
6407 Idlewild Road
Building 2, Suite 111
Charlotte, North Carolina 28212
RE: Partnership Classification; Status of the Initial Leases as True
Leases; Status as a Real Estate Investment Trust ("REIT");
Information in the Prospectus under "FEDERAL INCOME TAX
CONSEQUENCES"
Ladies and Gentlemen:
In connection with the Offering of Common Shares1 in Mar Mar Realty Trust, a
Maryland real estate investment trust (the "Company"), pursuant to the
Registration Statement on Form S-11 (File No. 333-58895) filed with the
Securities and Exchange Commission on July 10, 1998, as amended (the
"Registration Statement"), you have requested our opinions concerning (i) the
treatment of the Operating Partnership as a partnership for Federal income tax
purposes, and not as an association taxable as a corporation; (ii) the treatment
of each Initial Lease as a true lease for Federal income tax purposes; (iii) the
qualification and taxation for Federal income tax purposes of the Company as a
REIT; and (iv) the information in the Prospectus under the heading "FEDERAL
INCOME TAX CONSEQUENCES."
In formulating our opinions, we have reviewed and relied upon (i) the
Amended and Restated Limited Partnership Agreement of Mar Mar Realty, L.P., a
Delaware limited partnership (the "Operating Partnership"), the Declaration of
Trust and Bylaws of the Company, and each of the Initial Leases (collectively,
the "Organizational Documents"), (ii) the Prospectus and (iii) such other
documents and information provided by you, and such applicable provisions of
law, as we have considered necessary for purposes of the opinions expressed
herein.
- --------
1 Unless otherwise specifically defined herein, all capitalized terms have
the respective meanings assigned to them in the prospectus (the
"Prospectus") as contained in the Registration Statement.
<PAGE>
In addition, we have relied upon the Company's certificate (the "Officer's
Certificate"), executed by a duly appointed officer of the Company, setting
forth certain representations relating to the organization and the proposed
method of operation of the Company and the Operating Partnership. For purposes
of our opinions, we have not made an independent investigation of the facts and
representations set forth in the Officer's Certificate or in the Organizational
Documents or any of the information set forth in the Registration Statement. We
have, consequently, relied upon your representations that the information
presented in such documents accurately and completely describes all material
facts. No facts have come to our attention, however, that would cause us to
question the accuracy or completeness of such facts or documents in any material
respect.
In rendering these opinions, we have assumed the Company and the Operating
Partnership will each be operated in the manner described in the applicable
Organizational Documents and in the Prospectus, and that all terms and
provisions of such agreements and documents will be complied with by all parties
thereto.
The opinions expressed herein are based on the Code, the Treasury
regulations promulgated thereunder, and interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, all as they are in
effect and exist at the date of this letter. It should be noted that statutes,
regulations, judicial decisions, and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the foregoing bases
for our opinions could adversely affect our conclusions. Other than as expressly
stated below, we express no opinion on any issue relating to the Operating
Partnership, the Company or any investment therein.
Based upon and subject to the foregoing, it is our opinion that:
1. The Operating Partnership will be treated, for Federal income tax
purposes, as a partnership, and not as an association taxable as a corporation.
2. Each Initial Lease will be treated as a true lease for Federal income tax
purposes.
3. Beginning with the Company's taxable year ending December 31, 1998, and
assuming that the actions contemplated in the Prospectus are completed in a
timely fashion, the Company has been organized in conformity with the
requirements for qualification as a REIT under the Code, and the Company's
proposed method of operation, as described in the Prospectus and as represented
in the Officer's Certificate, will enable it to satisfy the requirements for
qualification as a REIT.
4. The information in the Prospectus under the heading "FEDERAL INCOME TAX
CONSEQUENCES," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement
<PAGE>
and to the use of the name of our firm therein.
Very truly yours,
MAYER, BROWN & PLATT
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MAR MAR REALTY L.P.
<PAGE>
TABLE OF CONTENTS
Page
----
EXHIBIT A -- PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
EXHIBIT B -- VALUE OF CONTRIBUTED PROPERTY
EXHIBIT C -- RIGHTS AND PREFERENCES OF UNITS
C-1 -- CLASS B UNITS
EXHIBIT D -- NOTICE OF CONVERSION
EXHIBIT E -- FORM OF UNIT CERTIFICATE
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MAR MAR REALTY L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated
as of July __, 1998, of Mar Mar Realty L.P. (the "Partnership") is entered into
by and among Mar Mar Realty Trust, a Maryland real estate investment trust, as
General Partner (the "General Partner") and the Persons (as defined herein)
identified as "Limited Partners" on Exhibit A, as the Limited Partners (as
defined herein), together with any other Persons who become Partners (as defined
herein) in the Partnership as provided herein;
WHEREAS, the Partnership was formed by the filing of a certificate of
limited partnership with the Secretary of State of the State of Delaware on July
__, 1998 by the General Partner;
WHEREAS, the General Partner and the Initial Limited Partner (as defined
herein) entered into an Agreement of Limited Partnership on July __, 1998 for
the formation of the Partnership under the Revised Uniform Limited Partnership
Act of the State of Delaware; and
WHEREAS, the Partners now desire to amend and restate the Agreement of
Limited Partnership and to continue the Partnership under the Act (as
hereinafter defined) and to set forth their respective rights and duties
relating to the Partnership on the terms as provided herein;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein made, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Partners hereby agree as
follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 and who is shown as
such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (a) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore
<PAGE>
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (b) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which
has been adjusted pursuant to Section 4.4.
"Affiliate" means, with respect to any Person, (a) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (b) any Person directly or indirectly owning or controlling 10
percent or more of the outstanding voting interests of such Person, (c) any
Person as to which such Person directly or indirectly owns or controls 10
percent or more of the voting interests, or (d) any officer, director, general
partner or trustee of such Person or any Person referred to in clauses (a), (b)
and (c) above. As used herein "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreed Value" means (a) in the case of any Contributed Property set
forth on Exhibit B and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth on Exhibit B; (b) in the case of
any Contributed Property not set forth on Exhibit B and as of the time of its
contribution to the Partnership, the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed, and (c)
in the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership and all Exhibits attached hereto, as the same may be amended,
supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred but who has not been admitted as a Substituted Limited Partner,
and who has the rights set forth in Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (a) all cash revenues and funds received by the
Partnership from whatever source
- 2 -
<PAGE>
(excluding the proceeds of any Capital Contribution to the Partnership pursuant
to Section 4.1) plus the amount of any reduction (including, without limitation,
a reduction resulting because the General Partner determines such amounts are no
longer necessary) in reserves of the Partnership, which reserves are referred to
in clause (b)(iv) below;
(b) less the sum of the following (except to the extent made with
the proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made
during such period by the Partnership,
(ii) all cash expenditures (including capital expenditures)
made by the Partnership during such period,
(iii) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in clauses
(b)(i) or (ii), and
(iv) the amount of any reserve created or increase in reserves
established during such period which the General Partner determines are
necessary or appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Bankruptcy" as to any Person, shall be deemed to have occurred when
(i) such Person commences a voluntary proceeding seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law now or hereafter in effect, (ii) such Person is adjudged as bankrupt or
insolvent, or a final and nonappealable order for relief under any bankruptcy,
insolvency or similar law now or hereafter in effect has been entered against
such Person, (iii) such Person executes and delivers a general assignment for
the benefit of such Person's creditors, (iv) such Person files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against such Person in any proceeding of the nature described in
clause (ii) above, (v) such Person seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator for such Person or for all or
any substantial part of such Person's properties, (vi) any proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within 120
days after the commencement thereof, (vii) the appointment without such Person's
consent or acquiescence of a trustee, receiver or liquidator has not been
vacated or stayed within 90 days of such appointment, or (viii) an appointment
referred to in clause (vii) is not vacated within 90 days after the expiration
of any such stay.
- 3 -
<PAGE>
"Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for Federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 4.4 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with Federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
close.
"Capital Account" means the capital account maintained by the
Partnership for each Partner pursuant to Section 4.4.
"Capital Contribution" means, with respect to each Partner, the
total amount of cash, cash equivalents and the Agreed Value of Contributed
Property which such Partner contributes or is deemed to contribute to the
Partnership pursuant to Section 4.1 or 4.2 and which are intended to be treated
as a contribution to the Partnership pursuant to Section 721(a) of the Code.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property charged to the Partners' Capital Accounts and (b) with respect to any
other Partnership property, the adjusted basis of such property for Federal
income tax purposes, all as of the time of determination. The Carrying Value of
any property shall be adjusted from time to time in accordance with Section
4.4(d), and to reflect changes, additions or other adjustments to the Carrying
Value for dispositions and acquisitions of Partnership properties, as deemed
appropriate by the General Partner.
"Certificate" means the Certificate of Limited Partnership relating
to the Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Share Rights" has the meaning set forth in Section 4.2(e).
"Common Shares" means the common shares of beneficial interest,
$1.00 par value per share, of the General Partner.
- 4 -
<PAGE>
"Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.1.
"Contributed Property" means each property or other asset (but
excluding cash and cash equivalents), in such form as may be permitted by the
Act contributed or deemed contributed to the Partnership. Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.4, such
property shall no longer constitute a Contributed Property, but shall be deemed
an Adjusted Property for purposes of Section 4.4.
"Conversion Right" has the meaning set forth in Section 4.2(e)(1).
"Converting Partner" has the meaning set forth in Section 4.2(e)(1).
"Debt" means, as to any Person, as of any date of determination, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (b) all amounts owed by such Person
to banks or other Persons in respect of reimbursement obligations under letters
of credit, surety bonds and other similar instruments guaranteeing payment or
other performance of obligations by such Person, (c) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof, (d) lease obligations
of such Person which, in accordance with generally accepted accounting
principles, should be capitalized and (e) all guarantees and other contingent
obligations of such Person with respect to Debt of others.
"Declaration of Trust" means the Declaration of Trust of the General
Partner filed with the Office of Assessments and Taxation of the State of
Maryland, as the same may be amended, supplemented or restated from time to
time.
"Depreciation" means for each fiscal year or other period, an amount
equal to the Federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Carrying Value of an asset differs from its adjusted
basis for Federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the Federal income tax depreciation, amortization,
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the Federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Carrying
Value using any reasonable method selected by the General Partner.
"Dispose of" has the meaning set forth in Section 11.7(a).
"Effective Date" means the date of closing of the sale of Common
Shares pursuant to that certain Underwriting Agreement among the General Partner
and Wheat First Union, as representative of the other underwriters participating
in the initial public offering of the General Partner's Common Shares.
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"Events of Dissolution" has the meaning set forth in Section 13.1.
"Exchange Act" has the meaning set forth in Section 8.5(a).
"General Partner" means Mar Mar Realty Trust, a Maryland real estate
investment trust, and its successors as a general partner of the Partnership in
accordance with the terms of this Agreement.
"General Partnership Interest" means a Partnership Interest held by
the General Partner (including any Partnership Interest acquired by the General
Partner pursuant to Sections 4.2 or 8.6 hereof) that is a general partnership
interest and includes any and all benefits to which the General Partner may be
entitled and all obligations of the General Partner hereunder. A General
Partnership Interest may be expressed as a number of Partnership Units. All
Partnership Units held by the General Partner shall be deemed to be the General
Partner Interest.
"IRS" means the Internal Revenue Service, which is charged with
administering the internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse, parents, grandparents, descendants (including adopted
children and step-children), nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (a) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate,
(b) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter, (c) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership's affairs, (d) as to any estate
which is a Partner, the distribution by the fiduciary of the estate's entire
interest in the Partnership, (e) as to any trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee), or (f) as
to any Partner, the Bankruptcy of such Partner.
"Indemnitee" means (a) any Person made a party to a proceeding by
reason of his status as (i) the General Partner (including as a guarantor of any
Partnership Debt) or (ii) an officer of the Partnership or a trustee or officer
of the General Partner, and (b) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time, in its sole and absolute discretion.
"Initial Limited Partner" means __________________.
"Limited Partner" means any Person named as a Limited Partner on
Exhibit A, as such Exhibit may be amended from time to time, including any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner in the Partnership.
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"Limited Partnership Interest" means a Partnership Interest held by
a Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which such Limited
Partner may be entitled and all obligations of such Limited Partner hereunder. A
Limited Partnership Interest may be expressed as a number of Partnership Units.
"Liquidating Transaction" means any sale or other disposition of all
or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, results in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Liquidator" has the meaning set forth in Section 13.2.
"Lock-up" has the meaning set forth in Section 11.7(a).
"Lock-up Period" has the meaning set forth in Section 11.7(a).
"Net Income" means for any taxable period, the excess, if any, of
the Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.4. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Sections 6.3 and 6.4, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 4.4. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Sections 6.3 and 6.4, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
"New Securities" has the meaning set forth in Section 4.2(c).
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 6.4(b) if such properties
were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
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"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Conversion" means a Notice of Conversion substantially in
the form of Exhibit D.
"Option Plans" means the option plans for Common Shares or Units, as
the case may be, restricted share plans or employee benefit plans established
by, or for the benefit of the employees of, the General Partner, the Partnership
or any Subsidiary.
"Partner" means individually, the General Partner or a Limited
Partner, and "Partners" means collectively, the General Partner and the Limited
Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means Mar Mar Realty L.P., the limited partnership
formed under the Act and pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the
Partnership representing a Capital Contribution by either a Limited Partner or
the General Partner and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
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"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall be the same as the record date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution, and also means any record date established by the
General Partner in connection with any vote or consent of the Limited Partners
pursuant to this Agreement.
"Partnership Unit" or "Unit" means a fractional, undivided share of
the Partnership Interests of all Partners issued pursuant to Sections 4.1 and
4.2, in such number as set forth on Exhibit A, as such Exhibit may be amended
from time to time. Any rights and preferences or other obligations with respect
to Units as may be authorized hereunder shall be set forth in Exhibit C hereto.
The ownership of Partnership Units may be evidenced by the form of
non-transferable, non-negotiable certificate for units substantially in the form
of Exhibit E.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to any Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified on Exhibit A, as such Exhibit may be amended from time to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company, estate or
other entity.
"Preferred Shares" has the meaning set forth in Section 4.2(c).
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redemption Amount" means an amount of cash per Partnership Unit
equal to the Value on the Valuation Date of the Common Shares that the Partner
being redeemed would have been entitled to receive under Section 4.2(e).
"Registration Rights and Lock-up Agreement" means that certain
Registration Rights and Lock-up Agreement dated as of the date hereof among the
General Partner and the Persons identified as "Holders" on the signature pages
thereto.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
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"REIT" means a real estate investment trust as defined under Section
856 of the Code.
"Residual Gain" or "Residual Loss" means any item of gain or loss,
as the case may be, of the Partnership recognized for Federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 6.4(b)(1)(i) or 6.4(b)(2)(i) to eliminate Book-Tax
Disparities.
"Securities Act" has the meaning set forth in Section 11.5(c).
"704(c) Value" of any Contributed Property means the value of such
property as set forth on Exhibit B, or if no value is set forth on Exhibit B,
the fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt. Subject to Section 4.4, the General Partner shall
use such method as it deems reasonable and appropriate to allocate the aggregate
of the 704(c) Value of Contributed Properties among each separate property on a
basis proportional to its fair market value. [Should the General Partner retain
this flexibility, should a method be established in the partnership agreement
that can only be changed with the approval of the limited partners or should a
method be established in the partnership agreement with respect to the initial
contributors only?]
"Shares" means any Common Shares and Preferred Shares issued to a
Limited Partner upon conversion of its Units pursuant to Section 4.2(e).
"Specified Conversion Date" means the tenth Business Day after
receipt by the General Partner of a Notice of Conversion; provided, however,
that no Specified Conversion Date shall occur before one year from the date of
this Agreement without the consent of the General Partner except as provided in
Section 4.2(e).
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Transaction" has the meaning set forth in Section 11.2(c).
"Unit Adjustment Factor" means the factor applied for converting
Partnership Units to Common Shares, which shall initially be 1.0; provided,
however, that in the event that the General Partner (a) declares or pays a
dividend on its outstanding Common Shares in Common Shares or makes a
distribution to all holders of its outstanding Common Shares in Common Shares,
(b) subdivides its outstanding Common Shares, or (c) combines its outstanding
Common Shares into a smaller number of Common Shares, the Unit Adjustment Factor
shall be adjusted by multiplying
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the Unit Adjustment Factor by a fraction, the numerator of which shall be the
number of Common Shares issued and outstanding on the record date (assuming for
such purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of Common Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination. Any adjustment to the Unit Adjustment Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. Any adjustment to the Unit Adjustment Factor shall
be carried forward to successive adjustments.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property (as determined under Section 4.4) as of such date,
over (b) the Carrying Value of such property (prior to any adjustment to be made
pursuant to Section 4.4) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Section
4.4) as of such date, over (b) the fair market value of such property (as
determined under Section 4.4) as of such date.
"Valuation Date" means the date of receipt by the General Partner of
a Notice of Conversion or, if such date is not a Business Day, the first
Business Day thereafter.
"Value" means, with respect to a Common Share, the average of the
daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (a) if the Common Shares are listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the closing price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices on such day; (b) if the Common Shares are not
listed or admitted to trading on any securities exchange or the NASDAQ-National
Market System, the last reported sale price on such day or, if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reliable quotation source designated by the General Partner; or
(c) if the Common Shares are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 10 days prior to the date in
question) for which prices have been so reported; provided, however, that if
there are no bid and asked prices reported during the 10 days prior to the date
in question, the Value of the Common Shares shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event a holder of Common Shares would be entitled to receive Common Share
Rights, then the Value of such Common Share Rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization and Continuation; Application of Act.
(a) Organization and Continuation of Partnership. The General
Partner and the Limited Partners do hereby continue, and ratify the
formation of, the Partnership as a limited partnership according to all of
the terms and provisions of this Agreement and otherwise in accordance
with the Act. The General Partner is the sole general partner and the
Limited Partners are the sole limited partners of the Partnership.
Effective as of the date hereof, the Initial Limited Partner has withdrawn
from the Partnership in exchange for his original capital contribution.
[Will the Initial Limited Partner remain or withdraw?]
(b) Application of Act. The Partnership is a limited partnership
subject to the provisions of the Act and the terms and conditions set
forth in this Agreement. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the
Act. No Partner has any interest in any Partnership property, and the
Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is Mar Mar Realty L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.", "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners; provided, however, that the name of the Partnership may not be
changed to include the name of any Limited Partner, or any variant thereof,
without the written consent of that Limited Partner.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located c/o
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805-1297,
County of New Castle and the registered agent for service of process on the
Partnership in the State of Delaware at such registered office is the
Corporation Service Company. The principal office of the Partnership is located
at 6407 Idlewild Road, Building 2, Suite 111, Charlotte, North Carolina 28212,
or such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Withdrawal. The Initial Limited Partner hereby withdraws from
the Partnership.
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Section 2.5 Term. The term of the Partnership commenced, and shall
continue until December 31, 2098 unless it is dissolved sooner pursuant to the
provisions of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the business
to be conducted by the Partnership is (a) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act, (b)
to enter into any partnership, joint venture or other similar arrangement to
engage in any of the foregoing or the ownership of interests in any entity
engaged in any of the foregoing and (c) to do anything necessary or incidental
to the foregoing which, in each case, is not in breach of this Agreement;
provided, however, that each of the foregoing clauses (a), (b) and (c) shall be
limited and conducted in such a manner as to permit the General Partner at all
times to be classified as a REIT, unless the General Partner provides notice to
the Partnership that it intends to cease or has ceased to qualify as a REIT.
Section 3.2 Powers. The Partnership is empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (a) could adversely affect the ability of the General
Partner to continue to qualify as a REIT, (b) could subject the General Partner
to any additional taxes under Section 857 or Section 4981 of the Code, or (c)
could violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Partners.
(a) Initial Capital Contributions. At the time of the execution of
this Agreement, the Partners shall make or shall have made the Capital
Contributions set forth in Exhibit A to this Agreement, provided that the
Initial Limited Partner does hereby withdraw as the Initial Limited
Partner upon the execution of this Agreement. The Partners shall own
Partnership Units in the amounts set forth on Exhibit A and shall have a
Percentage Interest
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in the Partnership as set forth on Exhibit A, which Percentage Interest
shall be adjusted on Exhibit A from time to time by the General Partner to
the extent necessary to reflect accurately redemptions, conversions,
Capital Contributions, the issuance of additional Partnership Units, or
similar events having an effect on a Partner's Percentage Interest.
Notwithstanding anything to the contrary in this Agreement, no Partner
(other than the General Partner) shall be permitted to own (actually or
constructively, through the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code) a Percentage Interest equal to
or greater than twenty five percent (25%). The Partnership Units held by
the General Partner shall at all times be deemed to be General Partner
units and shall constitute the General Partnership Interest.
(b) Additional Capital Contributions.
(1) No Partner shall be assessed or, except as provided for in
Sections 4.1(b)(2) and 13.3(b) below and except for any such amounts
which a Limited Partner may be obligated to repay under Section
10.5, be required to contribute additional funds or other property
to the Partnership. Any additional funds or other property required
by the Partnership, as determined by the General Partner in its sole
discretion, may, at the option of the General Partner and without an
obligation to do so (except as provided for in Section 4.1(b)(2) and
Section 13.3(b) below), be contributed by the General Partner as
additional Capital Contributions. If and as the General Partner or
any other Partner makes additional Capital Contributions to the
Partnership, each such Partner shall receive additional Partnership
Units as provided for in Section 4.2.
(2) Except to the extent provided in Section 7.5 below
relating to interests in Partnership properties held directly by the
Partnership or through Subsidiaries, the net proceeds of any and all
funds raised by or through the General Partner through the issuance
of additional shares of the General Partner (whether Common Shares
or preferred shares) shall be contributed to the Partnership as
additional Capital Contributions, and in such event the General
Partner shall be issued additional Partnership Units pursuant to
Section 4.2 below.
(c) Return of Capital Contributions. Except as otherwise expressly
provided herein, the Capital Contribution of each Limited Partner will be
returned to that Partner only in the manner and to the extent provided in
Article V and Article XIII hereof, and no Partner may withdraw from the
Partnership or otherwise have any right to demand or receive the return of
its Capital Contribution to the Partnership (as such), except as
specifically provided herein. Under circumstances requiring a return of
any Capital Contribution, no Partner shall have the right to receive
property other than cash, except as specifically provided herein. No
Partner shall be entitled to interest on any Capital Contribution or
Capital Account notwithstanding any disproportion therein as between the
Partners. Except as specifically provided herein, the General Partner
shall not be liable for the return of any portion of the
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Capital Contribution of any Limited Partner, and the return of such
Capital Contributions shall be made solely from Partnership assets.
(d) Liability of Limited Partners. No Limited Partner shall have any
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall any Limited
Partner be personally liable for any obligations of the Partnership,
except as otherwise provided in this Article IV or in the Act. No Limited
Partner shall be required to make any contributions to the capital of the
Partnership other than its Capital Contribution.
Section 4.2 Issuances of Additional Partnership Interests.
(a) Issuance to Other Than the General Partner. The General Partner
is hereby authorized to cause the Partnership to issue such additional
Partnership Interests in the form of Partnership Units for any Partnership
purpose at any time or from time to time, to the Partners (other than
issuances to the General Partner, which issuances are governed by Section
4.2(b)) or to other Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole and
absolute discretion, all without the approval of any Limited Partners
except to the extent provided herein; provided, however, that the
Partnership also may from time to time issue to third parties additional
Partnership Interests (other than any such issuance to the General Partner
which is governed by Sections 4.2(b) and 4.2(c)) in one or more classes,
or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties senior to Limited
Partnership Interests, as may be set forth in Exhibit C attached hereto
from time to time, subject to Delaware law, including, without limitation,
with respect to (i) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests, (ii) the right of each such class or series of Partnership
Interests to share in Partnership distributions, and (iii) the rights of
each such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership, provided further however, that any
issuance of any classes as provided in the foregoing proviso, made or
authorized to be made prior to the first anniversary of the Effective Date
shall be permitted only with the Consent of the Limited Partners holding a
majority of the Percentage Interests of the Limited Partners. To the
extent more than one class of Partnership Units is outstanding, the
Partnership Units in this Agreement shall be referred to as Class A Units.
(b) Issuance to the General Partner. The Partnership also may from
time to time issue to the General Partner additional Partnership Units or
other Partnership Interests in one or more classes, or one or more series
of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties,
including rights, powers and duties senior to Limited Partnership
Interests, as may be set forth in Exhibit C attached hereto from time to
time, all as shall be determined by the General Partner, subject to
Delaware law, including, without limitation, with respect to (i)
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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, (ii) the
right of each such class or series of Partnership Interests to share in
Partnership distributions, and (iii) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; provided, however, that (x) the additional Partnership
Interests are issued in connection with an issuance of shares of the
General Partner, which shares have designations, preferences and other
rights, all such that the economic interests are substantially similar to
the designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner in accordance with
this Section 4.2(b), and (y) the General Partner shall make a Capital
Contribution to the Partnership (1) in an amount equal to the net proceeds
raised in connection with the issuance of such shares of the General
Partner in the event such shares are sold for cash or cash equivalents or
(2) in the form of the property received in consideration for such shares,
in the event such shares are issued in consideration for other property.
(c) Issuance of Additional Common Shares or Preferred Shares. The
General Partner is explicitly authorized to issue additional Common Shares
or preferred shares of beneficial interest of the General Partner
("Preferred Shares"), or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
Common Shares or Preferred Shares ("New Securities") and in connection
therewith, as further provided in Section 4.2(b), (i) the General Partner
shall cause the Partnership to issue to the General Partner Partnership
Interests or rights, options, warrants or convertible or exchangeable
securities of the Partnership having designations, preferences and other
rights, as may be set forth on Exhibit C attached hereto from time to
time, all such that the economic interests are substantially similar to
those of the New Securities, and (ii) the General Partner shall contribute
the net proceeds from, or the property received in consideration for, the
issuance of such New Securities and from the exercise of rights contained
in such New Securities to the Partnership. In connection with the issuance
of Partnership Interests which are substantially similar to New
Securities, the General Partner is authorized to modify or amend the
distributions or allocations hereunder solely to the extent necessary to
give effect to the designations, preferences and other rights pertaining
to such Partnership Interests.
(d) Issuance Pursuant to Option Plans.
(1) Upon the exercise of an option granted by the General
Partner for Common Shares, the General Partner shall cause the
Partnership to issue to the General Partner one Partnership Unit for
each Common Share acquired upon such exercise pursuant to the Option
Plans (or such other number of Partnership Units based on the
relationship a different class of Common Shares bears to Common
Shares), and the General Partner shall contribute to the Partnership
the net proceeds received upon such exercise (it being understood
that the General Partner may issue Common Shares in connection with
the Option Plans without receiving a specified
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amount of proceeds and that the issuance of such Common Shares shall
nonetheless entitle the General Partner to additional Partnership
Units).
(2) The General Partner shall cause the Partnership to issue
Partnership Units to employees of the Partnership upon the exercise
by any such employees of an option to acquire Partnership Units
granted by the Partnership pursuant to the Option Plans in
accordance with the terms of the Option Plans. Partnership Units so
issued shall represent Limited Partnership Interests.
(3) The General Partner shall cause the Partnership to issue
Partnership Units to any Subsidiary upon the exercise by an employee
of such Subsidiary of an option to acquire Partnership Units granted
by such Subsidiary pursuant to the Option Plans, and such Subsidiary
shall transfer to the Partnership the price per Partnership Unit
required by the Option Plans to be paid by Subsidiaries. Partnership
Units issued to any such Subsidiary shall represent Limited
Partnership Interests.
(e) Conversion of Units.
(1) Subject to the further provisions of this Section 4.2(e)
and the provisions of Sections 8.6 and 11.7, beginning one year
after the Effective Date or earlier with the written consent of the
General Partner (except as otherwise contractually restricted), the
General Partner hereby grants to each Limited Partner the right (the
"Conversion Right") to exchange any or all of the Partnership Units
held by that Partner for Common Shares, with one Partnership Unit
being exchangeable for one Common Share; provided, however, that in
the event the General Partner issues to all holders of Common Shares
rights, options, warrants or convertible or exchangeable securities
entitling the shareholders to subscribe for or purchase Common
Shares, or any other securities or property (collectively, the
"Common Share Rights") then (except to the extent such rights have
already been reflected in an adjustment to the Unit Adjustment
Factor as provided in Section 4.2(e)(2) below) the Converting
Partner shall also be entitled to receive such Common Share Rights
that a holder of that number of Common Shares would be entitled to
receive. The Conversion Right may be exercised by a Limited Partner
(a "Converting Partner") at any time beginning one year after the
Effective Date (or earlier upon the written consent of the General
Partner) and from time to time by delivering a Notice of Conversion
to the General Partner not less than ten (10) days prior to such
exchange. The General Partner shall at all times reserve and keep
available out of its authorized but unissued Common Shares, solely
for the purpose of effecting the exchange of Partnership Units for
Common Shares, such number of Common Shares as shall from time to
time be sufficient to effect the conversion of all outstanding
Partnership Units not owned by the General Partner. No Limited
Partner shall, solely by virtue of being the holder of one or more
Partnership Units, be deemed to be a shareholder of or have any
other interest in the General Partner.
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(2) In the event of any change in the Unit Adjustment Factor,
the number of Partnership Units held by each Partner shall be
proportionately adjusted by multiplying the number of Partnership
Units held by such Partner immediately prior to the change in the
Unit Adjustment Factor by the new Unit Adjustment Factor; the intent
of this provision is that one Partnership Unit remains exchangeable
for one Common Share without dilution (including any securities for
which Shares are exchanged in a transaction contemplated by Section
11.2(c)). In the event the General Partner issues any Common Shares
in exchange for Partnership Units pursuant to this Section 4.2(e),
any such Partnership Units so acquired by the General Partner shall
immediately thereafter be canceled by the Partnership and the
Partnership shall issue to the General Partner new Partnership Units
pursuant to Section 4.2(c) hereof. Each Converting Partner agrees to
execute such documents as the General Partner may reasonably require
in connection with the issuance of Common Shares upon exercise of
the Conversion Right. Notwithstanding the foregoing provisions of
this Section 4.2(e), a Limited Partner shall not have the right to
exchange Partnership Units for Common Shares if (i) in the opinion
of counsel for the General Partner, the General Partner would, as a
result thereof, no longer qualify (or it would be more likely than
not that the General Partner no longer would qualify) as a REIT; or
(ii) such exchange would in the opinion of counsel for the General
Partner, constitute or be more likely than not to constitute a
violation of applicable securities laws.
Section 4.3 No Preemptive Rights. Except as specifically provided in this
Agreement, no Person shall have any preemptive, preferential or other similar
right with respect to (a) additional Capital Contributions or loans to the
Partnership, or (b) issuance or sale of any Partnership Units.
Section 4.4 Capital Accounts of the Partners.
(a) General. The Partnership shall maintain for each Partner a
separate Capital Account in accordance with the rules of Regulations
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (a)
the amount of all Capital Contributions made by such Partner to the
Partnership pursuant to this Agreement and (b) all items of Partnership
income and gain (including income and gain exempt from tax) computed in
accordance with Section 4.4(b) hereof and allocated to such Partner
pursuant to Sections 6.1 through Section 6.3 of the Agreement, and
decreased by (i) the amount of cash or Agreed Value of all actual and
deemed distributions of cash or property made to such Partner pursuant to
this Agreement and (ii) all items of Partnership deduction and loss
computed in accordance with Section 4.4(b) hereof and allocated to such
Partner pursuant to Sections 6.1 through Section 6.3 of the Agreement.
(b) Income, Gains, Deductions and Losses. For purposes of computing
the amount of any item of income, gain, loss or deduction to be reflected
in the Partners' Capital
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Accounts, unless otherwise specified in this Agreement, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for Federal income tax
purposes determined in accordance with Section 703(a) of the Code (for
this purpose all items of income, gain, loss or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code shall be
included in taxable income or loss), with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership.
(2) The computation of all items of income, gain, loss and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are
not includable in gross income or are neither currently deductible
nor capitalized for Federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if
the adjusted basis of such property as of such date of disposition
were equal in amount to the Partnership's Carrying Value with
respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cash
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year.
(5) In the event the Carrying Value of any Partnership asset
is adjusted pursuant to Section 4.4(d) hereof, the amount of any
such adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 6.4 hereof
shall not be taken into account.
(c) Transfers of Partnership Units. A transferee of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor.
(d) Unrealized Gains and Losses.
(1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 4.4(d)(2), the
Carrying Values of all Partnership assets shall be adjusted upward
or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the times of the
adjustments provided in Section 4.4(d)(2) hereof, as if such
Unrealized Gain or
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Unrealized Loss had been recognized on an actual sale of each such
property and allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times:
(i) immediately prior to the acquisition of an additional interest
in the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (ii) immediately prior
to the distribution by the Partnership to a Partner of more than a
de minimis amount of Property as consideration for an interest in
the Partnership; and (iii) immediately prior to the liquidation of
the Partnership or the General Partner's interest in the Partnership
within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the General Partner reasonably
determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership.
(3) In accordance with Regulations Section
1.704-1(b)(2)(iv)(e), the Carrying Values of Partnership assets
distributed in kind shall be adjusted upward or downward to reflect
any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the time any such asset is distributed.
(4) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership
assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it
may adopt, or in the case of a liquidating distribution pursuant to
Article XIII of this Agreement, be determined and allocated by the
Liquidator using such reasonable methods of valuation as it may
adopt. The General Partner, or the Liquidator, as the case may be,
shall allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for individual
properties).
(e) Modification by General Partner. The provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities which are
secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or any Limited Partners) are computed in
order to comply with such Regulations, the General Partner may make such
modification; provided, however, that it will not have a material effect
on the amounts distributable to any Person pursuant to Article XIII of
this Agreement upon the liquidation of the Partnership. The General
Partner also shall (a) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the
Partners and the amount of Partnership capital reflected on the
Partnership's
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balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (b) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. The General
Partner shall distribute not less frequently than quarterly an amount equal to
100% of Available Cash (other than amounts treated as net capital gains as
defined in Code Section 857(b)(3), which the General Partner shall distribute,
in whole or in part, or not distribute, in the General Partner's sole and
absolute discretion) generated by the Partnership during such quarter to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter (i) first, with respect to any class of Partnership Interests issued
pursuant to Sections 4.2(a) or 4.2(b) which are entitled to a preference over
Partnership Units on the distribution of Available Cash and are specially
allocated items under Section 6.1 prior to allocated items with respect to
amounts distributed pursuant to Paragraph (ii) below (and within and among such
classes, in order of the preferences designated therein and pro rata among any
such classes), and (ii) thereafter, in accordance with their respective
Percentage Interests on such Partnership Record Date; provided, however, that in
no event may a Partner receive a distribution of Available Cash with respect to
a Unit if such Partner is entitled to receive a dividend from the General
Partner which is derived from a distribution of Available Cash to the General
Partner with respect to a Common Share for which such Unit has been redeemed or
exchanged.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to the General Partner, or
any Limited Partners or Assignees shall be treated as amounts distributed to the
General Partner or such Limited Partners, or Assignees pursuant to Section 5.1
for all purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation. Proceeds from a Liquidating
Transaction shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes Other than the
Taxable Year of Liquidation. Subject to any class of Partnership Interests
issued pursuant to Section 4.2(a) or 4.2(b) which are entitled to a preference
over Partnership Units on the distribution of Available Cash, for purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.4 hereof) shall be allocated among the
Partners for each taxable year (or portion thereof) as provided herein below:
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(a) Net Income. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 below, Net Income shall be allocated (i)
first, to the General Partner to the extent that, on a cumulative basis,
Net Losses previously allocated to the General Partner pursuant to the
last sentence of Section 6.1(b) exceed Net Income previously allocated to
the General Partner pursuant to this clause (a) of Section 6.1(a), and
(ii) thereafter, Net Income shall be allocated to the Partners in
accordance with their respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 below, Net Losses shall be allocated to the
Partners in accordance with their respective Percentage Interests;
provided, however, that Net Losses shall not be allocated to any Limited
Partner pursuant to this Section 6.1(b) to the extent that such allocation
would cause such Limited Partner to have an Adjusted Capital Account
Deficit at the end of such taxable year (or increase any existing Adjusted
Capital Account Deficit). All Net Losses in excess of the limitations set
forth in the preceding sentence of this Section 6.1(b) shall be allocated
to the General Partner.
(c) Nonrecourse Liabilities. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective
Percentage Interests.
(d) Gains. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to
Section 6.3 below, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated
any deductions directly or indirectly giving rise to the treatment of such
gains as Recapture Income, all in such a manner consistent with Regulation
Section 1.1245-1.
Section 6.2 Allocations for Capital Account Purposes in the Taxable Year
of Liquidation. Subject to Section 6.3, the Net Income and Net Loss of the
Partnership for the taxable year of liquidation of the Partnership shall be
allocated prior to the final liquidating distributions of the Partnership and
shall be allocated first to eliminate any Partner's Adjusted Capital Account
Deficit and then, to the extent possible, in a manner such that the Capital
Accounts of the Partners immediately prior to such final liquidating
distributions are equal to the amount which would have been distributable to the
Partners under Section 5.1 if such distributions were to be governed by Section
5.1. Notwithstanding the preceding sentence, actual distributions made
subsequent to the allocations under this Section 6.2 shall be made pursuant to
Section 5.3.
Section 6.3 Special Allocation Rules. Notwithstanding any other provision
of this Agreement, the following special allocations shall be made in the
following order:
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(a) Minimum Gain Chargeback. Notwithstanding any other provisions of
Article VI, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). This Section 6.3(a)
is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 6.3(a)
only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement
with respect to such fiscal year and without regard to any decrease in
Partner Minimum Gain during such fiscal year.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2 hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse
Debt during any Partnership fiscal year, each Partner who has a share of
the Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 6.3(b) is intended to comply with the minimum gain chargeback
requirement in such Section of the Regulations and shall be interpreted
consistently therewith. Solely for purposes of this Section 6.3(b), each
Partner's Adjusted Capital Account Deficit shall be determined prior to
any other allocations pursuant to Article VI of this Agreement with
respect to such fiscal year, other than allocations pursuant to Section
6.3(a) hereof.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations
required under Sections 6.3(a) and 6.3(b) hereof, such Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its
Adjusted Capital Account Deficit created by such adjustments, allocations
or distributions as quickly as possible.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests.
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If the General Partner determines in its good faith discretion that the
Partnership's Nonrecourse Deductions must be allocated in a different
ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the Limited Partners, to revise the prescribed
ratio to the numerically closest ratio which does satisfy such
requirements.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Regulations.
Section 6.4 Allocations for Tax Purposes.
(a) General. Except as otherwise provided in this Section 6.4, for
Federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated
pursuant to Sections 6.1 and 6.3 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to eliminate
Book-Tax Disparities attributable to a Contributed Property or Adjusted
Property, items of income, gain, loss, and deduction shall be allocated
for Federal income tax purposes among the Partners as follows:
(1) (i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners
consistent with the principles of Section 704(c) of the Code in a
manner that takes into account the variation between the 704(c)
Value of such property and its adjusted basis at the time of
contribution, and (ii) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain
or loss is allocated pursuant to Sections 6.1 and 6.3 of this
Agreement.
(2) (i) In the case of an Adjusted Property, such items shall
(A) first, be allocated among the Partners in a manner consistent
with the principles of Section 704(c) of the Code in a manner to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof pursuant
to
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Section 4.4 and (B) second, in the event such property was
originally a Contributed Property, be allocated among the Partners
in a manner consistent with Section 6.4(b)(1)(i), and (ii) any item
of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same manner as
its correlative item of "book" gain or loss is allocated pursuant to
Sections 6.1 and 6.4 of this Agreement.
(3) All other items of income, gain, loss and deduction shall
be allocated among the Partners in the same manner as their
correlative item of "book" gain or loss is allocated pursuant to
Sections 6.1 and 6.3 of this Agreement.
(c) Power of General Partner to Elect Method. To the extent Treasury
Regulations promulgated pursuant to Section 704(c) of the Code permit a
partnership to utilize alternative methods to eliminate the disparities
between the agreed value of property and its adjusted basis, the General
Partner shall have the authority to elect the method to be used by the
Partnership and such election shall be binding on all Partners.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and
affairs of the Partnership are exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the
Partnership. Notwithstanding anything to the contrary in this Agreement,
the General Partner may not be removed by the Limited Partners with or
without cause. In addition to the powers now or hereafter granted a
general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provision of this
Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by
it to conduct the business of the Partnership, to exercise all powers set
forth in Section 3.2 hereof and to effectuate the purposes set forth in
Section 3.1 hereof including, without limitation:
(1) the making of any expenditures, the lending or borrowing
of money (including, without limitation, making prepayments on loans
and borrowing money to permit the Partnership to make distributions
to its Partners in such amounts as will permit the General Partner
(so long as the General Partner qualifies as a REIT) to avoid the
payment of any Federal income tax (including, for this purpose, any
excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders sufficient to permit the General
Partner to maintain REIT status), the assumption or guarantee of, or
other contracting for, indebtedness and other
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liabilities, the issuance of evidences of indebtedness (including
the securing of same by mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities of
the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, sale, conveyance, mortgage,
pledge, encumbrance, hypothecation, contribution or exchange of any
assets of the Partnership or the merger or other combination of the
Partnership with or into another entity on such terms as the General
Partner deems proper;
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit including,
without limitation, the financing of the conduct of the operations
of the General Partner, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons (including the
Partnership's Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it
has an equity investment and the making of capital contributions to
its Subsidiaries, the holding of any real, personal and mixed
property of the Partnership in the name of the Partnership or in the
name of a nominee or trustee (subject to Section 7.10), the
creation, by grant or otherwise, of easements or servitudes, and the
performance of any and all acts necessary or appropriate to the
operation of the Partnership assets including, but not limited to,
applications for rezoning, objections to rezoning, constructing,
altering, improving, repairing, renovating, rehabilitating, razing,
demolishing or condemning any improvements or property of the
Partnership;
(5) the negotiation, execution, and performance of any
contracts, conveyances or other instruments (including with
Affiliates of the Partnership to the extent provided in Section 7.6)
that the General Partner considers useful or necessary to the
conduct of the Partnership's operations or the implementation of the
General Partner's powers under this Agreement including, without
limitation, the execution and delivery of leases on behalf of or in
the name of the Partnership (including the lease of Partnership
property for any purpose and without limit as to the term thereof,
whether or not such term (including renewal terms) shall extend
beyond the date of termination of the Partnership and whether or not
the portion so leased is to be occupied by the lessee or, in turn,
subleased in whole or in part to others);
(6) the opening and closing of bank accounts, the investment
of Partnership funds in securities, certificates of deposit and
other instruments, and the
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distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(7) the selection and dismissal of employees of the
Partnership or the General Partner (including, without limitation,
employees having titles such as "president", "vice president",
"secretary" and "treasurer"), and the engagement and dismissal of
agents, outside attorneys, accountants, engineers, appraisers,
consultants, contractors and other professionals on behalf of the
General Partner or the Partnership and the determination of their
compensation and other terms of employment or hiring;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and
the contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of
interests in, and the contribution of property to, its Subsidiaries
and any other Person in which it has an equity investment from time
to time);
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation
and the incurring of legal expense and the settlement of claims and
litigation, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or
any other Person (including, without limitation, the contribution or
loan of funds by the Partnership to such Persons);
(12) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable
method of valuation as it may adopt;
(13) the execution, acknowledgment and delivery of any and all
documents and instruments to effectuate any or all of the foregoing;
and
(14) the issuance of Partnership Units to any Subsidiary which
may be necessary for such Subsidiary to satisfy such Subsidiary's
obligations under the Option Plans, in exchange for the transfer to
the Partnership by such Subsidiary of the price per Partnership Unit
required by the Option Plans to be paid by Subsidiaries.
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(b) No Approval Required for Above Powers. Except as expressly
provided in this Agreement (including, without limitation, the last
sentence of this Section 7.1(b)), each of the Limited Partners agrees that
the General Partner is authorized to execute, deliver and perform the
above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding
any other provision of this Agreement, the Act or any applicable law, rule
or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under
this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement or of any duty stated
or implied by law or equity. Notwithstanding the foregoing, the General
Partner agrees that it will not take any of the following actions at any
time prior to the first anniversary of the Effective Date without the
Consent of Limited Partners holding a majority of the outstanding Limited
Partnership Interests: (i) a merger, consolidation or share exchange of
the General Partner and requiring the approval of the General Partner's
shareholders or any merger, consolidation or partnership interest exchange
of the Partnership; (ii) a sale, lease, transfer or other disposition of
all of substantially all of the General Partner's assets requiring the
approval of the General Partner's shareholders, a sale, lease, transfer or
other disposition of all or substantially all of the Partnership's assets,
or any election to dissolve the General Partner requiring the approval of
the General Partner's shareholders; or (iii) an amendment to the
Declaration of Trust requiring the approval of the General Partner's
shareholders.
(c) Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain casualty,
liability and other insurance on the properties of the Partnership and
liability insurance for the Indemnitees hereunder. The right to procure
such insurance on behalf of the Indemnities shall in no way mitigate or
otherwise affect the right of any such Indemnitee to indemnification under
Section 7.7.
(d) Working Capital Reserves. At all times from and after the date
hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner,
in its sole and absolute discretion, deems appropriate and reasonable from
time to time.
(e) No Obligation to Consider Tax Consequences to Limited Partners.
In exercising its authority under this Agreement, the General Partner may,
but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. The General Partner
and the Partnership shall not have liability to a Limited Partner under
any circumstances as a result of an income tax liability incurred by such
Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement.
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
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shall file amendments to and restatements of the Certificate and do all the
things to maintain the Partnership as a limited partnership (or a partnership in
which the limited partners have limited liability) under the laws of the State
of Delaware and each other jurisdiction in which the Partnership may elect to do
business or own property. Subject to the terms of Section 8.5(a)(4) hereof, the
General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate, as it may be amended or restated from time to
time, to any Limited Partner. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the Limited Partners have limited liability) in the State of Delaware and any
other jurisdiction in which the Partnership may elect to do business or own
property.
Section 7.3 Restrictions on General Partner's Authority. The General
Partner may not, without the written Consent of all of the Limited Partners,
take any action in contravention of this Agreement including, without
limitation:
(a) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement (provided that this restriction shall not be deemed to restrict
the sale, lease, transfer ir disposition of all or substantially all of
the Partnership's assets as may otherwise be provided herein);
(b) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(c) admit a Person as a Partner, except as otherwise provided in
this Agreement; or
(d) perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act.
Section 7.4 Responsibility for Expenses.
(a) No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services
as general partner of the Partnership.
(b) Responsibility for Ownership and Operation Expenses. The
Partnership shall be responsible for and shall pay all expenses relating
to the Partnership's ownership of its assets, and the operation of, or for
the benefit of, the Partnership, and the General Partner shall be
reimbursed on a monthly basis, or such other basis as the General Partner
may determine in its sole and absolute discretion, for all expenses it
incurs relating to the
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Partnership's ownership of its assets and the operation of, or for the
benefit of, the Partnership; provided, however, that the amount of any
such reimbursement shall be reduced by any interest or other amounts
earned by the General Partner with respect to bank accounts or other
instruments held by it as permitted in Section 7.5(a). Such reimbursements
shall be in addition to any reimbursement to the General Partner as a
result of indemnification pursuant to Section 7.7 hereof.
(c) Responsibility for Organization Expenses. The Partnership shall
be responsible for and shall pay all expenses incurred relating to the
organization of the Partnership.
Section 7.5 Outside Activities of the General Partner.
(a) The General Partner shall not directly or indirectly enter into
or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner
or Limited Partner and the management of the business of the Partnership,
and such activities as are incidental thereto. The General Partner shall
not incur any Debt other than that for which it may be liable in its
capacity as General Partner of the Partnership (and other than any
guarantee of Partnership Debt). The General Partner shall not own any
assets other than Partnership Interests (except for certain interests in
Partnership properties held directly by the General Partner or which have
been caused by the General Partner to be contributed to or purchased by
Subsidiaries (including qualified REIT subsidiaries, as defined in Section
856(i) of the Code, of the General Partner), which interests shall not
exceed 1% of the aggregate economic interests of any property) and other
than such bank accounts or similar instruments as it deems necessary to
carry out its responsibilities contemplated under this Agreement and the
Declaration of Trust. The General Partner and Affiliates of the General
Partner may acquire Limited Partnership Interests and shall be entitled to
exercise all rights of a Limited Partner relating to such Limited
Partnership Interests.
(b) Purchases of Shares. In the event the General Partner exercises
its rights under the Declaration of Trust to purchase Shares, then the
General Partner shall cause the Partnership to purchase from it an equal
number of Partnership Units (after application of the Unit Adjustment
Factor) on the same terms that the General Partner purchased such Shares.
Section 7.6 Contracts with Affiliates.
(a) Loans. The General Partner may cause the Partnership to lend or
contribute to its Subsidiaries or other Persons in which it has an equity
investment, and such Persons may borrow funds from the Partnership, on
terms and conditions established in the sole and absolute discretion of
the General Partner. The foregoing authority shall not create any right or
benefit in favor of any Subsidiary or any other Person.
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(b) Transfers of Assets. Except as provided in Section 7.5(a), the
General Partner may cause the Partnership to transfer assets to joint
ventures, other partnerships, corporations or other business entities in
which it is or thereby becomes a participant upon such terms and subject
to such conditions consistent with this Agreement and applicable law.
(c) Contracts With General Partner. After the Effective Date and
except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are
fair and reasonable and no less favorable to the Partnership than would be
obtained from an unaffiliated third party in connection therewith.
(d) Employee Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the General Partner and the Partnership
employee benefit plans funded by the Partnership for the benefit of
employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services
performed, directly or indirectly, for the benefit of the Partnership, the
General Partner, or any of the Partnership's Subsidiaries, including any
such plan which requires the Partnership, the General Partner or any of
the Partnership's Subsidiaries to issue or transfer Partnership Units to
employees.
Section 7.7 Indemnification.
(a) General. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Partnership as set
forth in this Agreement in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material
to the matter giving rise to the proceeding and was committed in bad
faith, with gross negligence or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal
benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that
the act or omission was unlawful. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct set forth in
this Section 7.7(a). The termination of any proceeding by conviction or
upon a plea of nolo contendere or its equivalent, or an entry of an order
of probation prior to judgment, creates a rebuttable presumption that the
Indemnitee acted in a manner contrary to that specified in this Section
7.7(a). Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership.
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(b) In Advance of Final Disposition. Reasonable expenses incurred by
an Indemnitee who is a party to a proceeding may be paid or reimbursed by
the Partnership in advance of the final disposition of the proceeding upon
receipt by the Partnership of (a) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in this
Section 7.7 has been met, and (b) a written undertaking by or on behalf of
the Indemnitee to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.
(c) Non-Exclusive Section. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an
Indemnitee or any other Person may be entitled under any agreement,
pursuant to any vote of the Partners, as a matter of law or otherwise, and
shall continue as to an Indemnitee who has ceased to serve in such
capacity.
(d) Insurance. The Partnership may purchase and maintain insurance,
on behalf of the Indemnitees and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have
the power to indemnify such Person against such liability under the
provisions of this Agreement. The right to procure such insurance on
behalf of the Indemnitees shall in no way mitigate or otherwise affect the
right of any Indemnitees to indemnification under this Section 7.7.
(e) Employee Benefit Plans. For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of
its duties to the Partnership also imposes duties on, or otherwise
involves services by, it to the plan or participants or beneficiaries of
the plan; excise taxes assessed on an Indemnitee with respect to an
employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7(a); and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest
of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the
Partnership.
(f) No Personal Liability for Limited Partners. In no event may an
Indemnitee subject the Limited Partners to personal liability by reason of
the indemnification provisions set forth in this Agreement.
(g) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the
terms of this Agreement.
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(h) Binding Effect. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the
benefit of any other Persons.
Section 7.8 Liability of the General Partner.
(a) General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner shall not be liable for monetary
damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or of
any act or omission, unless (i) the General Partner actually received an
improper benefit in money, property or services (in which case, such
liability shall be for the amount of the benefit in money, property or
services actually received), or (ii) the General Partner's action or
failure to act was the result of active and deliberate dishonesty, gross
negligence or bad faith and was material to the cause of action being
adjudicated; provided, however, that the General Partner shall owe the
same duty of care to the Limited Partners as its Trustees owe to the
Shareholders of the General Partner.
(b) No Obligation to Consider Interests of Limited Partners. The
Limited Partners expressly acknowledge that the General Partner is acting
on behalf of the Partnership and the General Partner's shareholders
collectively, that, except as otherwise provided in Section 7.8(a), the
General Partner is under no obligation to consider the separate interests
of the Limited Partners (including, without limitation, the tax
consequences to Limited Partners or Assignees) in deciding whether to
cause the Partnership to take (or decline to take) any actions which the
General Partner has undertaken in good faith on behalf of the Partnership,
and that the General Partner shall not be liable for monetary damages for
losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, unless (i) the General Partner
actually received an improper benefit in money, property or services (in
which case, such liability shall be for the amount of the benefit in
money, property or services actually received), or (ii) the General
Partner's action or failure to act was the result of active and deliberate
dishonesty, gross negligence or bad faith and was material to the cause of
action being adjudicated.
(c) Acts of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1(a) hereof, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any
of the duties imposed upon it hereunder either directly or by or through
its agents. The General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by it in
good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of
this Section 7.8 or any provision hereof shall be prospective only and
shall not in any way affect the limitations on the General Partner's
liability to the Partnership and the Limited Partners under this Section
7.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
occurring, in whole or in part,
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prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
(e) Limitation of Liability of Shareholders and Officers of the
General Partner. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE GENERAL
PARTNER WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION
OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER INSTRUMENT,
TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL BE SATISFIED, IF AT
ALL, OUT OF THE GENERAL PARTNER'S ASSETS ONLY. NO SUCH OBLIGATION OR
LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE
ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF ITS SHAREHOLDERS,
TRUSTEES, OFFICERS, EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH
OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.
Section 7.9 Other Matters Concerning the General Partner.
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties.
(b) Reliance on Consultants and Advisers. The General Partner may
consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisers
selected by it, and any act taken or omitted to be taken in reliance upon
the opinion of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert
competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) Action Through Officers and Attorneys. The General Partner shall
have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
(d) Actions to Maintain REIT Status or Avoid Taxation of General
Partner. Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership
(including, subject to Section 14.1(c) and (d), the amendment of this
Agreement) or any decision of the General Partner to refrain from acting
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on behalf of the Partnership, undertaken in the good faith belief that
such action or omission is necessary or advisable in order (i) to protect
the ability of the General Partner to continue to qualify as a REIT or
(ii) to avoid the General Partner incurring any taxes under Section 857 or
Section 4981 of the Code, is expressly authorized under this Agreement and
is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby covenants, declares and warrants that any Partnership
assets as to which legal title is held in the name of the General Partner or any
nominee or Affiliate of the General Partner shall be held by the General Partner
or such nominee or Affiliate for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (c) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement,
including Section 10.5 hereof, or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director,
employee, partner, agent or trustee of the General Partner, the Partnership or
any of their Affiliates, in their capacity as such) shall take part in the
operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6(c) hereof and subject to any
other agreements entered into by a Limited Partner or its Affiliates with the
General Partner, the Partnership or a Subsidiary, the following rights shall
govern outside activities of Limited Partners: (a) any Limited Partner (other
than the General Partner) and any officer, director, employee, agent, trustee,
Affiliate or shareholder of any Limited Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities in
direct competition with the Partnership; (b) neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee; (c) none of the Limited Partners
nor any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any business ventures of any
other Person, other than the General Partner, and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person, even
if such opportunity is of a character which, if presented to the Partnership,
any Limited Partner or such other Person, could be taken by such Person; (d) the
fact that a Limited Partner may encounter opportunities to purchase, otherwise
acquire, lease, sell or otherwise dispose of real or personal property and may
take advantage of such opportunities himself or introduce such opportunities to
entities in which it has or has not any interest, shall not subject such Partner
to liability to the Partnership or any of the other Partners on account of the
lost opportunity; and (e) except as otherwise specifically provided herein,
nothing contained in this Agreement shall be deemed to prohibit a Limited
Partner or any Affiliate of a Limited Partner from dealing, or otherwise
engaging in business, with Persons transacting business with the Partnership or
from providing services relating to the purchase, sale, rental, management or
operation of real or personal property (including real estate brokerage
services) and receiving compensation therefor, from any Persons who have
transacted business with the Partnership or other third parties.
Section 8.4 Priority Among Partners. No Partner (Limited or General) or
Assignee shall have priority over any other Partner (Limited or General) or
Assignee either as to the return of
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Capital Contributions or otherwise unless expressly provided in this Agreement,
as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
(a) Copies of Business Records. In addition to other rights provided
by this Agreement or by the Act, and except as limited by Section 8.5(c)
hereof, each Limited Partner shall have the right, for a purpose
reasonably related to such Limited Partner's interest as a limited partner
in the Partnership, upon written demand with a statement of the purpose of
such demand and at such Limited Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the
General Partner pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(2) to obtain a copy of the Partnership's Federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount
of cash and a description and statement of any other property or
services contributed by each Partner and which each Partner has
agreed to contribute in the future, and the date on which each
became a partner.
(b) Notification of Changes in Unit Adjustment Factor. The
Partnership shall notify each Limited Partner in writing of any change
made to the Unit Adjustment Factor within 10 Business Days of the date
such change becomes effective.
(c) Confidential Information. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner
determines in its sole and absolute discretion to be reasonable, any
Partnership information that (i) the General Partner believes to be in the
nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
Partnership or (ii) the Partnership is required by law or by agreements
with unaffiliated third parties to keep confidential.
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(d) Debt Allocation. The General Partner may allow any Limited
Partner to guarantee on a "bottom dollar basis," an amount of indebtedness
of the Partnership or any successor thereto, as is necessary from time to
time to provide an allocation of debt to such Limited Partner equal to the
amount of debt then required to be allocated to such Limited Partner to
enable such Limited Partner to avoid recognizing gain pursuant to Section
731(a)(1) of the Code as a result of a deemed distribution of money to
such Limited Partner pursuant to Section 752(b) of the Code. The General
Partner may, in its discretion, permit other Limited Partners to provide
similar guarantees from time to time or as a result of minimum gain
chargebacks.
Section 8.6 Redemption Right.
(a) General. Notwithstanding the provisions of Section 4.2(e), the
General Partner may satisfy the Conversion Right exercised by a Converting
Partner set forth in a Notice of Conversion by paying to such Converting
Partner the Redemption Amount on the Specified Conversion Date, whereupon
the General Partner shall acquire the Partnership Units to be exchanged by
such Converting Partner and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units. The General Partner may
elect to pay the Redemption Amount for Partnership Units only upon a
receipt of a Notice of Conversion. In the event the General Partner shall
exercise its right to satisfy the Conversion Right in the manner described
in this Section 8.6(a), the Partnership shall have no obligation to pay
any amount to the Converting Partner with respect to such Converting
Partner's exercise of the Conversion Right, and each of the Converting
Partner, the Partnership, and the General Partner shall treat the
transaction between the General Partner and the Converting Partner as a
sale of the Converting Partner's Partnership Units to the General Partner
for Federal income tax purposes. Each Converting Partner which the General
Partner has elected to pay the Redemption Amount agrees to execute such
documents as the General Partner may reasonably require in connection with
the payment of the Redemption Amount.
(b) Where Delivery of Shares Prohibited. Notwithstanding the
provisions of Section 4.2(e) and Section 8.6(a), a Partner shall not be
entitled to exercise the Conversion Right pursuant to Section 4.2(e), and
accordingly Section 8.6(a) shall not apply, if the delivery of Shares to
such Partner on the Specified Conversion Date would be prohibited under
the Declaration of Trust, including without limitation, if the delivery of
such shares on such date would result in such Partner owning, directly or
indirectly and actually or constructively (which shall be determined by
applying Section 856(d)(5) of the Code), 10% or more in value of the
shares of the General Partner.
Section 8.7 Notice for Certain Transactions. In the event of (a) a
dissolution or liquidation of the Partnership or the General Partner, (b) a
merger, consolidation or combination of the Partnership or the General Partner
with or into another Person (including the events set forth in Sections 11.2(c)
and 11.2(d)), (c) the sale of all or substantially all of the assets of the
Partnership or the General Partner, or (d) the transfer by the General Partner
of all or any part of its interest in
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the Partnership, the General Partner shall give written notice thereof to each
Limited Partner at least twenty (20) Business Days prior to the effective date
or, to the extent applicable, record date of such transaction, whichever comes
first.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting. The General Partner shall keep or
cause to be kept at the principal office of the Partnership appropriate books
and records with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof or required by the Act. Any records maintained by or on
behalf of the Partnership in the regular course of its business may be kept on,
or be in the form of, punch cards, magnetic tape, photographs, micrographics or
any other information storage device; provided, however, that the records so
maintained are convertible into clearly legible written form within a reasonable
period of time. The books of the Partnership shall be maintained for financial
purposes on an accrual basis in accordance with generally accepted accounting
principles and for tax reporting purposes on the accrual basis.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
(a) Annual Reports. As soon as practicable, but in no event later
than 120 days after the close of each Partnership Year, the General
Partner shall cause to be mailed to each Limited Partner as of the close
of the Partnership Year, an annual report containing financial statements
of the Partnership, or of the General Partner if such statements are
prepared solely on a consolidated basis with the General Partner, for such
Partnership Year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
(b) Quarterly Reports. As soon as practicable, but in no event later
than 60 days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be
mailed to each Limited Partner as of the last day of the calendar quarter,
a report containing unaudited financial statements of the Partnership, or
of the General Partner, if such statements are prepared solely on a
consolidated basis with the General Partner, and such other information as
may be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
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ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns of Partnership income,
gains, deductions, losses and other items required of the Partnership for
Federal and state income tax purposes and shall use all reasonable efforts to
furnish, within 90 days of the close of each taxable year, the tax information
reasonably required by the General Partner and the Limited Partners for Federal
and state income tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code including, without limitation,
the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (including, without limitation, the election under
Section 754 of the Code) upon the General Partner's determination in its sole
and absolute discretion that such revocation is in the best interests of the
Partners.
Section 10.3 Tax Matters Partner.
(a) General. The General Partner shall be the "tax matters partner"
of the Partnership for Federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning
of an administrative proceeding with respect to the Partnership, the tax
matters partner shall furnish the IRS with the name, address and profit
interest of each of the Limited Partners; provided, however, that such
information is provided to the Partnership by the Limited Partners. The
Limited Partners shall provide such information to the Partnership as the
General Partner shall reasonably request.
(b) Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred
to as a "tax audit" and such judicial proceedings being referred to
as "judicial review"), and in the settlement agreement the tax
matters partner may expressly state that such agreement shall bind
all Partners, except that such settlement agreement shall not bind
any Partner (a) who (within the time prescribed pursuant to the Code
and Regulations) files a statement with the IRS providing that the
tax matters partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner or (b) who is a
"notice partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the
Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a partner for tax purposes (a "final adjustment") is
mailed or otherwise given to the tax matters
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partner, to seek judicial review of such final adjustment, including
the filing of a petition for readjustment with the Tax Court or the
United States Claims Court, or the filing of a complaint for refund
with the District Court of the United States for the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not allowed
by the IRS, to file an appropriate pleading (petition, complaint or
other document) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item
required to be taken into account by a Partner for tax purposes, or
an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner, and the provisions relating to indemnification of
the General Partner set forth in Section 7.7 of this Agreement shall be
fully applicable to the tax matters partner in its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no
compensation for its services. All third-party costs and expenses incurred
by the tax matters partner in performing its duties as such (including
legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm and a law firm to assist the tax matters partner in
discharging its duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60-month period as provided in Section 709 of the Code.
Section 10.5 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of Federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
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pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within 15 days after notice
from the General Partner that such payment must be made unless (a) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (b) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (a)
or (b) shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus four percentage points (but not
higher than the maximum lawful rate) from the date such amount is due (i.e., 15
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
ARTICLE XI
TRANSFERS, WITHDRAWALS AND LOCK-UP
Section 11.1 Transfer.
(a) Definition. The term "transfer," when used in this Article XI
with respect to a Partnership Unit, shall be deemed to refer to a
transaction by which the General Partner purports to assign its General
Partnership Interest to another Person or by which a Limited Partner
purports to assign its Limited Partnership Interest to another Person, and
includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise. The term
"transfer" when used in this Article XI does not include any Conversion of
Partnership Units by a Limited Partner pursuant to Section 4.2(e) or
acquisition of Partnership Units from a Limited Partner by the General
Partner pursuant to Section 8.6(a).
(b) Requirements. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set
forth in this Article XI. Any
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transfer or purported transfer of a Partnership Interest not made in
accordance with this Article XI shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
(a) General. The General Partner may not transfer any of its General
Partnership Interest or withdraw as General Partner except as provided in
Section 11.2(b) or in connection with a transaction described in Section
11.2(c).
(b) Transfer to Partnership. The General Partner may transfer
Partnership Interests held by it to the Partnership in accordance with
Section 7.5(b) hereof.
(c) Transfer in Connection With Reclassification, Recapitalization,
or Business Combination Involving General Partner. Except as otherwise
provided in Section 11.2(d), the General Partner shall not engage in any
merger, consolidation or other business combination with or into another
Person or sale of all or substantially all of its assets, or any
reclassification, or recapitalization or change of outstanding Common
Shares (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination as described in the
definition of "Unit Adjustment Factor") ("Transaction"), unless as a
result of the Transaction each Limited Partner thereafter remains entitled
to exchange each Partnership Unit owned by such Limited Partner (after
application of the Unit Adjustment Factor) for an amount of cash,
securities, or other property equal to, without taking into account any
tax considerations, the greatest amount of cash, securities or other
property which such Limited Partner would have received from such
Transaction, if such Limited Partner had exercised its Conversion Right
immediately prior to the Transaction, provided that if, in connection with
the Transaction, a purchase, tender or exchange offer shall have been made
to and accepted by the holders of more than 50 percent of the outstanding
Common Shares, the holders of Partnership Units shall receive the greatest
amount of cash, securities, or other property which a Limited Partner
would have received had it exercised the Conversion Right and received
Common Shares in exchange for its Partnership Units immediately prior to
the expiration of such purchase, tender or exchange offer. In connection
with any merger, consolidation or business combination described in this
Section 11.2(c) in which Common Shares were exchanged for securities of
the acquiring Person, the Limited Partners shall (unless Limited Partners
Consent is obtained) remain entitled to exercise their Conversion Right
with respect to such securities and the Unit Adjustment Factor continues
to apply with respect to such securities.
(d) Merger Involving General Partner Where Surviving Entity's Assets
Contributed to Partnership. Notwithstanding Section 11.2(c), the General
Partner may merge with another entity if, under the terms of the
transaction, Limited Partners will not engage in a sale or exchange for
Federal income tax purposes and immediately after such merger
substantially all of the assets of the surviving entity, other than
Partnership Units held by the General Partner, are contributed to the
Partnership as a Capital Contribution in exchange for
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Partnership Units with a fair market value equal to the 704(c) Value of
the assets so contributed.
Section 11.3 Limited Partners' Rights to Transfer.
(a) General. Subject to the remaining provisions of this Section
11.3 as well as Sections 11.4 and 11.7, a Limited Partner may transfer all
or any portion of his Partnership Interest, or any of such Limited
Partner's rights as a Limited Partner, without the prior written consent
of the General Partner. In order to effect such transfer, the Limited
Partner must deliver to the General Partner a duly executed copy of the
instrument making such transfer and such instrument must evidence the
written acceptance by the assignee of all of the terms and conditions of
this Agreement and represent that such assignment was made in accordance
with all applicable laws and regulations.
(b) Incapacitated Limited Partners. If a Limited Partner is subject
to Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all
the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate
and such power as the Incapacitated Limited Partner possessed to transfer
all or any part of his or its interest in the Partnership. The Incapacity
of a Limited Partner, in and of itself, shall not dissolve or terminate
the Partnership.
(c) Transfers Contrary to Securities Laws. The General Partner may
prohibit any transfer otherwise permitted under this Section 11.3 by a
Limited Partner of its Partnership Units if, in the opinion of legal
counsel to the Partnership, such transfer would require filing of a
registration statement under the Securities Act of 1933 (the "Securities
Act"), as amended, or would otherwise violate any Federal or state
securities laws or regulations applicable to the Partnership or the
Partnership Units.
(d) Transfers Resulting in Corporation Status; Transfers Through
Established Securities or Secondary Markets. No transfer by a Limited
Partner of his Partnership Units (or any economic or other interest, right
or attribute therein) may be made to any Person if (i) in the opinion of
legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation, or (ii) such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the
meaning of Section 7704 of the Code. Notwithstanding anything to the
contrary in this Agreement, (x) no interests in the Partnership shall be
issued in a transaction that is (or transactions that are) registered or
required to be registered under the Securities Act, and to the extent such
interests were not required to be registered under the Securities Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such issuances would not have been required to be registered
under the Securities Act if the interests so offered or sold had been
offered and sold within the United States, (y) any admission (or purported
admission) of a Partner and any transfer or assignment (or purported
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transfer or assignment) of all or part of a Partner's interest (or any
interest or right or attribute therein) in the Partnership, whether to
another Partner or to a third party, shall not be effective, and any such
transfer or assignment (or purported transfer or assignment) shall be void
ab initio, and no person shall otherwise become a Partner if (A) at the
time of such transfer or assignment (or purported transfer or assignment)
any interest in the Partnership (or economic interest therein) is traded
on an established securities market or readily tradeable on a secondary
market or the substantial equivalent thereof or (B) after such transfer or
assignment (or purported transfer or assignment) the Partnership would
have more than 100 Partners. For purposes of clause (A) of the preceding
sentence and clause (ii) above, an established securities market is a
national securities exchange that is either registered under Section 6 of
the Exchange Act or exempt from registration because of the limited volume
of transactions, a foreign securities exchange that, under the law of the
jurisdiction where it is organized, satisfies regulatory requirements that
are analogous to the regulatory requirements of the Exchange Act, a
regional or local exchange, or an interdealer quotation system that
regularly disseminates firm buy or sell quotations by identified brokers
or dealers by electronic means or otherwise. For purposes of such clause
(A) and clause (ii) above, interests in the Partnership (or interests
therein) are readily tradeable on a secondary market or the substantial
equivalent thereof if (i) interests in the Partnership (or interests
therein) are regularly quoted by any person, such as a broker or dealer,
making a market in the interests; (ii) any person regularly makes
available to the public (including customers or subscribers) bid or offer
quotes with respect to interests in the Partnership (or interests therein)
and stands ready to effect buy or sell transactions at the quoted prices
for itself or on behalf of others; (iii) the holder of an interest in the
Partnership has a readily available, regular, and ongoing opportunity to
sell or exchange such interest (or interests therein) through a public
means of obtaining or providing information of offers to buy, sell, or
exchange such interests; or (iv) prospective buyers and sellers otherwise
have the opportunity to buy, sell, or exchange interests in the
Partnership (or interests therein) in a time frame and with the regularity
and continuity that is comparable to that described in clauses (i), (ii)
and (iii) of this sentence. For purposes of determining whether the
Partnership will have more than 100 Partners, each person indirectly
owning an interest in the Partnership through a partnership (including any
entity treated as a partnership for federal income tax purposes), a
grantor trust or an S corporation (each such entity a "flow-through
entity") shall be treated as a Partner unless the General Partner
determines in its sole and absolute discretion that less than
substantially all of the value of the beneficial owner's interest in the
flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Partnership. Notwithstanding anything to the
contrary in this Section 11.3(d), the exercise of the Conversion Right by
a Limited Partner will not be subject to the restrictions set forth in
this Section 11.3(d).
(e) Transfers to Holders of Nonrecourse Liabilities. No transfer or
pledge of any Partnership Units may be made to a lender to the Partnership
or any Person who is related (within the meaning of Section 1.752-4(b) of
the Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the
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General Partner, in its sole and absolute discretion, provided that as a
condition to such consent the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or
redeem for the Redemption Amount any Partnership Units in which a security
interest is held simultaneously with the time at which such lender would
be deemed to be a partner in the Partnership for purposes of allocating
liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners.
(a) Consent of General Partner Required. A Limited Partner shall
have the right in its discretion to substitute a transferee as a Limited
Partner in his place, in which event such substitution shall occur if the
Limited Partner so provides; provided however, that any transferee
desiring to become a Substituted Limited Partner must furnish to the
General Partner (i) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this Agreement,
including, without limitation, the power of attorney granted in Article
XVI and (ii) such other documents or instruments as may be required in the
discretion of the General Partner in order to effect such Person's
admission as a Substituted Limited Partner.
(b) Rights and Duties of Substituted Limited Partners. A transferee
who has been admitted as a Substituted Limited Partner in accordance with
this Article XI shall have all the rights and powers and be subject to all
the restrictions and liabilities of a Limited Partner under this
Agreement.
(c) Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the
name, address, number of Partnership Units, and Percentage Interest of
such Substituted Limited Partner and to eliminate or adjust, if necessary,
the name, address and interest of the predecessor of such Substituted
Limited Partner.
Section 11.5 Assignees. If a Limited Partner, in its sole and absolute
discretion, does not provide for the admission of any permitted transferee under
Section 11.4(a) as a Substituted Limited Partner, as described in Section 11.4,
such transferee shall be considered an Assignee for purposes of this Agreement.
An Assignee shall be entitled to all the rights of an assignee of a limited
partnership interest under the Act, including the right to receive distributions
from the Partnership and the share of Net Income, Net Losses, gain, loss and
Recapture Income attributable to the Partnership Units assigned to such
transferee, but shall not be deemed to be a holder of Partnership Units for any
other purpose under this Agreement, and shall not be entitled to vote such
Partnership Units in any matter presented to the Limited Partners for a vote
(such Partnership Units being deemed to have been voted on such matter in the
same proportion as all Partnership Units held by Limited Partners are voted,
except for Partnership Units assigned by Mr. O. Bruton Smith or any of his
Affiliates, which Partnership Units shall be entitled to be voted by such
assignee in his, her or its discretion). In the event any such transferee
desires to make a further assignment of any such
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Partnership Units, such transferee shall be subject to all the provisions of
this Article XI to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions.
(a) Withdrawal of Limited Partner. No Limited Partner may withdraw
from the Partnership other than as a result of a permitted transfer of all
of such Limited Partner's Partnership Units in accordance with this
Article XI or pursuant to Conversion of all of its Partnership Units under
Section 4.2(e) or the redemption of its Partnership Units under Section
8.6(a).
(b) Transfer of All Partnership Units by Limited Partner. Any
Limited Partner who shall transfer all of his Partnership Units in a
transfer permitted pursuant to this Article XI or pursuant to the
Conversion Rights of all of its Partnership Units under Section 4.2(e) or
pursuant to redemption of all of its Partnership Units under Section
8.6(a) shall cease to be a Limited Partner.
(c) Timing of Transfers. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership,
unless the General Partner otherwise agrees.
(d) Allocation When Transfer Occurs. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year
in compliance with the provisions of this Article XI or converted pursuant
to Section 4.2(e) or redeemed pursuant to Section 8.6(a), Net Income, Net
Losses, each item thereof and all other items attributable to such
interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d)
of the Code, based on the portion of the year for which the transferor
Partner and the transferee Partner were Partners. Solely for purposes of
making such allocations, each of such items for the calendar month in
which the transfer or redemption occurs shall be allocated to the Person
who is a Partner as of midnight on the last day of said month. All
distributions of Available Cash with respect to which the Partnership
Record Date is before the date of such transfer or redemption shall be
made to the transferor Partner, and all distributions of Available Cash
with Partnership Record Dates thereafter shall be made to the transferee
Partner.
Section 11.7 Lock-up Agreement.
(a) Lock-up Period. Each of the Limited Partners who is a Limited
Partner as of the closing of the initial public offering of the Common
Shares hereby agrees that, except as set forth in Section 11.7(b), from
the Effective Date until one year following the Effective Date (the
"Lock-up Period"), without the prior written consent of the General
Partner, it will
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not offer, pledge, sell, contract to sell, grant any options for the sale
of or otherwise dispose of, directly or indirectly (collectively, "Dispose
of"), any Shares or Partnership Units (the "Lock-up"). Each Limited
Partner agrees to be bound by the Registration Rights and Lock-up
Agreement and specifically authorizes the General Partner as its
attorney-in-fact to execute the Registration Rights and Lock-up Agreement
on its behalf.
(b) Exceptions. The following transfers of Shares or Partnership
Units shall not be subject to the Lock-up set forth in Section 11.7(a):
(1) a Limited Partner who is a natural person may Dispose of
Shares or Partnership Units to his or her spouse, siblings, parents
or any natural or adopted children or other descendants or to any
personal trust in which such family members or such Limited Partner
retain the entire beneficial interest;
(2) a Limited Partner who is a natural person may Dispose of
Shares or Partnership Units on his or her death to such Limited
Partner's estate, executor, administrator or personal representative
or to such Limited Partner's beneficiaries pursuant to a devise or
bequest or by the laws of descent and distribution;
(3) a Limited Partner that is a corporation, partnership,
trust or other business entity may (A) Dispose of Shares or
Partnership Units to one or more other entities that are wholly
owned and controlled, legally and beneficially, by such Limited
Partner or by a Person or Persons that directly or indirectly wholly
owns and controls such Limited Partner or (B) Dispose of Shares or
Partnership Units by distributing such Shares or Partnership Units
in a merger, liquidation, dissolution, winding up or otherwise
without consideration to the equity owners of such corporation,
partnership or business entity or to any other corporation,
partnership or business entity that is wholly owned by such equity
owners;
(4) a Limited Partner that is a master pension or profit
sharing trust or a group trust may Dispose of Shares or Partnership
Units to one or more of its participating trusts or to a successor
trustee;
(5) a Limited Partner may Dispose of Shares or Partnership
Units as a bona fide gift; and
(6) a Limited Partner may Dispose of Shares or Partnership
Units pursuant to a pledge, grant of security interest or other
encumbrance effected in a bona fide transaction with an unrelated
and unaffiliated pledgee;
provided, however, that in the case of any transfer of Shares or
Partnership Units pursuant to clauses (1), (3) and (4), the transfers
shall each be effected pursuant to a bona fide exemption under the
Securities Act.
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In the event any Limited Partner Disposes of Shares or Partnership Units
described in this Section 11.7(b) during the Lock-up Period, such Shares
or Partnership Units shall be subject to this Section 11.7 and the
Registration Rights and Lock-up Agreement and, as a condition of the
validity of such disposition, the transferee (and any pledgee who acquires
Shares or Partnership Units upon foreclosure or any transferee thereof)
shall be required to execute and deliver a counterpart of this Agreement
and the Registration Rights and Lock-up Agreement. Thereafter, such
transferee shall be deemed to be a "Holder" for purposes of the
Registration Rights and Lock-up Agreement.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partnership Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
(a) General. A Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement or who exercises an option
to receive Partnership Units shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all
of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Article XVI hereof and (ii)
such other documents or instruments as may be required in the discretion
of the General Partner in order to effect such Person's admission as an
Additional Limited Partner.
(b) Consent of General Partner Required. Notwithstanding anything to
the contrary in this Section 12.2, no Person shall be admitted as an
Additional Limited Partner without the consent of the General Partner,
which consent may be given or withheld in the General Partner's sole and
absolute discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following
the consent of the General Partner to such admission.
Section 12.3 Amendment of Agreement and Certificate. For the admission to
the Partnership of any Partner, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
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prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Article XVI hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. The Partnership shall dissolve, and its affairs shall be wound
up, upon the first to occur of any of the following ("Events of Dissolution"):
(a) Expiration of Term--the expiration of its term as provided in
Section 2.5 hereof;
(b) Withdrawal of General Partner--an event of withdrawal of the
General Partner, as defined in the Act, unless, within 90 days after the
withdrawal all the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the
date of withdrawal, of a substitute General Partner;
(c) Dissolution Prior to 2098--from and after the date of this
Agreement through December 31, 2098, with the Consent of a majority of the
Percentage Interests of the Limited Partners, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
(d) Judicial Dissolution Decree--entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act;
(e) Sale of Partnership's Assets--the sale or disposition of all or
substantially all of the assets and properties of the Partnership;
(f) Merger--the merger or other combination of the Partnership with
or into another entity;
(g) Bankruptcy or Insolvency of General Partner--the General Partner
(1) makes an assignment for the benefit of creditors;
(2) files a voluntary petition in bankruptcy;
(3) is adjudged a bankrupt or insolvent, or has entered
against it an order for relief in any bankruptcy or insolvency
proceeding;
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(4) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation;
(5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in
any proceeding of this nature; or
(6) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the General Partner or of all or
any substantial part of its properties; or
(h) Readjustment, etc. One hundred and twenty (120) days after the
commencement of any proceeding against the General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, the
proceeding has not been dismissed, or if within 90 days after the
appointment without the General Partner's consent or acquiescence of a
trustee, receiver or liquidator of the General Partner or of all or any
substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated.
Section 13.2 Winding Up.
(a) General. Upon the occurrence of an Event of Dissolution, the
Partnership shall continue solely for the purposes of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Partners. No Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, the
winding up of the Partnership's business and affairs. The General Partner
(or, in the event there is no remaining General Partner, any Person
elected by a majority in interest of the Limited Partners (the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall
be liquidated as promptly as is consistent with obtaining the fair value
thereof, and the proceeds therefrom shall be applied and distributed in
the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the
Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners, pro rata in
accordance with amounts owed to each such Partner; and
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(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after giving
effect to all contributions, distributions, and allocations for all
periods.
The General Partner shall not receive any additional compensation
for any services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Partnership's Assets Impractical.
Notwithstanding the provisions of Section 13.2(a) hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue
loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership
(including to those Partners as creditors) or, with the Consent of the
Limited Partners holding a majority of the Limited Partnership Units,
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2(a) hereof, undivided
interests in such Partnership assets as the Liquidator deems not suitable
for liquidation. Any such distributions in kind shall be made only if, in
the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners, and shall be subject to such
conditions relating to the disposition and management of such properties
as the Liquidator deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidator
shall determine the fair market value of any property distributed in kind
using such reasonable method of valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance
for Contingent or Unforeseen Liabilities or Obligations.
(a) Liquidation. Notwithstanding anything to the contrary in this
Agreement, in the event the Partnership is "liquidated" within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article XIII to the General Partner and Limited Partners
who have positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2) (including any timing requirements therein). In
the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and
Limited Partners pursuant to this Article XIII may be: (i) distributed to
a liquidating trust established for the benefit of the General Partner and
Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (the assets
of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General
Partner, in the same proportions as the amount distributed to such trust
by the Partnership would
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otherwise have been distributed to the General Partner and Limited
Partners pursuant to this Agreement); or (ii) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed
to the Partnership, provided that such withheld amounts shall be
distributed to the General Partner and Limited Partners as soon as
practicable.
(b) Deficit Balance of General Partner. Notwithstanding anything to
the contrary in this Agreement, (i) if the General Partner has a deficit
balance in its Capital Account following the liquidation (within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g)) of its interest in
the Partnership, as determined after taking into account all Capital
Account adjustments for the Partnership taxable year during which such
liquidation occurs (other than any adjustment for a capital contribution
of the General Partner made pursuant to this sentence), the General
Partner shall make a capital contribution to the Partnership in an amount
equal to such deficit balance by the end of the Partnership taxable year
during which such liquidation occurs (or, if later, within 90 days after
date of such liquidation); and (ii) such capital contribution made
pursuant to clause (i) of this Section 13.3(b) shall be distributed or
utilized as provided in Section 13.2 or 13.3(a).
Section 13.4 Other Events. Notwithstanding any other provision of this
Article XIII (but subject to Section 13.3(b)), in the event the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no
Event of Dissolution has occurred, the Partnership's property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged, and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership 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, the terminated partnership shall be
deemed to distribute interests in the new partnership to the General Partner and
Limited Partners in proportion to their respective interests in the terminated
partnership in liquidation of the terminated partnership.
Section 13.5 Rights of Limited Partners. Except as specifically provided
in this Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of his Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as specifically provided in this Agreement, no Limited Partner shall have
priority over any other Limited Partner as to the return of his Capital
Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution. In the event an Event of Dissolution
or an event occurs that would, but for provisions of Section 13.1, result in a
dissolution of the Partnership, the General Partner shall, within 30 days
thereafter, provide written notice thereof to each of the Partners and to all
other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership regularly conducts business (as determined in the discretion of the
General Partner).
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Section 13.7 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership as provided in Section 13.2
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments.
(a) General. Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding 25 percent or more in
the aggregate of the Partnership Interests held by all Limited Partners.
Following such proposal, the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may
deem appropriate. Except as provided in Section 14.1(b), 14.1(c) or
14.1(d), a proposed amendment shall be adopted and be effective as an
amendment hereto if it is approved by the General Partner and it receives
the Consent of Limited Partners holding a majority of the Percentage
Interests of the Limited Partners.
(b) General Partner's Power to Amend. Notwithstanding Section
14.1(a), the General Partner shall have the power, without the consent of
the Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or
surrender for the benefit of the Limited Partners any right or power
granted to the General Partner or any Affiliate of the General
Partner;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the rights, powers, duties, and preferences
of the holders of any additional Partnership Interests issued
pursuant to Section 4.2(b) hereof;
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(4) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law or with other
provisions, or make other changes with respect to matters arising
under this Agreement that will not be inconsistent with law or with
the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of
a Federal or state agency or contained in Federal or state law.
The General Partner will provide notice to the Limited Partners when
any action under this Section 14.1(b) is taken.
(c) Consent of Adversely Affected Partner Required. Notwithstanding
Section 14.1(a) and Section 14.1(b) hereof, this Agreement shall not be
amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the
Partnership into a general partner's interest, (ii) modify the limited
liability of a Limited Partner, (iii) alter rights of the Partner to
receive distributions pursuant to Article V, or the allocations specified
in Article VI (except as permitted pursuant to Section 4.2 and Section
14.1(b)(3) hereof), (iv) alter or modify the Conversion Right or the
Redemption Amount as set forth in Sections 4.2(e), 8.6 and 11.2(b), and
related definitions hereof, (v) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1, (vi) amend this
Section 14.1(c) or (vii) amend Article VI or any definition used therein
that would have the effect of causing the allocations in Article VI to
fail to comply with the requirements of Section 514(c)(9)(E) of the Code.
Further, no amendment may alter the restrictions on the General Partner's
authority set forth in Section 7.3 without the Consent specified in that
section.
(d) When Consent of Majority of Limited Partnership Interests
Required. Notwithstanding Section 14.1(a) hereof, the General Partner
shall not amend Section 4.2(b), the second sentence of Section 7.1(a),
Sections 7.5, 7.6, 7.8, 11.2, and 13.1(c), this Section 14.1(d) or Section
14.2 without the Consent of two-thirds of the Percentage Interests of the
Limited Partners.
Section 14.2 Meetings of the Partners.
(a) General. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding 25 percent or more of the
Partnership Interests. The call shall state the nature of the business to
be transacted. Notice of any such meeting shall be given to all Partners
not less than seven days nor more than 30 days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever
the vote or Consent of
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Partners is permitted or required under this Agreement, such vote or
Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1 hereof. Except as
otherwise expressly provided in this Agreement, the Consent of holders of
a majority of the Percentage Interests shall control.
(b) Informal Action. Any action required or permitted to be taken at
a meeting of the Partners may be taken without a meeting if a written
Consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such Consent may be in one
instrument or in several instruments, and shall have the same force and
effect as a vote of a majority of the Percentage Interests of the Partners
(or such other percentage as is expressly required by this Agreement).
Such Consent shall be filed with the General Partner. An action so taken
shall be deemed to have been taken at a meeting held on the effective date
so certified.
(c) Proxies. Each Limited Partner may authorize any Person or
Persons to act for him by proxy on all matters in which a Limited Partner
is entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the
Limited Partner or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Limited
Partner executing it.
(d) Conduct of Meeting. Each meeting of Partners shall be conducted
by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the
General Partner or such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. All notices and demands under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier), by telefax, telex or other wire
transmission (with request for assurance of receipt in a manner appropriate with
respect to communications of that type, provided that a confirmation copy is
concurrently sent by a nationally recognized express courier for overnight
delivery) or mailed, postage prepaid, by certified or registered mail, return
receipt requested, directed to the parties at their respective addresses set
forth on Exhibit A, as it may be amended from time to time, and, if to the
Partnership, such notices and demands sent in the aforesaid manner must be
delivered at its principal place of business set forth above. Unless delivered
personally or by telefax, telex or other wire transmission as above (which shall
be effective on the date of such delivery or transmission), any notice shall be
deemed to have been made three (3) days following the date so mailed. Any party
hereto may designate a different address to which notices and demands shall
thereafter be directed
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by written notice given in the same manner and directed to the Partnership at
its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver of Partition. The Partners hereby agree that the
Partnership properties are not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
(if any) that it may have to maintain any action for partition of any of the
Partnership properties.
Section 15.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them and it may not be
modified or amended in any manner other than pursuant to Article XIV.
Section 15.8 Securities Law Provisions. The Partnership Units have not
been registered under the Federal or state securities laws of any state and,
therefore, may not be resold unless appropriate Federal and state securities
laws, as well as the provisions of Article XI hereof, have been complied with.
Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise.
Section 15.10 Time. Time is of the essence of this Agreement.
Section 15.11 Creditors. None of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
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Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.13 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.14 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.15 Judicial Proceedings. Any judicial proceedings involving any
dispute, controversy or claim arising out of or relating to this agreement or to
the General Partner's affairs or the rights or interests or the partners or any
of them or the breach or alleged breach of this agreement, whether arising
during the partnership's term or at or after its termination or during or after
the liquidation of the partnership (each of the foregoing disputes,
controversies and claims is hereinafter referred to as a "Partnership Dispute"),
shall be brought only in a court located in the State of North Carolina, and
each of the parties hereto (i) unconditionally accepts the exclusive
jurisdiction of such courts and any related appellate court and irrevocably
agrees to be bound by any judgment rendered thereby and (ii) irrevocably wives
any objection such party may now or hereafter have as to the venue of any such
proceeding brought in such a court or that such court is an inconvenient forum.
Each of the parties hereto hereby waives trial by jury in any judicial
proceeding to which they are parties involving a Partnership Dispute.
Section 15.16 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
ARTICLE XVI
POWER OF ATTORNEY
Section 16.1 Power of Attorney.
(a) Scope. Each Limited Partner and each Assignee constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case
with full power of substitution, as its true and lawful agent and
attorney-in-fact, with full power and authority in its name, place and
stead to:
(1) execute, swear to, acknowledge, deliver, publish, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments
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(including, without limitation, this Agreement and the Certificate
and all amendments or restatements thereof) that the General Partner
or the Liquidator deems appropriate or necessary to form, qualify or
continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners
have limited liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or own
property; (b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that
the General Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms
of this Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to, or
other events described in, Article XI, XII or XIII hereof or the
Capital Contribution of any Partner; and (e) all certificates,
documents and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with the terms of
this Agreement or appropriate or necessary, in the sole discretion
of the General Partner, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article
XIV hereof or as may be otherwise expressly provided for in this
Agreement.
(b) Irrevocability. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the
power of the General Partner to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it
shall survive and not be affected by the subsequent Incapacity of any
Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Units and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be
bound by any representation made by the General Partner, acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to
contest, negate or disaffirm the action of the General Partner, taken in
good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
15 days after receipt of the General Partner's request therefor, such
further designation, powers of attorney and other
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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.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Agreement of Limited Partnership of Mar Mar Realty L.P. as of the date
first written above.
GENERAL PARTNER:
Mar Mar Realty Trust
By:__________________________________
Name: Benjamin F. Bracy
Title: President
WITHDRAWING INITIAL LIMITED PARTNER:
______________________________________
Name:
LIMITED PARTNERS:
SONIC FINANCIAL CORPORATION
By:__________________________________
Name:
Title:
TOWN & COUNTRY FORD, INC.
By:__________________________________
Name:
Title:
O. BRUTON SMITH
______________________________________
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PRIMAX PROPERTIES, LLC
By:__________________________________
Name:
Title:
WILLIAM G. SEYMOUR
______________________________________
EMMA C. SEYMOUR
______________________________________
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EXHIBIT 10.2
FORM OF
MAR MAR REALTY TRUST
1998 SHARES OPTION PLAN
-----------------------
1. PURPOSES OF PLAN. The purposes of the Plan, which shall be known as
the Mar Mar Realty Trust 1998 Shares Option Plan and is hereinafter referred to
as the "Plan", are (i) to provide incentives for key employees, trustees,
directors, consultants and other individuals providing services to Mar Mar
Realty Trust (the "Company") and its subsidiary corporations (within the meaning
of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
each of which is referred to herein as a "Subsidiary") and other affiliated
entities (each of which, along with each Subsidiary, is referred to herein as an
"Affiliated Entity") by encouraging their ownership of the common shares of
beneficial interest, $1.00 par value, of the Company (the "Common Shares") and
(ii) to aid the Company in retaining such key employees, trustees, directors,
consultants and other individuals upon whose efforts the Company's success and
future growth depends, and attracting other such employees, trustees, directors,
consultants and other individuals.
2. ADMINISTRATION. The Plan shall be administered by a committee of the
Board of Trustees of the Company (the "Committee"). The Committee shall be
appointed from time to time by the Board of Trustees of the Company (the "Board
of Trustees") and shall consist of not fewer than two of its members. Each
Committee member shall be a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"). In the event that no such Committee exists or is appointed, then the
powers to be exercised by the Committee hereunder shall be exercised by the
Board of Trustees.
For purposes of administration, the Committee, subject to the terms of
the Plan, shall have plenary authority to establish such rules, regulations and
procedures, to make such determinations and interpretations, and to take such
other administrative actions, as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be final,
conclusive and binding on all persons, including those granted options hereunder
("Optionees") and their legal representatives and beneficiaries.
Notwithstanding any other provisions of the Plan, the Committee may
impose such conditions on any options as may be required to satisfy the
requirements of Rule 16b-3 of the Act or Section 162(m) of the Code.
The Committee shall hold its meetings at such times and places as it
may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to such member's service on the Committee, if such member acts in
good faith and in a manner he reasonably believes to be in or not opposed to the
best interests of the Company.
3. COMMON SHARES AVAILABLE FOR OPTIONS. There shall be available for
options under the Plan a total of 1,100,000 Common Shares, subject to any
adjustments which may be made pursuant to Section 5(f) hereof. Common Shares
used for purposes of the Plan may be either authorized and unissued shares, or
previously issued shares held in the treasury of the Company, or both. Common
Shares covered
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<PAGE>
by options which have terminated or expired prior to exercise or which have been
tendered as payment upon exercise of other options pursuant to Section 5(c)
shall be available for further option grants hereunder.
4. ELIGIBILITY. Options under the Plan may be granted to key employees
of the Company or any Affiliated Entity, including officers, trustees or
directors of the Company or any Affiliated Entity, and to trustees, directors,
consultants and other individuals providing services to the Company or any
Affiliated Entity. Options may be granted to eligible employees whether or not
they hold or have held options previously granted under the Plan or otherwise
granted or assumed by the Company. In selecting employees for options, the
Committee may take into consideration any factors it may deem relevant,
including its estimate of the employee's present and potential contributions to
the success of the Company and its Affiliated Entities. Service as a trustee,
director, officer or consultant of or to the Company or any Affiliate shall be
considered employment for purposes of the Plan (and the period of such service
shall be considered the period of employment for purposes of Section 5(d) of the
Plan); provided, however, that incentive stock options may be granted under the
Plan only to an individual who is an "employee" (as such term is used in Section
422 of the Code) of the Company or any Subsidiary.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, evidenced by option agreements established from time to time by the
Committee, which terms and conditions need not be the same in each case, subject
to the following:
(a) OPTION PRICE. The price at which each Common Share covered
by an incentive stock option granted under the Plan may be purchased
shall not be less than the market value per Common Share (as defined
in section 5(c)) on the date of grant of the option. In the case of
any option intended to be an incentive stock option granted to an
individual owning (directly or by attribution as provided in Section
424(d) of the Code), on the date of grant, stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary (which individual shall hereinafter be
referred to as a "10% Stockholder"), the price at which each Common
Share covered by the option may be purchased shall not be less than
110% of the market value per Common Share on the date of grant of the
option. The date of the grant of an option shall be the date specified
by the Committee in its grant of the option. The price at which each
Common Share covered by an option granted under the Plan (but not as
an incentive stock option) may be purchased shall be the price
determined by the Committee, in its absolute discretion, to be
suitable to attain the purposes of this Plan.
(b) OPTION PERIOD. The term of each option shall be determined
by the Committee, in its discretion, but the period for exercise of an
option shall in no event be more than ten years from the date of grant,
or in the case of an option intended to be an incentive stock option
granted to a 10% Stockholder, more than five years from the date of
grant. Options may, in the discretion of the Committee, be made
exercisable in installments during the option period. Unless otherwise
provided in the option agreement, any shares not purchased on any
applicable installment date may be purchased thereafter at any time
before the expiration of the option period.
(c) EXERCISE OF OPTIONS. In order to exercise an option, the
Optionee shall deliver to the Company written notice specifying the
number of Common Shares to be purchased, together with cash or a
certified or bank cashier's check payable to the order of the Company
in the full amount of the purchase price therefor; provided that, for
the purpose of assisting an Optionee to exercise an option, the Company
may make loans to the Optionee or guarantee loans made by third parties
to the Optionee, on such terms and conditions as the Board of Trustees
may authorize; and
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provided further that such purchase price may be paid in Common Shares
owned by the Optionee and having a market value on the date of exercise
not less than the aggregate purchase price, or in any combination of
cash and Common Shares. For purposes of this Section 5(c), the
market value per Common Share shall be the last sale price regular way
on the date of reference, or, in case no sales take place on such date,
the average of the closing high bid and low asked prices regular way,
in either case on the principal national securities exchange on which
the Common Shares are listed or admitted to trading, or if the Common
Shares are not listed or admitted to trading on any national securities
exchange, the last sale price reported on the National Market System of
the National Association of Securities Dealers Automated Quotation
system ("NASDAQ") on such date, or the average of the closing high bid
and low asked prices of the Common Shares in the over-the-counter
market reported on NASDAQ on such date, as furnished to the Committee
by any New York Stock Exchange member selected from time to time by the
Committee for such purpose. If there is no bid or asked price reported
on any such date, the market value shall be determined by the Committee
in accordance with the regulations promulgated under Section 2031 of
the Code, or by any other appropriate method selected by the Committee.
If the Optionee so requests, Common Shares purchased upon
exercise of an option may be issued in the name of the Optionee or
another person. An Optionee shall have none of the rights of a
shareholder until the Common Shares are issued to such Optionee.
(d) EFFECT OF TERMINATION OF EMPLOYMENT.
(i) An option may not be exercised after the Optionee
has ceased to be in the employ of or affiliated with the
Company or any Affiliated Entity for any reason other than the
Optionee's death, Disability or Involuntary Termination
Without Cause. Any cessation of employment, for purposes of
incentive stock options only, shall include any leave of
absence in excess of 90 days unless the Optionee's
reemployment rights are guaranteed by law or by contract.
"CAUSE" shall mean any act, action or series of acts or
actions or any omission, omissions, or series of omissions
which result in, or which have the effect of resulting in, (A)
the commission of a crime by the Optionee involving moral
turpitude, which crime has a material adverse impact on the
Company or any Affiliated Entity, (B) gross negligence or
willful misconduct which is continuous and results in material
damage to the Company or any Affiliated Entity, or (C) the
continuous, willful failure of the person in question to
follow the reasonable directives of the Board of Trustees.
"DISABILITY" shall mean the inability or failure of a person
to perform those duties for the Company or any Affiliated
Entity traditionally assigned to and performed by such person
because of the person's then-existing physical or mental
condition, impairment or incapacity. The fact of disability
shall be determined by the Committee, which may consider such
evidence as it considers desirable under the circumstances,
the determination of which shall be final and binding upon all
parties. "INVOLUNTARY TERMINATION WITHOUT CAUSE" shall mean
either (X) the dismissal of, or the request for the
resignation of, a person, by court order, order of any
court-appointed liquidator or trustee of the Company, or the
order or request of any creditors' committee of the Company
constituted under the federal bankruptcy laws, provided that
such order or request contains no specific reference to Cause;
or (Y) the dismissal of, or the request for the resignation
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of, a person, by a duly constituted corporate officer of the
Company or any Affiliated Entity, or by the Board, for any
reason other than for Cause.
(ii) During the three months after the date of the
Optionee's Involuntary Termination Without Cause, the Optionee
shall have the right to exercise the options granted under the
Plan, but only to the extent the options were exercisable on
the date of the cessation of the Optionee's employment.
(iii) During the twelve months after termination of
the Optionee's employment with the Company or any Affiliated
Entity as a result of the Optionee's Disability, the Optionee
shall have the right to exercise the options granted under the
Plan, but only to the extent the options were exercisable on
the date of the cessation of the Optionee's employment.
(iv) In the event of the death of the Optionee while
employed or, in the event of the death of the Optionee after
cessation of employment described in subparagraph (ii) or
(iii), above, but within the three-month or twelve-month
period described in subparagraph (ii) or (iii), above, the
option shall thereupon become exercisable in full until the
expiration of twelve months following the Optionee's death.
During such extended period, the option may be exercised by
the person or persons to whom the deceased Optionee's rights
under the option agreement shall pass by will or by the laws
of descent and distribution. The provisions of the foregoing
sentence shall apply to any outstanding options which are
incentive stock options to the extent permitted by Section
422(d) and related provisions of the Code and such outstanding
options in excess thereof shall, immediately upon the
occurrence of the event described in the preceding sentence,
be treated for all purposes of the Plan as nonstatutory stock
options and shall be immediately exercisable as such as
provided in the foregoing sentence.
In no event shall any option be exercisable beyond the
applicable exercise period provided in Section 5(b) of the Plan.
Nothing in the Plan or in any option granted pursuant to the Plan (in
the absence of an express provision to the contrary) shall confer on
any individual any right to continue in the employ of the Company or
any Affiliated Entity or interfere in any way with the right of the
Company or Affiliated Entity to terminate the individual's employment
at any time.
(e) NONTRANSFERABILITY OF OPTIONS. Except as otherwise set
forth herein, during the lifetime of an Optionee, options held by the
Optionee shall be exercisable only by the Optionee, and no option shall
be transferable other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Committee, in its
absolute discretion, may grant nonstatutory options that are
transferable, subject to applicable law and the terms and restrictions
imposed by the option agreement or otherwise by the Committee.
(f) ADJUSTMENTS FOR CHANGE IN COMMON SHARES SUBJECT TO PLAN.
In the event of a reorganization, recapitalization, share split, share
dividend, combination of shares, merger, consolidation, rights offering
or any other change in the corporate structure or shares of the
Company, corresponding adjustments automatically shall be made to the
number and kind of shares available for issuance under this Plan and
the number and kind of shares covered by outstanding options under this
Plan.
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(g) ACCELERATION OF EXERCISABILITY OF OPTIONS UPON OCCURRENCE
OF CERTAIN EVENTS. In connection with any merger or consolidation in
which the Company is not the surviving entity and which results in the
holders of the outstanding voting securities of the Company (determined
immediately prior to such merger or consolidation) owning less than a
majority of the outstanding voting securities of the surviving entity
(determined immediately following such merger or consolidation), or any
sale or transfer by the Company of all or substantially all of its
assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of
the then-outstanding voting securities of the Company, all outstanding
options under the Plan shall become exercisable in full,
notwithstanding any other provision of the Plan or of any outstanding
options granted thereunder, on and after (i) the fifteenth day prior to
the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be. The provisions of the foregoing
sentence shall apply to any outstanding options which are incentive
stock options to the extent permitted by Section 422(d) of the Code and
such outstanding options in excess thereof shall, immediately upon the
occurrence of the event described in clause (i) or (ii) of the
foregoing sentence, be treated for all purposes of the Plan as
nonstatutory stock options and shall be immediately exercisable as such
as provided in the foregoing sentence. Notwithstanding the foregoing,
in no event shall any option be exercisable beyond the applicable
exercise period of such option specified in Sections 5(b) and 5(d).
(h) REGISTRATION, LISTING AND QUALIFICATION OF COMMON SHARES.
Each option shall be subject to the requirement that if at any time the
Board of Trustees shall determine that the registration, listing or
qualification of Common Shares covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the
purchase of Common Shares thereunder, no such option may be exercised
unless and until such registration, listing, qualification, consent or
approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Trustees. The Company may require that
any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to
assure compliance with the foregoing and any other applicable legal
requirements.
(i) OTHER TERMS AND CONDITIONS. The Committee, in its
discretion, may impose such other terms and conditions, not
inconsistent with the terms hereof, on the grant or exercise of
options, as it deems advisable.
(j) RELOAD OPTIONS. If upon the exercise of an option granted
under the Plan (the "Original Option") the Optionee pays the purchase
price for the Original Option pursuant to Section 5(c) in whole or in
part in Common Shares owned by the Optionee for at least six months,
the Company shall grant to the Optionee on the date of such exercise an
additional option under the Plan (the "Reload Option") to purchase that
number of Common Shares equal to the number of Common Shares so held
for at least six months transferred to the Company in payment of the
purchase price in the exercise of the Original Option. The price at
which each Common Share covered by the Reload Option may be purchased
shall be the market value per share of Common Shares (as specified in
Section 5(c)) on the date of exercise of the Original Option. The
Reload Option shall not be exercisable until one year after the date
the Reload Option is granted or after the expiration date of the
Original Option. Upon the payment of the purchase price for a Reload
Option granted hereunder in whole or in part in Common Shares held for
more than six months pursuant to Section 5(c), the Optionee is entitled
to receive a further Reload Option in accordance with this Section
5(j). Common Shares covered by a Reload Option shall not reduce the
number of Common Shares available under the Plan pursuant to Section 3.
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6. ADDITIONAL PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market value
of the Common Shares with respect to which incentive stock options are
exercisable for the first time by the Optionee during any calendar year shall
not exceed the limitation set forth in Section 422(d) of the Code and (b)
Section 5(d)(ii) hereof shall not apply to any incentive stock option.
7. EFFECTIVENESS OF PLAN. The Plan shall be effective when it is
adopted and approved by the Board of Trustees, provided that the Plan is
approved within twelve months before or after such adoption by a majority of the
votes cast thereon by the shareholders of the Company at a meeting of
shareholders duly called and held for such purpose or by unanimous written
consent of such shareholders. The Plan and all options granted hereunder shall
at all times be subject to the Company's Amended and Restated Declaration of
Trust, as amended from time to time.
8. AMENDMENT AND TERMINATION. The Board of Trustees may at any time
amend the Plan or the term of any option outstanding under the Plan; provided,
however, that, except as contemplated in Section 5(f), the Board of Trustees
shall not, without requisite shareholder approval (i) increase the maximum
number of Common Shares for which options may be granted under the Plan, or (ii)
except as otherwise provided in the Plan, amend the requirements as to the class
of employees eligible to receive options. Shareholder approval for any amendment
shall be required only to the extent necessary to satisfy the rules of any
self-regulatory organization applicable to the Company or any applicable federal
or state law or regulation. The Board of Trustees may at any time terminate the
Plan. Unless the Plan shall theretofore have been terminated, the Plan shall
terminate, and no option shall be granted hereunder after, ten years from the
date the Plan is adopted by the Board of Trustees or approved by the
shareholders of the Company as described in Section 7, whichever first occurs.
Notwithstanding the foregoing, no amendment or termination of the Plan or any
option outstanding under the Plan may, without the consent of an Optionee,
adversely affect the rights of such Optionee under any option held by such
Optionee.
9. WITHHOLDING. An Optionee awarded an option hereunder shall be deemed
conclusively to have authorized the Company to withhold from the salary,
commissions or other compensation of such Optionee funds in amounts, or property
(including Common Shares) in value, equal to any federal, state or local income,
employment or other withholding taxes applicable to the income recognized by
such Optionee Trustee and attributable to the options or Common Shares acquired
pursuant to this Plan as, when and to the extent, if any, required by law;
provided, however, that, in lieu of the withholding of federal, state and local
taxes as herein provided, the Company may require that the Optionee (or other
person exercising such Option) pay the Company an amount equal to any federal,
state and local withholding taxes on such income at the time such withholding is
required, if it is ever required, or at such other time as shall be satisfactory
to the Company. If the amount requested is not paid, the Company may refuse to
issue such Common Shares. The Company, in its discretion, instead may withhold
from the Common Shares to be delivered shares sufficient to satisfy all or a
portion of such tax withholding requirements.
10. GOVERNING LAW. This Plan and all rights and obligations hereunder
shall be construed in accordance with and governed by the laws of the State of
North Carolina.
11. OTHER ACTIONS. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including, but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.
6
EXHIBIT 10.3
FORM OF
MAR MAR REALTY TRUST
FORMULA SHARES OPTION PLAN
FOR INDEPENDENT TRUSTEES
ARTICLE I
PURPOSE; EFFECTIVE DATE; DEFINITIONS
1.1 Purpose. The Mar Mar Realty Trust Formula Shares Option Plan for
Independent Trustees is intended to secure for Mar Mar Realty Trust (the
"Company") and its shareholders the benefits of the incentive inherent in
ownership of the Company's common shares of beneficial interest by the
Independent Trustees of the Company, who are responsible in part for the
Company's growth and financial success, and to afford such persons the
opportunity to obtain and thereafter increase their proprietary interest in the
Company on a favorable basis and thereby share in its success. This Plan is
intended to constitute a "formula plan" under note 3 to Rule 16b-3 of the
Securities and Exchange Commission under the Exchange Act and shall be construed
accordingly.
1.2 Effectiveness of Plan. The Plan shall be effective when it is
adopted and approved by the Board of Trustees, subject to the approval of such
adoption by a majority of the votes cast thereon by the shareholders of the
Company at a meeting of shareholders duly called and held for such purpose or by
unanimous written consent of such shareholders. The Plan and all Options granted
hereunder shall at all times be subject to the Company's Amended and Restated
Declaration of Trust, as amended from time to time.
1.3 Definitions. Capitalized terms used in this Plan but not defined
herein shall have the meanings indicated in the Option Agreement. In addition,
throughout this Plan, the following terms shall have the meanings indicated:
(a) "Board" shall mean the Board of Trustees of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(c) "Committee" shall mean the Board, constituted as a
committee composed of all Trustees other than the Independent Trustees.
(d) "Common Shares" shall mean the common shares of beneficial
interest, par value $1.00 per share, of the Company.
(e) "Company" shall mean Mar Mar Realty Trust, a Maryland real
estate investment trust.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Fair Market Value" shall mean, with respect to the Common
Shares on any day, the closing sales price of a Common Share on the last
business day immediately preceding such day for which a closing price is
available from the principal trading market for the Common Shares. A "business
day" is any day, other than a Saturday or Sunday, on which the relevant market
is open for trading.
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(h) "Independent Trustee" shall mean any Trustee other than a
Trustee who, at the time of an Option award to such Trustee hereunder, is a
full-time employee of the Company or a subsidiary of the Company.
(i) "Option" shall mean an option to purchase Common Shares
awarded to an Independent Trustee pursuant to this Plan.
(j) "Option Agreement" shall mean an agreement between the
Company and an Independent Trustee evidencing the award of an Option.
(k) "Option Period" shall mean the period during which an
Option awarded under the Plan may be exercised, as specified in the Option
Agreement.
(l) "Option Shares" shall mean the Common Shares purchased
upon exercise of an Option.
(m) "Plan" shall mean this Mar Mar Realty Trust Formula Shares
Option Plan for Independent Trustees, as the same may be amended from time to
time.
(n) "Trustee" shall mean any member of the Board.
ARTICLE II
COMMITTEE
2.1 Authority of Committee. For purposes of the Plan and the Options
granted hereunder, the Committee, subject to the terms of the Plan, shall have
plenary authority to establish such rules, regulations and procedures, to make
such determinations and interpretations, and to take such other administrative
actions, as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be final, conclusive and binding on
all persons, including those granted Options hereunder and their legal
representatives and beneficiaries.
A majority of the entire Committee shall constitute a quorum, and the
action of a majority of the members present at any meeting at which a quorum is
present shall be deemed the action of the Committee. In addition, any decision
or determination reduced to writing and signed by all members of the Committee
shall be fully as effective as if it had been made by a majority vote at a
meeting duly called and held. Subject to the provisions of the Plan and the
Company's Amended and Restated Declaration of Trust, as amended from time to
time, the Committee may make such additional rules and regulations for the
conduct of its business as it shall deem advisable and shall hold meetings at
such times and places as it may determine.
2.2 Limitation on Receipt of Options by Committee Members. No person,
while a member of the Committee, shall be eligible to receive Options under the
Plan, but a member of the Committee may exercise Options granted prior to his or
her becoming a member of the Committee.
2.3 Good Faith Determinations. No member of the Committee or other
member of the Board shall be liable for any action or determination made in good
faith with respect to this Plan or any Option granted hereunder.
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ARTICLE III
ELIGIBILITY; SHARES SUBJECT TO THE PLAN
3.1 Eligibility. Only Independent Trustees shall be eligible to receive
Option awards under this Plan.
3.2 Shares Subject to the Plan. Subject to the provisions of Section
4.2(d) (relating to adjustment for changes in the Common Shares), the maximum
number of shares that may be issued under this Plan shall not exceed in the
aggregate 200,000 Common Shares. Such shares may be authorized and unissued
shares or, in the alternative, authorized and issued shares that have been
reacquired by the Company as treasury shares. If any Option awarded under this
Plan shall for any reason terminate or expire or be surrendered without having
been exercised in full, then the underlying shares not acquired by Option
exercise shall be available again for grant hereunder.
ARTICLE IV
FORMULA AWARDS
4.1 Formula. On January 31 of each year during the term of this Plan
(commencing after the effective date hereof), each person who is then an
Independent Trustee shall be awarded an Option to purchase 10, 000 Common
Shares, in each case at an exercise price per share equal to the Fair Market
Value per Common Share as of the date of such award. All of the Option awards
referred to in this Section 4.1 shall be made by operation of the provisions of
this Plan and shall require no further action by the Company, the Board, the
Committee or any other person except as specifically provided for elsewhere in
this Plan. Each Option shall be exercisable, in whole or in part, at any time
and from time to time during the Option Period. Each Option shall terminate on
the expiration of its Option Period, if not earlier terminated.
4.2 Other Terms and Conditions. Each Option award under this Plan shall
be evidenced by an Option Agreement in such form and containing such provisions
as the Committee may determine. The Option Agreements need not be identical with
one another, but each one shall include the substance of, and shall be governed
by, all of the following terms and conditions:
(a) Numbers of Shares and Option Exercise Price. Each Option
Agreement shall state the number of Common Shares to which it pertains
and the Option exercise price, all in accordance with this Plan.
(b) Medium and Time of Payment. In order to exercise the
Option, the Optionee shall deliver to the Company written notice
specifying the number of Common Shares to be purchased, together with
the Option exercise price for such number of shares. The Option
exercise price shall be payable in United States dollars, either in
cash or a certified or bank cashier's check or in Common Shares owned
by the Optionee or in a combination of cash and Common Shares. If all
or any portion of the Option exercise price is paid in Common Shares,
then such Common Shares shall be valued at their Fair Market Value as
of the exercise date.
(c) Minimum Exercise; No Transfers. No less than 100 Common
Shares may be purchased by Option exercise at any one time unless the
number purchased is the total number of shares in respect of which the
Option is then exercisable. No Option shall be assignable or
transferable by an Optionee, and no other person shall acquire any
rights therein, except that, subject to the provisions of Section
4.2(f), the Option may be transferred by will or the laws of
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descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder.
(d) Recapitalization; Reorganization. Subject to any action
required by the shareholders of the Company, the maximum number of
Common Shares that may be issued under this Plan pursuant to Section
3.2, the number of Common Shares covered by each outstanding Option and
the per share exercise price applicable to each outstanding Option
shall, in each case, be proportionately adjusted for any increase or
decrease in the number of issued Common Shares resulting from a
subdivision or consolidation of shares or the payment of a share
dividend on the Common Shares or any other increase or decrease in the
number of Common Shares effected without receipt of consideration by
the Company.
Subject to any action required by the shareholders, if the
Company is the surviving entity in any merger, then each Option
outstanding shall pertain to and apply to the securities or other
consideration that a holder of the number of Common Shares underlying
the Option would have been entitled to receive in the merger. A
dissolution, liquidation or consolidation of the Company or a merger in
which the Company is not the surviving entity, other than a merger
effected solely for the purpose of changing the Company's domicile,
shall cause each outstanding Option not exercised prior to the
effective date of such transaction to terminate. In the case of a
merger effected for the purpose of changing the Company's domicile,
each outstanding Option shall continue in effect in accordance with its
terms and shall apply to the same number of Common Shares of such
surviving entity as the number of Common Shares to which it applied
immediately prior to such merger, adjusted for any increase or decrease
in the number of outstanding Common Shares of the surviving entity
effected without receipt of consideration.
In the event of a change in the Common Shares as presently
constituted, which change is limited to a change of all of the
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any
such change shall be deemed to be Common Shares within the meaning of
this Plan.
The foregoing adjustments shall be made by the Committee,
whose determination shall be conclusive.
Except as expressly provided in this subsection, the Optionee
shall have no rights by reason of (i) any subdivision or consolidation
of shares of any class, (ii) any share dividend, (iii) any other
increase or decrease in the number of shares of any class, (iv) any
dissolution, liquidation, merger or consolidation or spin-off,
split-off or split-up of assets of the Company or stock of another
corporation or (v) any issuance by the Company of shares of any class
or securities convertible into shares of any class. Moreover, except as
expressly provided in this subsection, the occurrence of one or more of
the above-listed events shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of, or the exercise
price relative to, the Common Shares underlying an Option.
The grant of an Option pursuant to this Plan shall not affect
in any way the right or power of the Company to issue securities of any
class, to make adjustments, reclassifications, reorganizations or
changes to, of or in its capital or business structure, to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any
part of its business or assets.
(e) Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no rights as a shareholder with respect to any shares
underlying his or her Option until the date of
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the issuance of a share certificate for those shares upon payment of
the exercise price. No adjustments shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such share certificate is issued, except as expressly
provided in subsection 4.2(d).
(f) Option Termination. Each Option Agreement shall provide
that, if the Optionee's status as an Independent Trustee terminates
incidental to conduct that, in the judgment of the Committee, involves
a breach of fiduciary duty by such Independent Trustee or other conduct
detrimental to the Company, then his or her Option shall terminate
immediately and thereafter be of no force or effect. Each Option
Agreement also may provide that, if the Optionee dies or if the Option
is transferred pursuant to a qualified domestic relations order as
provided in Section 4.2(c), prior to the exercise in full of an Option,
then such Option may be exercised not later than the expiration of
twelve months following such death or transfer, as the case may be, by
the person or persons to whom his or her rights under the Option shall
have been transferred by reason thereof (but only to the extent that
such Option was exercisable on the date of such death or transfer).
Notwithstanding anything to the contrary in this subsection, an Option
may not be exercised by anyone after the expiration of its term.
ARTICLE V
MISCELLANEOUS
5.1 Withholding Taxes. An Independent Trustee awarded an Option
hereunder shall be deemed conclusively to have authorized the Company to
withhold from the fees, commissions or other compensation of such Independent
Trustee funds in amounts, or property (including Common Shares) in value, equal
to any federal, state or local income, employment or other withholding taxes
applicable to the income recognized by such Independent Trustee and attributable
to the Options or Option Shares acquired pursuant to this Plan as, when and to
the extent, if any, required by law; provided, however, that, in lieu of the
withholding of federal, state and local taxes as herein provided, the Company
may require that the Independent Trustee (or other person exercising such
Option) pay the Company an amount equal to any federal, state and local
withholding taxes on such income at the time such withholding is required, if it
is ever required, or at such other time as shall be satisfactory to the Company.
Nothing in this Section shall be construed to impose on the Company a duty to
withhold, where applicable law does not require such withholding, or to imply
that an Independent Trustee is an employee or anything other than an independent
contractor with respect to the Company.
5.2 Amendment, Suspension, Discontinuance and Termination of Plan. The
Committee may from time to time amend, suspend or discontinue this Plan or
revise it in any respect whatsoever; provided, however, that no such action by
the Committee shall adversely affect any Option theretofore awarded hereunder
without the consent of the holder so affected. Shareholder approval for any
amendment shall be required only to the extent necessary to satisfy the rules of
any self-regulatory organization applicable to the Company or any applicable
federal or state law or regulation. This Plan will terminate on the date when
all Common Shares reserved for issuance under the Plan have been acquired upon
exercise of Options granted hereunder or on such earlier date as the Committee
may determine.
5.3 Governing Law. This Plan and all rights and obligations hereunder
shall be construed in accordance with and governed by the laws of the State of
North Carolina.
5.4 Designation. This Plan may be referred to in other documents and
instruments as the "Mar Mar Realty Trust Formula Shares Option Plan for
Independent Trustees."
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5.5 Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Trustees or as members of the Committee, the
members of the Committee shall be indemnified by the Company against the
reasonable expenses, including legal fees actually and necessarily incurred in
connection with the defense of any investigation, action, suit or proceeding, or
in connection with any appeal therefrom, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with this Plan or any Option granted hereunder, and against all amounts paid by
them in settlement thereof or paid by them in satisfaction of a judgment in or
dismissal or other discontinuance of any such investigation, action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such investigation, action, suit or proceeding that such Committee member acted
in bad faith in the performance of his or her duties, and without reasonable
belief that such performance was in the best interest of the Company.
5.6 Reservation of Shares. The Company shall, at all times during the
term of this Plan and so long as any Option shall be outstanding, reserve and
keep available such number of Common Shares as shall be sufficient to satisfy
the requirements hereof. Notwithstanding the foregoing, the inability of the
Company to obtain, from any regulatory body of appropriate jurisdiction,
authority considered by the Company to be necessary or desirable to the lawful
issuance of any Common Shares hereunder shall relieve the Company of any
liability in respect of the non-issuance or sale of such Common Shares as to
which such requisite authority shall not have been obtained.
5.7 Application of Funds. The proceeds received by the Company from the
sale of Common Shares upon the exercise of Options will be used for general
corporate purposes.
5.8 No Obligation to Exercise. The award of an Option under this Plan
shall impose no obligation upon the Optionee to exercise that Option.
* * * * *
6
STRATEGIC ALLIANCE AGREEMENT AND
AGREEMENT FOR THE MUTUAL REFERRAL OF ACQUISITION OPPORTUNITIES
This STRATEGIC ALLIANCE AGREEMENT AND AGREEMENT FOR THE MUTUAL REFERRAL
OF ACQUISITION OPPORTUNITIES (this "Agreement") dated as of July ____, 1998, is
entered into by and between MAR MAR REALTY, L.P., a Delaware limited partnership
("MMR") and SONIC AUTOMOTIVE, INC., a Delaware corporation ("SAI").
WHEREAS, MMR is engaged in, among other things, the business of
acquiring, developing, owning and leasing real estate ("Real Properties")
associated with franchised motor vehicle dealerships; and
WHEREAS, SAI is engaged in, among other things, the business of
acquiring and operating franchised motor vehicle dealerships, including their
tangible and intangible assets ("Dealerships"); and
WHEREAS, MMR presently does not intend to operate Dealerships; and
WHEREAS, SAI presently does not intend generally to own Real
Properties; and
WHEREAS, MMR and SAI wish to enter into a strategic alliance to their
mutual benefit and create procedures regarding the referral of acquisition
opportunities for Real Properties to MMR by SAI and the referral of acquisition
opportunities for Dealerships to SAI by MMR; and
WHEREAS, SAI is the owner of certain Real Properties and of various
options to purchase Real Properties as set forth on Exhibit A hereto which SAI
is willing to transfer to MMR or Chartown Realty, a North Carolina General
Partnership (Chartown) by separate documents; and
WHEREAS, MMR is desirous of entering into a Contract to Purchase such
Real Properties as are owned by SAI and is desirous of accepting an assignment
of such options.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. RECITALS AND EXHIBITS. The recitals above and Exhibits A and B
hereto are incorporated herein by reference.
SECTION 2. REFERRALS OF DEALERSHIP ACQUISITION OPPORTUNITIES. MMR hereby agrees
to refer, in accordance with Section 4 hereof, to SAI any Dealership acquisition
opportunity of which MMR becomes aware in connection with the acquisition of
Real Properties by MMR. Nothing in this Agreement shall cause or require MMR to
make such a referral if such referral would cause MMR to violate any agreement
with or duty to third parties, law, regulation or court order or would, in the
reasonable judgment of MMR, adversely affect its ability to consummate the
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acquisition of any particular Real Property. Nothing in this Agreement shall be
construed to obligate SAI to act upon such referral.
SECTION 3. REFERRALS OF REAL PROPERTY ACQUISITION OPPORTUNITIES. SAI hereby
agrees to refer, in accordance with Section 4 hereof, to MMR any Real Property
Acquisition opportunity of which SAI becomes aware in connection with the
acquisition of Dealerships by SAI. Nothing in this Agreement shall cause or
require SAI to make such a referral if such referral would cause SAI to violate
any agreement with or duty to third parties, law, regulations or court order or
would, in the reasonable judgment of SAI, adversely affect its ability to
consummate the acquisition of any particular Dealership. SAI shall not be
obligated to refer any Real Property which it determines to acquire itself.
Nothing in this Agreement shall be construed to obligate MMR or to act upon such
referral.
SECTION 4. REFERRAL PROCEDURES; NOTICES. In making any referral as contemplated
by this Agreement, the party making the referral shall provide to the other
party such information regarding the referral opportunity as the referring
party, in its sole and unrestricted judgment, determines to provide.
Notices and referrals contemplated by this Agreement may be made in writing or
orally and shall be sent as follows (or to such other addresses as the parties
hereto shall have identified in writing to their counterparty):
if to MMR, to:
James A Mezzanotte
Executive Vice President
Mar Mar Realty Trust
Independence Office Park
Building 2, Suite 111
6407 Idlewild Road
Charlotte, NC 28212
Telephone: (704) 566-4081
Facsimile: (704) 566-6031
if to SAI, to:
Theodore M. Wright
Chief Financial Officer
Sonic Automotive, Inc.
5401 East Independence Boulevard
P. O. Box 18747
Charlotte, NC 28212
Telephone: (704) 532-3347
Facsimile: (704) 532-3312
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SECTION 5. ADDITIONAL UNDERTAKINGS.
5.1) Additional Undertakings of MMR. As additional consideration
for the undertakings of Sonic hereunder MMR agrees that during the term of
this agreement it will provide or make available to Sonic services as Sonic
shall reasonably request from time to time. Such items shall include,
without limitation, the following:
1.) Real Estate Development
a.)MMR will assist Sonic in identifying sites for
additional dealership locations, replacement
locations, body shop locations and any other
dealership related real estate needs that Sonic
may have from time to time.
b.)Once a location has been identified and a
purchase price agreed to, MMR will use its best
efforts to acquire such property either in its
own name or Sonic's name. As part of the
acquisition of sites MMR will assists in
obtaining all zoning changes that may be
necessary for the appropriate use of the
property.
c.)Once a location has been acquired and it has
been determined that MMR will be the owner of the
property, MMR will work with Sonic to identify,
have designed, and construct a facility on the
property provided all cost and lease items have
been agreed to.
2.) Maintenance
MMR will assist and advise Sonic with respect to
maintenance items on property that Sonic is leasing
from MMR and which sonic is responsible for paying
for. Such assistance and advice will include
identifying providers of service and repairs,
providers of facility improvements and general
maintenance providers.
3.) Inspection Service
In conjunction with Sonic's acquisition of new
dealerships, and without regard to whether MMR is
purchasing the real estate, MMR will arrange for
property inspections and environmental reports for
Sonic's account.
5.2) Additional Undertakings of SAI. As additional consideration
for the undertakings of MMR hereunder Sonic agrees that the
form of lease to be used with MMR for all subsequent real
estate acquisitions which has Sonic or an affiliate of Sonic
as a tenant, is attached hereto as Exhibit B.
5.3) Mutual Undertakings. Both parties agree to communicate to the
other such opportunities, as may become available from time to
time, for the joint purchase of services or purchase of
services from the same vendor when to do so will result in
volume discounts or other similar savings. Sonic agrees that
MMR may pass such volume discounts on to lessees other than
Sonic or its affiliates, and MMR agrees to use commercially
reasonable efforts to convince its lessees other than Sonic or
its affiliates to add to the volume in an effort to increase
the amount of such discounts.
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SECTION 6. NO AGENCY RELATIONSHIP. Nothing in this Agreement shall be construed
as creating any agency relationship among the parties hereto. Each party hereto
specifically denies the right and authority of their counterparty and such
counterparty's officers, directors, affiliates, agents and attorneys to
negotiate any acquisition opportunity on their behalf. Each party hereto
acknowledges its entire responsibility to pursue, negotiate and otherwise
consummate any acquisition opportunity referred by their counterparty. This
Agreement does not create or entitle any party hereto to fees or other
remuneration for the provision of referrals contemplated hereby.
SECTION 7. HEADINGS. The paragraph headings are inserted for convenience only
and are in no way intended to describe, interpret, define or limit the scope
or content of this Agreement or any provision hereof.
SECTION 8. CONSTRUCTION. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. Any disputes regarding the interpretation of any portion of this
Agreement shall not be presumptively construed against the drafting party.
SECTION 9. REMEDIES. Both parties hereto may enforce the rights and obligations
hereunder via any remedy available to them at law or equity, including, without
limitation, the remedy of injunctive relief compelling specific performance of
this Agreement. All rights, powers and privileges conferred hereunder upon the
parties hereto shall be cumulative. All such rights, powers and remedies may be
exercised separately or at once, and no exercise of any right, power or remedy
shall be construed to be an election of remedies or shall preclude the future
exercise of any or all other rights, powers and remedies granted hereunder or
available at law or in equity, except as expressly provided herein.
SECTION 10. NO WAIVER. Neither the failure of either party to exercise any power
given such party hereunder nor to insist upon strict compliance with its
obligations hereunder, nor any custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of either party's right to
demand exact compliance with the terms hereof.
SECTION 11. APPLICABLE LAW. With respect to any particular Property, this
Agreement shall be construed and interpreted in accordance with the laws of the
state in which the Property is located, notwithstanding conflicts of laws or
choice of laws principles to the contrary, and otherwise, the Agreement shall be
governed by the laws of the State of North Carolina, notwithstanding conflicts
of laws or choice of laws principles to the contrary.
SECTION 12. INVALIDITY. If any provision of this Agreement shall be declared
invalid or unenforceable, the remainder of this Agreement shall continue in
full force and effect.
SECTION 13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
SECTION 14. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts.
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SECTION 15. TERM. The term of this Agreement shall be for a period of one (1)
year from the date hereof. Thereafter this Agreement shall automatically be
renewed for successive one (1) year terms unless either party shall give the
other written notice of intent not to renew at least thirty (30) days prior to
the expiration of the then existing term.
4 (a)
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IN WITNESS HEREOF, MMR and SAI have caused this Agreement to be
executed and delivered as of the date first written above.
MAR MAR REALTY, L.P.
BY: MAR MAR REALTY TRUST
By: /s/ Benjamin F. Bracy
____________________________
Benjamin F. Bracy, President
SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
___________________________
Name: B. Scott Smith
___________________________
Title: President
___________________________
5
FORM OF
SONIC LEASE AGREEMENT
BY AND BETWEEN
MAR MAR REALTY LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
AND
--------------------------------
DATED
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TABLE OF CONTENTS
Page #
1. Premises........................................................................................1
2. Condition of Premises...........................................................................1
3. Term............................................................................................1
(a) Initial Term...........................................................................1
(b) Renewal Term...........................................................................2
4. Rent............................................................................................2
(a) Base Rent..............................................................................2
(c) Payment of Base Rent...................................................................3
(d) Draft Withdrawal of Rent...............................................................3
(e) Late Charge; Interest..................................................................3
(f) Payment without Abatement..............................................................4
5. Holding Over....................................................................................4
6. Use of Leased Premises, Compliance With Laws....................................................4
(a) Permitted Use..........................................................................4
(b) Continuous Operations..................................................................4
(c) Laws...................................................................................4
7. Tenant's Covenant to Repair.....................................................................5
8. Landlord's Obligation...........................................................................5
9. Surrender.......................................................................................5
10. Alterations.....................................................................................5
(a) Prohibition............................................................................5
(b) Permitted Renovations..................................................................5
(c) Conditions.............................................................................6
(d) Additions, Expansions and Structural Alterations.......................................7
11. Utilities and Other Services....................................................................7
12. Performance by Landlord of Tenant's Obligations.................................................7
(a) Landlord's Self Help...................................................................7
(b) Landlord's Inspections.................................................................8
13. Entry...........................................................................................8
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14. Assignment and Subletting.......................................................................8
(a) Transfers Prohibited Without Consent...................................................8
(b) Change of Control Prohibited Without Consent...........................................9
(c) Adequate Assurances....................................................................9
(d) Subleases, Concessions and Licenses....................................................9
15. Taxes and Assessments...........................................................................9
16. Casualty.......................................................................................10
(a) Restoration and Repair................................................................10
(b) Escrow of Insurance Proceeds..........................................................10
(c) Uninsured Losses......................................................................11
17. Insurance......................................................................................11
(a) Insurance By Tenant...................................................................11
(i) Hazard Insurance.............................................................11
(ii) Liability Insurance..........................................................11
(iii) Worker's Compensation and Employer's Liability Insurance.....................11
(iv) Builder's Risk Insurance.....................................................11
(v) Other Insurance..............................................................12
(vi) Landlord as Additional Insured...............................................12
(vii) Insurance Escrows............................................................12
(b) Carriers and Features.................................................................12
(c) Failure to Procure Insurance..........................................................13
(d) Waiver of Subrogation.................................................................13
18. Environmental Matters..........................................................................13
(a) Tenant's Covenant.....................................................................13
(b) Clean Up..............................................................................13
(c) Indemnification.......................................................................13
19. Costs and Attorneys' Fees......................................................................14
20. Default; Remedies..............................................................................14
(a) Default...............................................................................14
(b) Remedies..............................................................................15
21. Eminent Domain.................................................................................18
(a) Complete Taking.......................................................................18
(b) Partial Taking........................................................................18
(c) Award.................................................................................18
(d) Notices; Assignments..................................................................18
22. Liability of Landlord..........................................................................19
23. Indemnification of Landlord....................................................................19
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24. Notice of Claim or Suit........................................................................20
25. Liens, Generally...............................................................................20
26. Mechanics Liens................................................................................20
27. Contest of Liens...............................................................................21
28. Notices of Commencement of Construction........................................................21
29. Limitation on Liability of Landlord............................................................21
30. Franchise and License Agreements...............................................................21
31. "Net" Lease....................................................................................21
32. Representations, Warranties and Special Covenants..............................................22
33. Notices........................................................................................22
34. No Waiver......................................................................................22
35. Quiet Enjoyment................................................................................22
36. Subordination. Non-Disturbance and Attornment..................................................23
37. Brokers........................................................................................23
38. Invalidity.....................................................................................23
39. Counterparts...................................................................................23
40. Memorandum of Lease............................................................................23
41. Cumulative.....................................................................................23
42. Governing Law..................................................................................24
43. Successors and Assigns, Relationship...........................................................24
44. Entire Agreement...............................................................................24
45. Survival.......................................................................................24
46. Estoppel Certificates..........................................................................24
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47. Time...........................................................................................24
48. Captions and Headings..........................................................................24
49. Waiver of Jury Trial...........................................................................24
50. Signage........................................................................................25
51. Guaranty.......................................................................................25
52. Pre-Existing Conditions........................................................................25
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EXHIBITS:
EXHIBIT A......................................................................................LEGAL DESCRIPTION
EXHIBIT B....................................................................................MEMORANDUM OF LEASE
EXHIBIT A TO MEMORANDUM OF LEASE..........................................LEGAL DESCRIPTION OF PREMISES
EXHIBIT C................................................................................INVENTORY OF PERSONALTY
EXHIBIT D ...........................................................................TENANT ESTOPPEL CERTIFICATE
EXHIBIT E......................................................REPRESENTATIONS, WARRANTIES AND SPECIAL COVENANTS
EXHIBIT E1...................................................................................MATERIAL AGREEMENTS
EXHIBIT F ........................................................................................LEASE GUARANTY
SCHEDULES:
SCHEDULE 14D............................................SUBLEASES, CONCESSIONS, AGREEMENTS OR LICENSE AGREEMENTS
</TABLE>
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INDEX OF DEFINED TERMS
Accessibility Laws .........................................................................................6(c)
Affiliate .......................................................................................Exhibit E(l)(c)
Annual Financial Statements ....................................................................Exhibit E(10)(b)
Bank .......................................................................................................4(c)
Base Month ..............................................................................................4(b)(i)
Base Rent ..................................................................................................4(a)
Beneficiary ...........................................................................................Exhibit D
Business ........................................................................................Exhibit E(l)(a)
CERCLA ...................................................................................................1 8(a)
Certificate ...........................................................................................Exhibit D
Change of Control .........................................................................................14(b)
Code ...........................................................................................Exhibit E(14)(a)
Commencement Date ..........................................................................................3(a)
Company ........................................................................................Exhibit E(14)(c)
Cure Period ..........................................................................................20(a)(iii)
ERISA Affiliate .................................................................................Exhibit E(8)(e)
ERISA ...........................................................................................Exhibit E(8)(e)
Events of Default .........................................................................................20(a)
Five Year Adjustment Date ..............................................................................4(b)(ii)
Franchise ...........................................................................................20(a)(viii)
GAAP ...........................................................................................Exhibit E(10)(b)
Guarantor ....................................................................................................51
Guaranty .....................................................................................................51
Hazardous Material .......................................................................................1 8(a)
Improvements ..................................................................................................1
Initial Term ...............................................................................................3(a)
Inspection Report ........................................................................................1 2(b)
Intellectual Property ..............................................................................Exhibit E(4)
Land ..........................................................................................................1
Landlord ..............................................................................................Exhibit B
Lease .................................................................................................Exhibit B
Lease Term .................................................................................................3(b)
Leased Premises ..............................................................................Exhibit D Recitals
Liabilities ..............................................................................................1 6(c)
Major Casualty ............................................................................................16(a)
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Material Adverse Change ............................................................................Exhibit E(3)
Material Agreements ................................................................................Exhibit E(2)
Memorandum ............................................................................................Exhibit B
Minor Casualty ...........................................................................................1 6(a)
Net Worth .........................................................................................Exhibit E(13)
Notice of Commencement .......................................................................................28
Permitted Use ..............................................................................................6(a)
Person ..........................................................................................Exhibit E(l)(c)
Personalty ....................................................................................................1
Pre-Existing Conditions ......................................................................................52
Premises ......................................................................................................1
Price Index .............................................................................................4(b)(i)
Price Index for the Base Month ..........................................................................4(b)(i)
RCRA ...................................................................................................... 8(a)
Reasonable Attorney's Fees ......................................................................Exhibit F(9)(e)
REIT ...........................................................................................Exhibit E(14)(c)
Renewal Term(s) ............................................................................................3(b)
Rent .......................................................................................................4(c)
Rent Collection Account ....................................................................................4(c)
Tenant Benefit Plan .............................................................................Exhibit E(8)(e)
Tenant ................................................................................................Exhibit B
Term .......................................................................................................3(b)
Title IV Plan ...................................................................................Exhibit E(8)(e)
</TABLE>
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LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made this ______ day of
__________________, 199__ by and between MAR MAR REALTY LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord") and
____________________________________________________, a ________________________
[corporation/partnership] ("Tenant").
In consideration of the mutual promises and agreements herein
contained, the parties agree as follows:
1. Premises. Landlord shall lease to Tenant, and Tenant shall lease
from Landlord, subject to the conditions hereinafter expressed: (a) the real
property located in County, more particularly described on Exhibit A hereto (the
"Land"), upon which exists certain improvements in the nature of an automobile
dealership, together with related paved parking and appurtenant improvements and
any replacements thereof (together the "Improvements"); and (b) certain
furniture, fixtures, equipment, furnishings and other personal property and any
replacements thereof used or utilized in connection with the ownership and
operation of the Improvements as more particularly described on Exhibit C hereto
(collectively the "Personalty"). As used herein, the Land, Improvements and
Personalty are collectively referred to as the "Premises".
2. Condition of Premises. Tenant acknowledges and agrees that the
Premises are and shall be leased by Landlord to Tenant in its present "as-is"
condition, subject to all liens, encumbrances and restrictions affecting the
Premises. Landlord makes absolutely no representations or warranties whatsoever
with respect to the Premises or the condition thereof, either to its fitness for
use, condition, purpose or otherwise as to the quality or material or
workmanship therein, latent or patent, it being agreed that all such risks are
to be borne by Tenant.. Tenant acknowledges that Landlord has not investigated
and does not warrant or represent to Tenant that the Premises are fit for the
purposes intended by Tenant or for any other purposes whatsoever. Tenant
acknowledges and agrees that the Premises are to be leased to Tenant in their
existing condition, i.e., "as-is", as of the Commencement Date and at all times
thereafter. Tenant acknowledges that Tenant shall be solely responsible for any
and all actions, repairs, permits, approvals and costs required for the
rehabilitation, renovation, use, occupancy and operation of the Premises in
accordance with applicable governmental requirements, including, without
limitation, all governmental charges and fees, if any, which may be due or
payable to applicable authorities. By leasing the Premises, Tenant warrants and
represents to Landlord that Tenant has examined and approved all things
concerning the Premises which Tenant deems material to Tenant's leasing and use
of the Premises. Tenant further acknowledges and agrees that: (a) neither
Landlord nor any agent of Landlord has made any representation or warranty,
express or implied, concerning the Premises or which have induced Tenant to
execute this Lease except as contained in this Lease; and (b) any other
representations and warranties are expressly disclaimed by Landlord.
3. Term.
(a) Initial Term. This Lease shall be for a ____________
(______) year period beginning ________________, 199__ (the "Commencement
Date"), and ending at midnight
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________________, 20___, unless modified or earlier terminated pursuant to the
terms hereof (the "Initial Term"). Landlord may terminate this Lease by written
notice to Tenant given on or before if the closing of Landlord's purchase of the
Premises does not occur by such date. Landlord agrees to use commercially
reasonable efforts to consummate Landlord's purchase of the Premises on or
before the Commencement Date, and Tenant agrees to use commercially reasonable
efforts to consummate Tenant's purchase of the business operating on the
Premises, if applicable. If Tenant fails to purchase the business operating on
the premises, Landlord shall not be obligated to purchase the Premises.
Likewise, if Landlord fails to purchase the Premises, Tenant shall not be
obligated to purchase the business operating on the premises.
(b) Renewal Term. Provided Tenant is not in default hereunder,
at the expiration of the Initial Term, Tenant shall have the option to renew
this Lease for two (2) additional five (5) year periods (the "Renewal Term(s)").
Each Renewal Term shall automatically commence as of the end of the Initial Term
or the initial Renewal Term, as applicable, unless Tenant gives Landlord written
notice of termination not less than one hundred eighty (180) days prior to the
expiration of the Initial Term or the expiration of the initial Renewal Term, as
applicable. As used herein, the Term, the Initial Term and the Renewal Term(s),
if exercised, shall be referred to hereinafter collectively as the "Term" or
"Lease Term".
4. Rent.
(a) Base Rent. "Base Rent" for the first year of the Initial
Term shall be ___________________________________________________________ AND
NO/100 DOLLARS ($_________) per year.
(b) Adjustment of Base Rent.
(i) Definitions: For the purpose of calculating the
cost of living adjustments, the following definitions shall apply: (A)
the term "Base Month" shall mean the calendar month which is five years
prior to the applicable Five year Adjustment Date; (B) the term "Price
Index" shall mean the "Consumer Price Index-United States City Average
All Urban Consumers" published by the Bureau of Labor Statistics of the
United States Department of Labor (1982-84 = 100), or, in the event
such index is discontinued or no longer readily available, any renamed
local index covering the metropolitan area in which the Premises are
located or any other successor or substitute index appropriately
adjusted; and (C) the term "Price Index for the Base Month" shall mean
the Price Index for the Base Month.
(ii) Effective as of: (A) the fifth (5th) anniversary
of the Commencement Date; and (B) each five year anniversary date
thereafter throughout the Term (each, a "Five Year Adjustment Date"),
there shall be made a cost of living adjustment of the annual Base Rent
payable hereunder. Each five year adjustment shall be calculated by
multiplying the Base Rent for the prior lease year by the percentage
difference between the Price Index for the month preceding the
applicable Five Year Adjustment Date and the Price Index for the Base
Month; provided that in no event shall the cost of living adjustment on
any Five Year Adjustment Date be a downward adjustment or be an upward
adjustment of less than one
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percent (1%) per annum or greater than three percent (3%) per annum. If
the Price Index for the month preceding the applicable Five Year
Adjustment Date is not available as of any Five Year Adjustment Date,
then the cost of living adjustment shall be calculated using the most
current available Price Index. In no event shall any adjustment made
pursuant to this Paragraph 4, or any decrease in the Price Index, ever
result in a decrease in the annual Base Rent payable hereunder to below
the then current Base Rent.
(c) Payment of Base Rent. Tenant shall pay one-twelfth of the
Base Rent monthly, in advance, on the first (1st) day of each calendar month
during the Lease Term without notice, demand or setoff. The Base Rent for any
partial month shall be paid in advance and prorated daily from such date to the
first (1st) day of the next calendar month. The first (1st) payment of Base Rent
shall be due and payable on or before the execution of this Lease. All Rent
shall be made by direct deposit by Tenant of immediately available funds into a
checking account established with a bank, savings bank or other depository
institution designated by Landlord ("Bank") and controlled exclusively by
Landlord entitled "Rent Collection Account" (or such other name as may be
designated by Landlord) ("Rent Collection Account"). Landlord (or, at Landlord's
option, Landlord's agent, if any), or such officers or other agents as may be
designated by Landlord, shall be the sole signatory on the Rent Collection
Account. All interest accrued in the Rent Collection Account shall belong to
Landlord and shall not be credited to Tenant. No funds in the Rent Collection
Account shall be subject to withdrawal by or for the benefit of Tenant. "Rent"
shall mean and include all Base Rent, additional rent and other sums due
hereunder.
(d) Draft Withdrawal of Rent. Instead of requiring Tenant to
pay Rent in the manner set forth in Paragraph 4(c) above, Landlord may require
Tenant, within thirty (30) days after notice to Tenant, to execute and deliver
to Landlord any documents or authorizations required by Landlord to give effect
to an automated debiting system, whereby any or all payments of Base Rent by
Tenant shall be debited monthly from such account as Tenant shall designate from
time to time, and such amounts shall be credited to Landlord's bank account as
Landlord shall designate from time to time. Tenant shall maintain sufficient
funds in Tenant's account to cover all such payments. Tenant shall promptly pay
all service fees and other charges connected therewith, including, without
limitation, any charges resulting from insufficient funds in Tenant's bank
account or any charges imposed on Landlord. Tenant shall remain responsible to
Landlord for all payments of Rent, even if Tenant's bank account is
insufficiently debited in any given month. Such insufficient amounts shall be
immediately due and payable to Landlord without notice or demand.
(e) Late Charge; Interest. If Tenant fails to make any payment
of Rent or any other sums or amounts to be paid by Tenant hereunder on or before
the date such payment is due and payable and such amount remains unpaid for a
period of five (5) days thereafter, or such longer time as required by the law
of the state in which the premises is located, Tenant shall pay to Landlord an
administrative late charge of five percent (5%) of the amount of such payment or
such lesser amount then allowable under the laws of the State in which the
Premises is located. In addition if such amount remains past due for more than
thirty (30) days following its due date, such past due payment shall bear
interest at the lesser of twelve percent (12%) or the maximum interest rate then
allowable under the laws of the State in which the Premises is located from the
date such payment became due to the date of payment thereof by Tenant. Such late
charge and interest shall constitute additional rent and shall be due and
payable with the next installment of Rent due hereunder.
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(f) Payment without Abatement. No abatement, diminution or
reduction of Rent shall be allowed to Tenant or any person claiming under
Tenant, under any circumstances or for any reason whatsoever.
5. Holding Over. If Tenant or any other person or party shall remain in
possession of the Premises or any part thereof following the expiration of the
Term or earlier termination of this Lease without an agreement in writing
between Landlord and Tenant with respect thereto, the person or party remaining
in possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Lease by such tenant at sufferance shall
be one hundred fifty percent (150%) of the rate or rates in effect immediately
prior to the expiration of the Term or earlier termination of this Lease. In no
event, however, shall such holding over be deemed or construed to be or
constitute a renewal or extension of this Lease.
6. Use of Leased Premises, Compliance With Laws.
(a) Permitted Use. Tenant shall use the Premises for an
automobile dealership and related uses ("Permitted Use") and for no other
purpose. Tenant's use of the Premises shall, subject to the right of diligent
contest, comply with all laws, ordinances, orders, regulations or zoning
classifications of any lawful governmental authority, agency or other public or
private regulatory authority (including insurance underwriters or rating
bureaus) having jurisdiction over the Premises. Tenant, shall make or cause to
be made all alterations, additions and improvements requiring expenditures as
are required to be made under any applicable laws, ordinances, rules or
regulations, now or hereinafter adopted or enacted provided all such
alterations, additions and improvements are made in accordance with Paragraph 10
hereof. Tenant shall not perform any act or follow any practice relating to the
Premises which shall constitute a nuisance and shall conduct any Permitted Use
on the Premises in an efficient and professional manner. Subject to the terms
and provisions of this Lease, Tenant shall have the right to control the
automobile dealership business being conducted at the Premises.
(b) Continuous Operations. During the Term, Tenant shall keep
the Premises and the Business open to the public and continuously operating for
the Permitted Use during normal business hours standard for the industry of
which the Business is a part or, in the event that the Tenant does not
continuously operate on the Premises, shall conduct periodic tests, which shall
occur at least monthly, of mechanical and other systems located on the Premises
and take all steps necessary to comply with its maintenance and repair
obligations hereunder.
(c) Laws. Notwithstanding the generality of the foregoing,
Tenant shall, at its sole expense, maintain the Premises in full compliance with
all applicable federal, state or municipal laws, ordinances, rules and
regulations currently in existence or hereafter enacted or rendered governing
accessibility for the disabled or handicapped, including, but not limited to,
any applicable provisions of The Architectural Barriers Act of 1968, The
Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With
Disabilities Act, the accessibility code(s), if any, of the State in which the
Premises are located, and all regulations and guidelines promulgated under any
or all of the foregoing, as the same may be amended from time to time
(collectively the "Accessibility Laws"). In the event that Tenant disputes the
applicability of an Accessibility Law
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to the Premises, Tenant may take reasonable steps to contest the applicability
of such Accessibility Laws, so long as Tenant provides Landlord with reasonable
assurances that its interest in the Premises is not in any way jeopardized by
such contest.
7. Tenant's Covenant to Repair. Tenant shall, at all times during the
Term and at its sole cost and expense, put, keep, replace and maintain the
Premises (including, without limitation, the Improvements and the Personalty) in
good repair and in good, safe and substantial order and condition, shall make
all repairs and replacements thereto, both inside and outside, structural and
non-structural, ordinary and extraordinary, howsoever the necessity or
desirability for repairs and replacements may occur, and whether or not
necessitated by wear, tear, obsolescence or defects, latent or otherwise, and
shall use all reasonable precautions to prevent waste, damage or injury. Tenant
shall also at its own cost and expense install, maintain and replace all
landscaping, signs, sidewalks, roadways, driveways and parking areas within the
Premises in good repair and in good, safe and substantial order and condition
and free from dirt, standing water, rubbish and other obstructions or obstacles.
8. Landlord's Obligation. Landlord shall not be required to make any
alterations, reconstructions, replacements, changes, additions, improvements or
repairs of any kind or nature whatsoever to the Premises or any portion thereof
(including, without limitation, any portion of the Improvements or any
Personalty) at any time during the Term.
9. Surrender. Tenant shall on the last day of the Lease Term, or upon
the sooner termination of this Lease, peaceably and quietly surrender the
Premises to Landlord, in as good condition as they were when received, ordinary
wear and tear excepted, and free of all liens and encumbrances.
10. Alterations.
(a) Prohibition. Except as hereinafter expressly provided in
this Paragraph 10, no portion of the Premises shall be demolished, removed or
altered by Tenant in any manner whatsoever without the prior written consent and
approval of Landlord, which may not be unreasonably withheld or delayed.
Notwithstanding the foregoing, however, Tenant shall be entitled and obligated
to undertake all alterations to the Premises required by any applicable law or
ordinance including, without limitation, any alterations required by any
Accessibility Laws, and, in such event, Tenant shall comply with the provisions
of Paragraph 10(c) below. The foregoing notwithstanding, if the existing
Premises is "grandfathered" such that alterations which would normally be
required to comply with law are not required with respect to the Premises,
Tenant shall not be entitled to alter the otherwise "grandfathered" structure
without Landlord's prior written consent, which shall not be unreasonably
withheld or delayed.
(b) Permitted Renovations. Landlord acknowledges that various
minor, non-structural alterations may be undertaken by Tenant from time to time
without the approval of Landlord. Tenant shall be entitled to perform all such
work on or about the Improvements; provided, however, that the conditions in
Paragraph 10(c) below shall be met.
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(c) Conditions. The following conditions shall be met by
Tenant for any alterations to the Premises permitted under Paragraphs 10(a) and
10(b):
(i) Before the commencement of any such work, plans
and specifications therefor or a detailed itemization including costs
thereof shall be furnished to Landlord for its review and approval.
Landlord's approval of Tenant's plans shall create no responsibility or
liability on the part of Landlord for their completeness, design,
sufficiency or compliance with all laws, rates, and regulations of
governmental agencies or authorities.
(ii) If the cost of such work will exceed FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00), then Tenant shall deposit in
Landlord's name, in an escrow account at the Bank or other financial
institution designated by Landlord, the anticipated cost of such work,
as certified by Tenant's contractor, who shall be approved by Landlord,
or, in the alternative, shall provide Landlord with other reasonable
assurances that such work will be performed and paid for in a lien-free
fashion, such as demonstrating to landlord the strength of Tenant's
financial condition or by demonstrating to landlord that a lender has
committed to loan Tenant construction funds for the proposed
alterations.. Such proceeds shall be disbursed periodically by Landlord
upon certification of Tenant's contractor that such amounts are the
amounts paid or payable for such work. Tenant shall, at the time of
establishment of such escrow account and from time to time thereafter
until said work shall have been completed and paid for, furnish
Landlord with adequate evidence that at all times the undisbursed
portion of the escrowed funds, together with any funds made available
by Tenant, is sufficient to pay for the work in its entirety. Tenant
shall obtain, and make available to Landlord, receipted bills and, upon
completion of the work, full and final waivers of lien.
(iii) Before the commencement of any such work,
Tenant shall obtain any required approvals from all governmental
departments or authorities having or claiming jurisdiction of or over
the Premises, and from any public utility companies having an interest
therein. In any such work, Tenant shall comply with all applicable
laws, ordinances, requirements, orders, directions, rules and
regulations of the federal, state, county and municipal governments and
of all other governmental authorities having or claiming jurisdiction
of or over the Premises and of all their respective departments,
bureaus and offices, and with the requirements and regulations, if any,
of such public utilities, of the insurance underwriting board or
insurance inspection bureau having or claiming jurisdiction, or any
other body exercising similar functions, and of all insurance companies
then writing policies covering the Premises or any part thereof.
(iv) Tenant represents and warrants to Landlord that
all such construction work will be performed in a good and workmanlike
manner and in accordance with the terms, provisions and conditions of
this Lease and all governmental requirements.
(v) Landlord shall have the right to inspect any such
construction work at all times during normal working hours and to
maintain at the Premises for that purpose (at its own expense) such
inspector(s) as it may deem necessary so long as such inspections do
not interfere with Tenant's work (but Landlord shall not thereby assume
any
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responsibility for the proper performance of the work in accordance
with the terms of this Lease, nor any liability arising from the
improper performance thereof).
(vi) All such work shall be performed at Tenant's
cost and expense and free of any expense to Landlord and free of any
liens on Landlord's fee simple interest on or Tenant's leasehold
interest in the Premises.
(vii) Upon substantial completion of any such work
Tenant shall procure a certificate of occupancy, if applicable, from
the appropriate governmental authorities verifying the substantial
completion thereof.
(viii) Tenant shall, indemnify and save and hold
Landlord harmless from and against and reimburse Landlord for any and
all loss, damage, cost and expense (including, without limitation,
reasonable attorneys' fees) incurred by or asserted against Landlord
which are occasioned by or result, directly or indirectly, from any
construction or renovation activities conducted upon the Premises;
whether or not the same is caused by or the fault of Tenant or any
contractor, subcontractor, laborer, supplier, materialman or any other
third party.
(d) Additions, Expansions and Structural Alterations.
Except as expressly permitted in Paragraph 10(a) or 10(b) above, nothing in this
Lease shall be deemed to authorize Tenant to construct and erect any additions
to or expansions of the Improvements, or perform any alterations of a structural
nature whatsoever; it being understood that Tenant may do so only with the prior
written consent and approval of Landlord, which consent and approval may not be
unreasonably withheld or delayed by Landlord.
11. Utilities and Other Services. Tenant shall be liable for and shall
pay directly all charges, fees and amounts (together with any applicable
penalties, late charges, taxes or assessments thereon) when due for water, gas,
electricity, air conditioning, heat, septic, sewer, refuse collection, telephone
and any other utility charges or similar items in connection with the use or
occupancy of the Premises. Landlord shall not be responsible or liable in any
way whatsoever for the quality, quantity, impairment, interruption, stoppage, or
other interference with any utility service, including, without limitation,
water, air conditioning, heat, gas, electric current for light and power,
telephone, or any other utility service provided to or serving the Premises or
any damage or injury caused thereby. No such interruption, termination or
cessation of utility services shall relieve Tenant of its duties and obligations
pursuant to this Lease, including, without limitation, its obligation to pay all
Rent as and when the same shall be due hereunder.
12. Performance by Landlord of Tenant's Obligations.
(a) Landlord's Self Help. If Tenant shall default in the
performance of any term, provision, covenant or condition on its part to be
performed hereunder and such default shall continue beyond any notice or cure
period recited herein, Landlord may, after notice to Tenant and a reasonable
time to perform after such notice (or without notice if, in Landlord's
reasonable opinion, an emergency exists) perform the same for the account and at
the expense of Tenant. If, at any time and by reason of such default, Landlord
is compelled to pay, or reasonably elects to pay,
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any sum of money or do any reasonable act which will require the payment of any
sum of money, or is compelled to incur any expense in the enforcement of its
rights hereunder or otherwise, such sum or sums, together with interest thereon
at the highest rate allowed under the laws of the State where the Premises is
located, shall be deemed additional rent hereunder and shall be repaid to
Landlord by Tenant promptly when billed therefor, and Landlord shall have all
the same rights and remedies in respect thereof as Landlord has in respect of
the rents herein reserved.
(b) Landlord's Inspections. Landlord, its agents or
representatives shall have the right, but not the obligation, to enter upon the
Premises to perform annual inspections of the Premises to confirm that Tenant is
performing all of Tenant's obligations under this Lease, including but not
limited to, Tenant's obligations under Paragraph 7 and that Tenant has not
violated any of its covenants under this Lease, including, but not limited to
the covenants under Paragraph 12. Upon completion of such inspection, Landlord
may deliver to Tenant a written report ("Inspection Report") outlining certain
defaults, if any, in Tenant's obligations hereunder. Within ten (10) days of
Tenant's receipt of such Inspection Report, Tenant shall either: (i) object to
Landlord in writing as to any portion of the Inspection Report, specifically
describing such objection; or (ii) begin to perform any and all required work
outlined in the Inspection Report which Tenant has not objected to, and
diligently complete such work. If Tenant objects to any item in the Inspection
Report, then within ten (10) days of Landlord's receipt of Tenant's objection
notice, both Landlord and Tenant shall select a third party licensed engineer
mutually satisfactory to Landlord and Tenant or if a single engineer cannot be
agreed upon, then Landlord and Tenant shall each, at their own cost, select a
licensed engineer and the two chosen engineers shall select a third licensed
engineer, the cost of the third engineer being paid equally by Landlord and
Tenant. The engineer(s) shall determine, by majority vote, if the work outlined
in the Inspection Report should be performed by Tenant. Such determination shall
be final and binding on Landlord and Tenant.
13. Entry. Landlord, any mortgagee for the Premises and their agents or
representatives may enter the Premises at reasonable times during normal
business hours upon twenty-four (24) hours prior written notice (except during
emergencies, in which case Landlord shall endeavor to give such notice as
Landlord deems reasonable under the circumstances or as provided for inspections
under Paragraphs 10 and 12) for the purpose of inspecting the Premises, or
performing any work which Landlord elects to undertake by reason of Tenant's
default under the terms of this Lease. Landlord shall use reasonable efforts not
to disturb Tenant as a result of any such entry by Landlord, its agents or
representatives.
14. Assignment and Subletting.
(a) Transfers Prohibited Without Consent. Tenant shall not,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, in each instance, sell, assign or otherwise
transfer this Lease, or Tenant's interest in the Premises, in whole or in part,
or any rights or interest which Tenant may have under this Lease, or sublet the
Premises, or any part thereof, or grant or permit any lien or encumbrance on or
security interest in Tenant's interest in this Lease. When given, the consent of
Landlord to an assignment, transfer, subletting or encumbrance shall in no event
be construed to relieve Tenant or such assignee or subtenant from the obligation
of obtaining the express consent in writing of Landlord to any further
assignment, transfer, subletting or encumbrance. Any assignment, transfer,
sublease or encumbrance in violation
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of this Article shall be voidable at Landlord's option. Notwithstanding the
foregoing, Tenant may assign or sublet the Premises to any affiliate of
Guarantor (hereinafter defined) without first obtaining the consent of Landlord,
so long as the Guaranty contemplated by Paragraph S l hereof shall remain in
full force and effect.
(b) Change of Control Prohibited Without Consent. Tenant shall
not, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, in each instance, engage in or permit to occur
a Change of Control. "Change of Control" shall be deemed an assignment
hereunder. Change of Control of Tenant shall mean: (i) the issuance or sale by
Tenant or the sale by any shareholder, stockholder, member, partner or owner of
equity interests of Tenant of a controlling interest in Tenant (which shall mean
the effective voting control of Tenant); (ii) the sale, conveyance or other
transfer of all or substantially all of the assets of Tenant (whether by
operation of law or otherwise); or (iii) any transaction, or series of
transactions, pursuant to which Tenant is merged with or consolidated into
another entity and Tenant is not the surviving entity.
(c) Adequate Assurances. Without limiting any of the foregoing
provisions of this Paragraph 14, if, pursuant to the U.S. Bankruptcy Code, as
the same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Lease in disregard of
the restrictions contained in this Paragraph 14, the assignee agrees to provide
adequate assurance to Landlord: (i) of the continued use of the Premises solely
in accordance with the Permitted Use thereof and in compliance with all other
terms of this Lease; (ii) of the continuous operation of the business in the
Premises in strict accordance with the requirements of Paragraph 6 hereof; and
(iii) of such other matters as Landlord may reasonably require at the time of
such assumption or assignment Such assignee shall expressly assume this Lease by
an agreement in recordable form.
(d) Subleases, Concessions and Licenses. Tenant may continue
any subleases, concession agreements or license agreements at the Premises which
were in effect, with Landlord's written approval, immediately prior to the
Commencement Date and as identified on Schedule 14(d) hereto. Further, Landlord
shall not unreasonably withhold its consent to any future sublease, concession
agreement or license agreement proposed to be entered into in replacement of any
such currently existing sublease, concession agreement or license agreement.
15. Taxes and Assessments. Throughout the Term, Tenant shall bear, pay
and discharge all taxes, assessments and other governmental impositions and
charges of every kind and nature whatsoever, extraordinary as well as ordinary,
and each and every installment thereof which shall or may during the Term hereof
be assessed or imposed upon, or arise in connection with, the use, occupancy or
possession of the Premises or any part thereof, including, without limitation,
ad valorem real and personal property taxes, and all taxes assessed or imposed
in lieu of or in addition to any of the foregoing by virtue of all present or
future laws, ordinances, rules or regulations of federal, state, county and
municipal governments and of all other governmental authorities which relate to
the use, occupancy or possession of the Premises, but specifically excluding any
income or capital gains taxes. Unless specifically waived by Landlord, Tenant
shall maintain a separate trust account at the Bank for Landlord's benefit in
which it shall make monthly deposits of one-twelfth of the estimated yearly
requirement for taxes and assessments together with such additional deposits
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as may be reasonably required by Landlord to ensure that sufficient funds will
be available to pay all such taxes, assessments and impositions as and when they
become due. Tenant shall provide Landlord as of the first day of each calendar
month during the Term, a detailed accounting from the Bank, together with
Tenant's estimate of the applicable tax and assessment requirements (including
due dates) delivered to Landlord on or before the fifteenth (15th) day of the
applicable calendar month. Upon request of Landlord, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of any tax, assessment,
imposition or charge required to be paid by Tenant pursuant to the foregoing.
16. Casualty.
(a) Restoration and Repair. In the event that during the
Initial Term the Improvements and/or Personalty shall be destroyed or damaged in
whole or in part by fire or any cause whatsoever and less than eighty percent
(80%) of the value of the Improvements and/or Personalty are damaged or
destroyed or in the event that less than sixty percent (60%) of the value of the
Improvements and/or Personalty are damaged or destroyed during any Renewal Term
(in either case, a "Minor Casualty"), Tenant shall give Landlord immediate
notice thereof and shall repair, reconstruct or replace the Improvements and/or
Personalty, or the portion thereof so destroyed or damaged (whichever is
reasonably required), at least to the extent of the value and character thereof
existing immediately prior to such occurrence. All work shall be started as soon
as practicable and completed at Tenant's sole cost and expense. Tenant shall,
however, immediately take such action as is necessary to assure that the
Premises (or any portion thereof) does not constitute a nuisance or otherwise
presents a health or safety hazard. Tenant shall continue to pay all Rent and
additional charges due hereunder without abatement. If during the Initial Term
greater than eighty percent (80%) of the value of the Improvements and/or
Personalty are damaged or destroyed, or if during any Renewal Term more than
sixty percent (60%) of the value of the Improvements and/or Personalty are
damaged or destroyed (a "Major Casualty"), then Tenant may, at its option, elect
to (i) terminate this Lease and assign all insurance proceeds for such damage
and destruction to Landlord; or (ii) treat the Major Casualty as if it were a
Minor Casualty and take all steps required for Minor Casualties herein.
Notwithstanding the foregoing, in the event that a period of two (2) years or
less remains on the Term of this Lease and the Tenant has not given Landlord
notice of its intent to renew the Lease for a Renewal Term, Landlord may elect
to terminate the Lease upon the occurrence of a Major Casualty, and Tenant shall
assign all insurance proceeds for such damage or destruction to Landlord.
(b) Escrow of Insurance Proceeds. In the event of a casualty
resulting in an insurance loss payment for the Improvements and/or Personalty in
an amount greater than ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00),
the proceeds of all insurance policies maintained by Tenant plus the amount of
any deductible shall be deposited in Landlord's and Tenant's name in an escrow
account at the Bank or another financial institution designated by Landlord, and
shall be used by Tenant (subject to subparagraph (a) above) for the repair,
reconstruction or restoration of the Improvements and/or Personalty. Such
proceeds shall be disbursed periodically by Escrow Agent upon certification of
the architect or engineer having supervision of the work that such amounts are
the amounts paid or payable for the repair, reconstruction or restoration.
Tenant shall, at the time of establishment of such escrow account and from time
to time thereafter until said work shall have been completed and paid for,
furnish
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Landlord with adequate evidence that at all times the undisbursed portion of the
escrowed funds, together with any funds made available by Tenant, is sufficient
to pay for the repair, reconstruction or restoration in its entirety. If a
casualty results in a loss payment for the Improvements and/or Personalty in an
amount equal to or less than the amount stated above, then the proceeds shall be
paid to Tenant, and shall be applied by Tenant (subject to subparagraph (a)
above) toward the repair, reconstruction and restoration of the Premises in its
entirety. Tenant shall obtain, and make available to Landlord, receipted bills
and, upon completion of the work, full and final waivers of lien.
(c) Uninsured Losses. Nothing contained herein shall relieve
Tenant of its obligations under this Paragraph 16 even if the destruction or
damage is not covered, either in whole or in part, by insurance.
17. Insurance.
(a) Insurance By Tenant. Throughout the Term, Tenant shall, at
its sole cost and expense, maintain in full force and effect the following types
and amounts of insurance coverage:
(i) Hazard Insurance. Tenant shall keep the
Improvements and Personalty, including all permitted alterations,
changes, additions and replacements thereof and thereto, insured
against loss or damage caused by: (A) fire, and other hazards and
perils generally included under extended coverage, including flood and
earthquake; (B) sprinkler leakage; (C) vandalism and malicious
mischief; (D) boiler and machinery; and (E) other perils commonly
covered by "All Risk" insurance, all in an amount which reasonably
assures there will be sufficient proceeds to replace the Improvements
and Personalty in the event of a loss against which such insurance is
issued but in no event less than 100% of the full replacement value
thereof (exclusive of foundations). All insurance required hereunder,
and all other insurance maintained by Tenant on the Improvements and
Personalty in excess of or in addition to that required hereunder,
shall be carried in favor of Landlord and Tenant, as their respective
interests may appear.
(ii) Liability Insurance. Tenant shall provide and
keep in full force and effect a policy of broad form comprehensive
general public liability and property damage insurance providing
coverage against liability for personal injury, death and property
damage having limits of not less than Five Million Dollars ($5,000,000)
per occurrence, and Five Million Dollars ($5,000,000) aggregate.
(iii) Worker's Compensation and Employer's Liability
Insurance. Tenant shall provide and keep in full force and effect
workers' compensation insurance, in a form prescribed by the laws of
the State in which the Premises is located, and employers' liability
insurance with limits of not less than Five Million Dollars
($5,000,000).
(iv) Builder's Risk Insurance. Tenant shall, prior to
the commencement of and during the construction of any construction,
restoration, renovation or alteration to the Premises, provide and keep
in full force and effect builders' risk insurance in accordance with
the requirements of this Paragraph 17.
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(v) Other Insurance. In addition, Tenant shall, at
Landlord's request, provide and keep in full force and effect such
other insurance for such risks and in such amounts as may from time to
time be commonly insured against in the case of business operations
similar to those contemplated by this Lease to be conducted by Tenant
on the Premises.
(vi) Landlord as Additional Insured. Any and all
insurance maintained by Tenant as required by this Lease, or in excess
of or in addition to that required hereunder, shall name Landlord and
any mortgagee requested by Landlord as an additional insured(s), and
shall use its best efforts to provide a waiver of subrogation from its
insurance carrier.
(vii) Insurance Escrows. Tenant shall maintain a
separate trust account at the Bank for Landlord's benefit in which it
shall make monthly deposits of one-twelfth of the estimated yearly
premium for those insurance coverages for which Landlord notifies
Tenant it must escrow, together with such additional deposits as may be
reasonably required by Landlord to ensure that sufficient funds will be
available to pay all such premiums as and when they become due. Tenant
shall provide Landlord as of the first day of each calendar month
during the Term, a detailed accounting from the Bank, together with
Tenant's estimate of the applicable insurance premiums (including due
dates) delivered to Landlord on or before the fifteenth (15th) day of
the applicable calendar month. Upon request of Landlord, Tenant shall
promptly furnish to Landlord satisfactory evidence of the payment of
any insurance premium required to be paid by Tenant pursuant to the
foregoing.
(b) Carriers and Features. All insurance policies required to be
carried by Tenant as provided in this Paragraph 17 shall be issued by insurance
companies approved by Landlord and authorized and licensed to do business in the
State in which the Premises is located with a Best's Insurance Rating of not
less than "A-" or a Best's Financial Category of not less than "VIII" or as
otherwise required by Landlord, with reasonable deductibles, taking into account
Tenant's and Guarantor's financial condition and the risk being insured.
Landlord shall have the right from time to time to require Tenant to increase
the amount and/or type of coverage to be maintained under this Lease. All such
policies shall be for periods of not less than one year and Tenant shall renew
the same at least thirty (30) days prior to the expiration thereof. All such
policies shall require not less than thirty (30) days written notice to Landlord
prior to any cancellation thereof or any change reducing coverage thereunder.
Notwithstanding the foregoing, Tenant may elect to self-insure or obtain blanket
insurance for each of the foregoing required types of insurance, so long as it
obtains the prior written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed.
Tenant shall pay the premiums for all insurance policies which Tenant
is obligated to carry under this Article and, at least twenty (20) days prior to
the date any such insurance must be in effect, deliver to Landlord a copy of the
policy or policies, or a certificate or certificates thereof, along with
evidence that the premiums therefor have been paid for at least the next ensuing
quarter-annual period.
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(c) Failure to Procure Insurance. If Tenant fails to procure
insurance required under this Article or fails to maintain the same in full
force and effect continuously during the Term, Landlord shall be entitled to
procure the same and Tenant shall immediately reimburse Landlord for such
premium expense as additional rent.
(d) Waiver of Subrogation. If any property owned by Tenant and
located in the Premises shall be stolen, damaged or destroyed by an insured
peril, Landlord shall not have any liability to Tenant, nor to any insurer of
Tenant, for or in respect of such theft, damage or destruction, and Tenant shall
use its best efforts to require all policies of insurance carried by it on its
property in the Premises to contain or be endorsed with a provision by which the
insurer designated therein shall waive its right of subrogation against
Landlord.
18. Environmental Matters.
(a) Tenant's Covenant. Throughout the Term of this Lease,
Tenant covenants that it shall not cause, permit or allow any chemical
substances, asbestos, asbestos containing materials, oil, gasoline, other
petroleum products or by-products, formaldehyde, polychlorinated biphenals
(PCB's), lead or lead dust, fuel storage tanks, natural or synthetic gas
products or any toxic, carcinogenic, radioactive, dangerous or hazardous
material, substance, chemical, waste, contamination or pollutant the generation,
use, maintenance, storage or removal of which is regulated, prohibited or
penalized under the Resources Conservation Recovery Act ("RCRA"), 42 U.S.C.
Section 6901, et seq; the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Section 9601, et seq; and any other federal,
state or local laws pertaining to so-called "hazardous substances" or "hazardous
materials" (collectively, the "Hazardous Materials") to be placed, stored,
dumped, dispensed, released, discharged, deposited, used, transported, located
or generated on any portion of the Premises; provided, however, that
commercially reasonable quantities of such substances may be used or stored by
Tenant on the Premises on the condition that such quantities and the use thereof
are permitted by and in compliance with, or are exempt from applicable
governmental regulations.
(b) Clean Up. Subject to the provisions of Paragraph 52
hereof, Tenant shall immediately clean up any Hazardous Materials found on or
within any portion of the Premises, and shall remediate the Premises, to comply
with any and all laws, ordinances, rules or regulations regarding Hazardous
Materials and clean-up thereof, and to pay for all clean-up and remediation
costs at no cost to Landlord.
(c) Indemnification. Subject to the provisions of Paragraph 52
hereof, Tenant shall indemnify, release and hold Landlord its successors,
assigns, officers, directors, shareholders and employees, harmless from and
against all Liabilities, suffered by, incurred by or assessed against such
parties, their agents or other representatives, whether incurred as a result of
legal action taken by any governmental entity or agency, taken by any private
claimant, or taken by Landlord, before or after the expiration of the Term as a
result of the presence, disturbance, discharge, release, removal or clean-up of
any Hazardous Materials upon or under, on or off site, associated with,
generated on or flowing or originating from the Premises. The term "Liabilities"
as used in this Paragraph 18 is hereby defined as any and all liabilities,
expenses, demands, damages, punitive or exemplary damages, consequential
damages, costs, cleanup costs, response costs, losses, causes of
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action, claims for relief, attorneys and other legal fees, other professional
fees, penalties, fines, assessments and charges.
19. Costs and Attorneys' Fees. If either party shall bring an action to
recover any sum due hereunder, or for any breach hereunder, and shall obtain a
judgment or decree in its favor, the court may award to such prevailing party
its reasonable costs and reasonable attorneys' fees, specifically including
reasonable attorneys' fees incurred in connection with any appeals (whether or
not taxable or assessable as such by law). Landlord shall also be entitled to
recover from Tenant Landlord's reasonable attorneys' fees and costs incurred in
any bankruptcy action filed by or against Tenant, including, without limitation,
those incurred in seeking relief from the automatic stay, in dealing with the
assumption or rejection of this Lease, in any adversary proceeding, and in the
preparation and filing of any proof of claim.
20. Default; Remedies.
(a) Default. Upon the occurrence of any one or more of the
following events (the "Events of Default"), Landlord shall have the right to
exercise any rights or remedies available in this Lease, at law or in equity.
Events of Default shall be:
(i) Tenant's failure to pay when due any regularly
scheduled payment of Rent, or any other sum of money payable hereunder
(whether as additional rent or otherwise) and such failure is not cured
within ten (10) days after receipt of written notice thereof from
Landlord, (but Landlord shall be obligated to tender notice of such
default only once in any given twelve (12) month period, and thereafter
it shall be an Event of Default any time a required payment is not
received within ten (10) days of the date such sum was due if Landlord
has given notice of default relating to Tenant's failure to pay any
regularly scheduled payment of Rent in the Preceding twelve (12) month
period);
(ii) Tenant's failure to pay when due any other
payment of Rent, or any other sum of money payable hereunder (whether
as additional rent or otherwise) and such failure is not cured within
thirty (30) days after receipt of written notice thereof from Landlord;
(iii) Tenant's failure to perform any other of the
terms, covenants or conditions contained in this Lease if not remedied
within thirty (30) days after receipt of written notice thereof, or, if
such default cannot reasonably be remedied within such period, Tenant
does not within thirty (30) days after written notice thereof commence
such act or acts as shall be necessary to remedy the default and shall
not thereafter diligently complete such act or acts within a reasonable
time, provided, however, in no event shall such "Cure Period" extend
beyond one hundred twenty (120) days after written notice thereof;
(iv) if Tenant becomes bankrupt or insolvent, or
files any debtor proceedings, or files pursuant to any statute a
petition in bankruptcy or insolvency or for reorganization, or files a
petition for the appointment of a receiver or trustee for all or
substantially all of its assets, and such petition or appointment shall
not have been set aside within sixty (60) days from the date of such
petition or appointment, or if any of the
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foregoing are filed against Tenant, or if Tenant makes an assignment
for the benefit of creditors or shall admit in writing its inability to
pay its debts generally as they become due, or if Tenant's interest in
this Lease is attached, seized or made subject to any other judicial
seizure and such seizure or attachment is not discharged within sixty
(60) days;
(v) Tenant's failure to provide insurance coverage
(or allows such coverage to be canceled or lapse) pursuant to its
obligation hereunder;
(vi) if Tenant is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner,
permits the sale or divestiture of substantially all of its assets;
(vii) if a Change of Control occurs or the estate or
interest of Tenant in the Premises or any part thereof is voluntarily
or involuntarily transferred, assigned, conveyed, levied upon or
attached in any proceeding, unless Tenant is contesting such lien or
attachment in good faith in accordance with Paragraph 27 hereof;
(viii) if there has been a notice of default under or
a termination or relinquishment of the franchise or license pursuant to
which Tenant or an Affiliate conducts business on or from the Premises
("Franchise"), provided that such event shall not constitute an Event
of Default if (i) no other Event of Default enumerated in this
Paragraph 20 shall occur and be continuing, and (ii) at a date no later
than the period allowed to Tenant pursuant to the Franchise to cure
such default, termination or relinquishment, Tenant or an Affiliate has
cured such default thereunder so that there is no default, termination
or relinquishment of the Franchise, or Tenant has entered into a
written new or amended Franchise for operation of motor vehicle retail
or motor vehicle related businesses at the Premises with a substitute
franchisor or licensor acceptable to Landlord on terms and conditions
acceptable to Landlord, which acceptance shall not be unreasonably
withheld or delayed;
(ix) Tenant's failure to provide Landlord immediate
notice of Tenant's receipt of notice of (A) a default or potential
default by Tenant under the Franchise, or (B) the Franchiser's intent
to terminate, suspend or not renew the Franchise;
(x) if Tenant or any of its Affiliates defaults under
any other lease with Landlord or an Affiliate of Landlord, unless such
default is premised upon a default, suspension or termination of any
Franchise agreement.
(b) Remedies. If any of the Events of Default hereinabove specified
shall occur and be continuing, Landlord shall have and may exercise any one or
more of the following rights and remedies:
(i) Landlord may, by written notice thereof to
Tenant, terminate this Lease and, peaceably or pursuant to appropriate
legal proceedings, re-enter, retake and resume possession of the
Premises for Landlord's own account and, for Tenant's breach of and
default under this Lease, recover immediately from Tenant any and all
Rent and other
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sums and damages due or in existence at the time of such termination,
including, without limitation: (A) all Rent and other sums, charges,
payments, costs and expenses agreed and/or required to be paid by
Tenant to Landlord hereunder; (B) all reasonable costs and expenses of
Landlord in connection with the recovery of possession of the Premises,
including reasonable attorneys' fees and court costs; and (C) all costs
and expenses of Landlord in connection with any reletting or attempted
reletting of the Premises or any part or parts thereof, including,
without limitation, brokerage fees, attorneys' fees and the cost of any
alterations or repairs which may be reasonably required to so relet the
Premises, or any part or parts thereof.
(ii) Landlord may, by written notice thereof to
Tenant, terminate Tenant's option to renew this Lease for any or all of
the Renewal Terms.
(iii) Landlord may, pursuant to any prior notice
required by law, and without terminating this Lease, peaceably or
pursuant to appropriate legal proceedings, re-enter, retake and resume
possession of the Premises for the account of Tenant, make such
alterations of and repairs to the Premises as may be reasonably
necessary in order to relet the same or any part or parts thereof and
relet or attempt to relet the Premises or any part or parts thereof for
such term or terms (which may be for a term or terms extending beyond
the Term), at such Rent and upon such other terms and provisions as
Landlord, in its reasonable discretion may deem advisable. In the event
that Landlord retakes and resumes possession of the Premises, it shall
use reasonable efforts to mitigate any damages it suffered by virtue of
Tenant's default. Upon any such reletting, all rents received by
Landlord from such reletting shall be applied: (A) first, to the
payment of all costs and expenses of recovering possession of the
Premises; (B) second, to the payment of any costs and expenses of such
reletting, including brokerage fees, attorneys' fees and the cost of
any alterations and repairs reasonably required for such reletting; (C)
third, to the payment of any indebtedness, other than Rent, due
hereunder from Tenant to Landlord, and to satisfy any liens encumbering
Tenant's leasehold interest; (D) fourth, to the payment of all Rent and
other sums due and unpaid hereunder; and (E) fifth, the residue, if
any, shall be held by Landlord and applied in payment of future Rent as
the same may become due and payable hereunder. If the rents received
from such reletting during any period shall be less than that required
to be paid during that period by Tenant hereunder, then Tenant shall
promptly pay any such deficiency to Landlord and failing the prompt
payment thereof by Tenant to Landlord, Landlord shall immediately be
entitled to institute legal proceedings for the recovery and collection
of the same. Such deficiency shall be calculated and paid at the time
each payment of Rent shall otherwise become due under this Lease, or,
at the option of Landlord, immediately. Landlord shall, in addition, be
immediately entitled to sue for and otherwise recover from Tenant any
other damages occasioned by or resulting from any abandonment of the
Premises or other breach of or default under this Lease other than a
default in the payment of Rent. No such re-entry, retaking or
resumption of possession of the Premises by Landlord for the account of
Tenant shall be construed as an election on the part of Landlord to
terminate this Lease unless a written notice of such intention shall be
given to Tenant or unless the termination of this Lease be decreed by a
court of competent jurisdiction. Notwithstanding any such re-entry and
reletting or attempted reletting of the Premises or any part or parts
thereof for the account of Tenant without termination, Landlord may at
any time thereafter, upon written
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notice to Tenant, elect to terminate this Lease or pursue any other
remedy available to Landlord for Tenant's previous breach of or default
under this Lease.
(iv) Landlord may, without re-entering, retaking or
resuming possession of the Premises, sue for all Rent and all other
sums, charges, payments, costs and expenses due from Tenant to Landlord
hereunder either: (A) as they become due under this Lease, taking into
account that Tenant's right and option to pay the Rent hereunder on a
monthly basis in any particular Lease Year is conditioned upon the
absence of a default on Tenant's part in the performance of its
obligations under this Lease; or (B) at Landlord's option, accelerate
the maturity and due date of the whole or any part of the Rent for the
entire then-remaining unexpired balance of the Term (reduced to its
present value, applying an interest rate of _________ percent (____%),
as well as all other sums, charges, payments, costs and expenses
required to be paid by Tenant to Landlord hereunder, including, without
limitation, damages for breach or default of Tenant's obligations
hereunder in existence at the time of such acceleration, such that all
sums due and payable under this Lease shall, following such
acceleration, be treated as being and, in fact, be due and payable in
advance as of the date of such acceleration. Landlord may then proceed
to recover and collect all such unpaid Rent and other sums so sued for
from Tenant by distress, levy, execution or otherwise.
(v) Landlord may require Tenant to immediately
transfer to Landlord all amounts held by Tenant in the trust account
established pursuant to Paragraph 15 above and, thereafter, to deposit
on the first day of each month together with and in addition to the
regular installment of Rent, an amount equal to one-twelfth (1/12) of
the yearly taxes and assessments as estimated by Landlord to be
sufficient to enable Landlord to pay, at least thirty (30) days before
they become delinquent, all taxes, assessments, and other similar
charges and insurance premiums against the Premises or any part
thereof. Such added payments shall not be, nor be deemed to be, trust
funds, but may be commingled with the general funds of Landlord, and no
interest shall be payable with respect thereto. Upon demand of
Landlord, Tenant shall deliver to Landlord such additional moneys as
are necessary to make up any deficiencies in the amounts necessary to
enable Landlord to pay such taxes, assessments and similar charges and
insurance premiums.
In addition to the remedies hereinabove specified and enumerated,
Landlord shall have and may exercise the right to invoke any other remedies
allowed at law or in equity as if the remedies of re-entry, unlawful detainer
proceedings and other remedies were not herein provided. Accordingly, the
mention in this Lease of any particular remedy shall not preclude Landlord from
having or exercising any other remedy at law or in equity. Nothing herein
contained shall be construed as precluding Landlord from having or exercising
such lawful remedies as may be and become necessary in order to preserve
Landlord's right or the interest of Landlord in the Premises and in this Lease,
even before the expiration of any notice periods provided for in this Lease, if
under the particular circumstances then existing the allowance of such notice
periods will prejudice or will endanger the rights and estate of Landlord in
this Lease and in the Premises.
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21. Eminent Domain.
(a) Complete Taking. If the whole of the Premises shall be
taken for any public or quasi-public use under any statute or by right of
eminent domain, or by private purchase in lieu thereof, then this Lease shall
automatically terminate as of the date that title shall be taken.
(b) Partial Taking. If any part of the Premises shall be so
taken, such that the Premises may still be used for its intended purposes, this
Lease shall not terminate or be terminated and Tenant shall restore the
remaining portion of the Premises to the extent necessary to render it
reasonably suitable for the purposes for which it was leased and make all
repairs to any building damaged by such taking to the extent necessary to
constitute such building a complete architectural unit. If after such partial
taking, Landlord and Tenant shall determine in their reasonable discretion that
the Premises cannot be used for their intended purposes, then the term of this
Lease shall end on the effective date of such taking. If after such partial
taking, this Lease shall not so terminate, then the rent to be paid by Landlord
after such taking shall be equitably adjusted as Landlord and Tenant shall then
agree. Any disagreement between Landlord and Tenant regarding the foregoing
matters shall be determined by arbitration in accordance with the Commercial
Rules of the American Arbitration Association.
(c) Award. All awards and other compensation made to Tenant in
any taking by eminent domain or recovery for inverse condemnation, either
permanent or temporary, of all or any part of the Premises or any easement or
any appurtenance thereto, including severance and consequential damages and
change in grade of any street, are hereby assigned to Landlord, and Tenant
hereby irrevocably appoints Landlord as its attorney-in-fact, coupled with an
interest, and authorizes, directs and empowers such attorney, at the option of
said attorney, on behalf of Tenant, its successors and assigns, to adjust or
compromise the claim for any such award and alone to collect and receive the
proceeds thereof, to give proper receipts and acquittances therefor and, after
deducting any expenses of collection and subject to the conditions and
limitations set forth below, to hold such proceeds without any allowance of
interest and make the same available for restoration or rebuilding the
improvements which are part of the Premises. Such proceeds shall be paid to and
held and disbursed by an escrow agent in the manner and under the conditions
provided in paragraph 12 above. If the proceeds are made available by Landlord
to reimburse Tenant for the cost of restoration or rebuilding, any surplus which
may remain out of any award after payment of such cost of restoration or
rebuilding shall be the sole property of Landlord.
(d) Notices; Assignments. Each of Landlord and Tenant further
covenants and agrees to give the other immediate notice of the actual or
threatened commencement of any proceedings under eminent domain and to deliver
to the other copies of any and all papers served in connection with any such
proceedings. Tenant shall make, execute and deliver to Landlord, at any time or
times, upon request, free, clear and discharged of any encumbrance of any kind
whatsoever, any and all further assignments and/or other instruments deemed
necessary by Landlord for the purpose of validly and sufficiently assigning all
such awards and other compensation heretofore or hereafter made to Landlord
(including the assignment of any award from the United States government at any
time after the allowance of the claim therefor, the ascertainment of the amount
thereof and the issuance of the warrant for payment thereof).
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22. Liability of Landlord. Landlord shall not be liable to Tenant, its
employees, agents, contractors, business invitees, licensees, customers,
clients, family members or guests for any damage, injury, loss, compensation or
claim, including, but not limited to, claims for the interruption of or loss to
Tenant's business, based on, arising out of or resulting from any cause
whatsoever, except in the event of its clear failure to comply with its
obligations hereunder, including, but not limited to: (a) repairs to any portion
of the Premises; (b) interruption in Tenant's use of the Premises; (c) any
accident or damage resulting from the use or operation (by Landlord, Tenant or
any other person or persons) of any equipment within the Premises, including
without limitation, heating, cooling, electrical or plumbing equipment or
apparatus; (d) the termination of this Lease by reason of the condemnation or
destruction of the Premises in accordance with the provisions of this Lease; (e)
any fire, robbery, theft, mysterious disappearance or other casualty; (f) the
actions of any other person or persons; and (g) any leakage or seepage in or
from any part or portion of the Premises, whether from water, rain or other
precipitation that may leak into, or flow from, any part of the Premises, or
from drains, pipes or plumbing fixtures in the Improvements. Any goods, property
or personal effects stored or placed by Tenant or its employees in or about the
Premises shall be at the sole risk of Tenant.
23. Indemnification of Landlord. In addition to any other
indemnification obligations in this Lease, Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and expenses and court costs and actual or
consequential damages, incurred by, imposed upon or asserted against Landlord,
its officers, trustees, employees, shareholders, agents or Affiliates, arising
directly or indirectly from or out of: (a) any breach, violation or
nonperformance by Tenant or any person claiming under Tenant, or the employees,
agents, contractors, invitees or visitors of Tenant of any of the terms,
provisions, representations, warranties, covenants or conditions of this Lease
on Tenant's part to be performed or any law, ordinance or governmental
requirement of any kind; (b) any use, condition, operation or occupancy of the
Premises during the Term hereof; (c) any acts, omissions or negligence of
Tenant, in, on, or about the Premises during the Term hereof; (d) any accident,
injury, death or damage to the person, property or business of Tenant, its
employees, agents, contractors, invitees, visitors or any other person which
shall happen at, in or upon the Premises, however occurring during the Term
hereof; (e) any matter or thing growing out of the condition, occupation,
maintenance, alteration, repair, use or operation by any person of the Premises,
or any part thereof, or the operation of the business contemplated by this Lease
to be conducted thereon, thereat, therein, or therefrom which occurs during the
Term hereof; (f) any failure of Tenant to comply with any laws, ordinances,
requirements, orders, directions, rules or regulations of any governmental
authority, including, without limitation, the Accessibility Laws; (g) any
contamination of the Premises, or the ground waters thereof, arising on or after
the date Tenant takes possession of the Premises and occasioned by the use,
transportation, storage, spillage or discharge thereon, therein or therefrom of
any toxic or hazardous chemicals, compounds, materials or substances or any
violation of the covenants of Paragraph 18 above; (h) any discharge of toxic or
hazardous sewage or waste materials from the Premises into any septic facility
or sanitary sewer system serving the Premises arising on or after the date
Tenant takes possession of the Premises; (i) any brokers or agents fees and
commissions incurred during or with respect to the Term hereof; or
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(j) any other act or omission of Tenant, its employees, agents, invitees,
customers, licensees or contractors which occurs during the Term hereof.
Tenant's indemnity obligations under this Paragraph 23 and elsewhere in
this Lease arising prior to the termination or assignment of this Lease shall
survive any such termination or assignment.
24. Notice of Claim or Suit. Tenant shall promptly notify Landlord of
any claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord which relates to the Premises of which Tenant receives notice or of
which Tenant acquires knowledge. If Landlord is made a party to any action for
damages or other relief against which Tenant has indemnified Landlord, as
aforesaid, then Tenant shall defend Landlord, pay all costs and shall provide
effective counsel to Landlord in such litigation with counsel reasonably
satisfactory to Landlord and shall pay any and all judgments or sums due
pursuant to any settlement agreement which is mutually satisfactory to Landlord
and Tenant.
25. Liens, Generally. Tenant shall not create or cause to be imposed,
claimed or filed upon the Premises, or any portion thereof, or upon the interest
of Landlord therein, any lien, charge or encumbrance whatsoever. If, because of
any act or omission of Tenant, any such lien, charge or encumbrance shall be
imposed, claimed or filed, Tenant shall, at its sole cost and expense, cause the
same to be fully paid and satisfied or otherwise discharged of record (by
bonding or otherwise) and Tenant shall indemnify and save and hold Landlord
harmless from and against any and all costs, liabilities, suits, penalties,
claims and demands whatsoever, and from and against any and all attorneys' fees,
at both trial and all appellate levels, resulting or on account thereof and
therefrom. If Tenant shall fail to comply with the foregoing provisions of this
Paragraph 25, then Landlord shall have the option of paying, satisfying or
otherwise discharging (by bonding or otherwise) such lien, charge or encumbrance
and Tenant shall reimburse Landlord, upon demand and as additional rent, for all
sums so paid and for all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon, until paid.
26. Mechanics Liens. Landlord's interest in the Premises shall not be
subjected to liens of any nature by reason of Tenant's construction, alteration,
renovation, repair, restoration, replacement or reconstruction of any
improvements on or in the Premises, or by reason of any other act or omission of
Tenant (or of any person claiming by, through or under Tenant) including, but
not limited to, mechanics' and materialmen's liens. All persons dealing with
Tenant are hereby placed on notice that such persons shall not look to Landlord
or to Landlord's credit or assets (including Landlord's interest in the
Premises) for payment or satisfaction of any obligations incurred in connection
with the construction, alteration, renovation, repair, restoration, replacement
or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right
or authority to subject Landlord's interest in the Premises to any mechanics or
materialmen's lien or claim of lien. If a lien, a claim of lien or an order for
the payment of money shall be imposed against the Premises on account of work
performed, or alleged to have been performed, for or on behalf of Tenant, Tenant
shall, within thirty (30) days after written notice of the imposition of such
lien, claim or order, cause the Premises to be released therefrom by the payment
of the obligation secured thereby or furnish a bond or by any other method
prescribed or permitted by law. If a lien is released, Tenant shall thereupon
furnish Landlord with a written instrument of release in form for recording or
filing in the
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appropriate office of land records of the County in which the Premises is
located, and otherwise sufficient to establish the release as a matter of
record.
27. Contest of Liens. Tenant may, at its option, contest the validity
of any lien or claim of lien if Tenant shall have first posted an appropriate
and sufficient bond in favor of the claimant or paid the appropriate sum into
court, if permitted by law, and thereby obtained the release of the Premises
from such lien. If judgment is obtained by the claimant under any lien, Tenant
shall pay the same immediately after such judgment shall have become final and
the time for appeal therefrom has expired without appeal having been taken.
Tenant shall, at its own expense, defend the interests of Tenant and Landlord in
any and all such suits; provided, however, that Landlord may, at its election,
engage its own counsel and assert its own defenses, in which event Tenant shall
cooperate with Landlord and make available to Landlord all information and data
which Landlord deems necessary or desirable for such defense.
28. Notices of Commencement of Construction. If required by the laws of
the State in which the Premises are located or in the event permitted by the
laws of the State in which the Premises are located and Landlord so requests
upon Tenant giving notice to Landlord of its intended construction, and in the
event that Tenant reasonably contemplates construction of any work on the
Premises will cost, in the aggregate, Fifty Thousand Dollars ($50,000.00) or
more, prior to commencement by Tenant of any work on the Premises which shall
have been previously permitted by Landlord as provided in this Lease, Tenant
shall record or file a notice of the commencement of such work (the "Notice of
Commencement") in the land records of the County in which the Premises are
located, identifying Tenant as the party for whom such work is being performed,
stating such other matters as may be required by law and requiring the service
of copies of all notices, liens or claims of lien upon Landlord. Any such Notice
of Commencement shall clearly reflect that the interest of Tenant in the
Premises is that of a leasehold estate and shall also clearly reflect that the
interest of Landlord as the fee simple owner of the Premises shall not be
subject to mechanics or materialmen's liens on account of the work which is the
subject of such Notice of Commencement. A copy of any such Notice of
Commencement shall be furnished to and approved by Landlord and its attorneys
prior to the recording or filing thereof, as aforesaid.
29. Limitation on Liability of Landlord. If Tenant is awarded a money
judgment against Landlord, then Tenant's sole recourse for satisfaction of such
judgment shall be limited to execution against the Premises and any other
premises leased by Landlord to an Affiliate of Tenant. In no event shall any
stockholder, shareholder, partner, employee, officer or beneficiary of Landlord
be personally liable for the obligations of Landlord hereunder.
30. Franchise and License Agreements. Tenant shall keep and maintain in
full force during the Term all Franchise agreements, management agreements,
service and maintenance contracts, equipment leases and other contracts or
agreements reasonably necessary to the operation of the Premises for its
Permitted Use. Tenant shall, at its sole cost and expense, pay all franchise
fees, license fees, management fees or other expenses of any kind or nature
whatsoever in connection with its operation of the Premises for its Permitted
Use.
31. "Net" Lease. Landlord and Tenant acknowledge and agree that this
Lease shall be and constitute what is generally referred to as a "triple net" or
"absolute net" lease, such that Tenant
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shall be obligated hereunder to pay all costs and expenses incurred with respect
to, and associated with, the Premises and the business operated thereon and
therein, including, without limitation, all taxes and assessments, utility
charges, insurance costs, maintenance costs and repair and restoration expenses
(all as more particularly herein provided).
32. Representations, Warranties and Special Covenants. The
Representations, Warranties and Special Covenants attached hereto as Exhibit E
are incorporated herein by this reference.
33. Notices. All notices, approvals, requests, consents and other
communications given pursuant to this Lease shall be in writing and shall be
deemed to have been duly given (i) when actually received if (a) either (x) hand
delivered, (y) sent by facsimile transmission (in which event proof of delivery
shall be by telephone) (and a duplicate of such notice in (x) or (y) or such
notice shall be deposited in a regularly maintained receptacle for the deposit
of United States mail, sent by registered or certified mail, postage and charges
prepaid); (ii) two (2) days after the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, sent by registered
or certified mail, postage and charges prepaid; or (iii) the next business day
if sent via a national overnight delivery service, addressed as follows or at
such other address as either party may specify from time to time by notice to
the other party at least five (5) days prior notice of the changed address:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
TO TENANT: With a copy to:
_____________________________ Mr. Charles B. Lee, Jr.
_____________________________ Parker, Poe, Adams & Bernstein L.L.P.
_____________________________ 2500 Charlotte Plaza
Attention:_____________________ Charlotte, North Carolina 28244
Telephone:____________________ Telephone: (704) 335-9001
Telefax:______________________ Telefax: (704) 334-4706
- ----------------------------------------------------------------------------------------------------------
TO LANDLORD: With a copy to:
MarMar Realty Limited Partnership ____________________________________
6407 Idlewild Road, Building 2, Suite 111 ____________________________________
Charlotte, North Carolina 28212 ____________________________________
Attention: B.F. Bracy Attention: _________________________
Telephone: (704) 566-4081 Telephone: _________________________
Telefax: (704) 566-6031 Telefax: ___________________________
- ---------------------------------------------------------------------------------------------------------
</TABLE>
34. No Waiver. No course of dealing between Landlord and Tenant, or any
delay or omission of Landlord or Tenant to insist upon a strict performance of
any term or condition of this Lease shall be deemed a waiver of any right or
remedy that such party may have, and shall not be deemed a waiver of any
subsequent breach of such term or condition.
35. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the
Rent and observing and keeping the covenants, agreements and stipulations of
this Lease on its part to be kept, shall lawfully, peaceably and quietly hold,
occupy and enjoy the Premises during the Term without hindrance, ejection or
molestation. Landlord covenants and warrants that it is lawfully seized of the
Premises and has good, right and lawful authority to enter into this Lease for
the full term aforesaid,
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that the Premises are free and clear of all encumbrances that would prevent
Landlord from having such right and authority and that Landlord will put Tenant
in actual possession of the Premises on the Commencement Date.
36. Subordination. Non-Disturbance and Attornment. In the event that
Landlord elects, in its sole discretion, to place any form of financing on the
Premises, Tenant agrees to promptly enter into, execute and deliver to the
requesting party a commercially reasonable subordination, non-disturbance and
attornment agreement with any such lender, which shall acknowledge that this
Lease, Tenant's interest hereunder and Tenant's leasehold interest in and to the
Premises are junior, inferior, subordinate and subject in right, title,
interest, lien, encumbrance, priority and all other respects to any such
mortgage (which term when used anywhere in this Lease includes deeds of trust
and other security instruments and interests) or mortgages now or hereafter in
force and effect upon or encumbering Landlord's interest in the Premises, or any
portion thereof, and to all collateral assignments by Landlord to any third
party or parties of any of Landlord's rights under this Lease or the rents,
issues and profits thereof or therefrom as security for any liability or
indebtedness, direct, indirect or contingent, of Landlord to such third party or
parties, and to all future modifications, extensions, renewals, consolidations
and replacements of, and all amendments and supplements to any such mortgage,
mortgages or assignments. If, within fifteen (15) days following Tenant's
receipt of a written request by Landlord or the holder or proposed holder of any
such mortgage, mortgages or assignments, Tenant shall fail or refuse or shall
have not executed any such subordination, non-disturbance and attornment
agreement, Tenant shall be in breach and default of its obligation to do so and
of this Lease and Landlord shall be entitled thereupon to exercise any and all
remedies available to Landlord pursuant to this Lease or otherwise provided by
law.
37. Brokers. Landlord and Tenant represent and warrant to the other
that neither of them have engaged or contracted with any person, firm or entity
to serve or act as a broker, agent or finder for the purpose of leasing the
Premises, and that no broker's or real estate or other similar commissions or
fees are or shall be due in respect of the transaction contemplated by this
Lease. Landlord and Tenant each shall indemnify, defend and save harmless the
other from and against any cost and expense, including reasonable attorney's
fees, incurred by the other as a result of the untruth of any of the foregoing
representations made by it.
38. Invalidity. If any provision of this Lease shall be declared
invalid or unenforceable, the remainder of this Lease shall continue in full
force and effect.
39. Counterparts. This Lease may be executed in two (2) or more
counterparts, which taken together shall be deemed one (1) original.
40. Memorandum of Lease. The parties hereto agree not to record this
Lease. The parties agree to execute and to record in the appropriate local
registry a Memorandum of this Lease in the form attached as Exhibit B.
41. Cumulative. All rights and remedies of Landlord and Tenant herein
shall be cumulative and none shall be exclusive of any other or of any rights
and remedies allowed by law.
23
<PAGE>
42. Governing Law. This Lease shall be governed by, construed, and
enforced in accordance with the laws of the state in which the Premises is
located.
43. Successors and Assigns, Relationship. The covenants, terms,
conditions, provisions, and undertakings in this Lease shall extend to and be
binding upon the permitted successors, and assigns of the respective parties
hereto, and shall be construed as covenants running with the land. This Lease
creates and evidences a lease between Landlord and Tenant, and not a
partnership, joint venture, or other type of ownership inconsistent with a
lease, and neither Landlord nor Tenant shall make any representation to the
contrary.
44. Entire Agreement. This Lease, together with any exhibits attached
hereto, contains the entire agreement and understanding between the parties.
There are no oral understandings, terms, or conditions, and neither party has
relied upon any representation, express or implied, not contained in this Lease.
All prior understandings, terms, or conditions are deemed merged in this Lease.
This Lease cannot be changed or supplemented orally, but may be modified or
amended only by a written instrument executed by the parties. Any disputes
regarding the interpretation of any portion of this Lease shall not be
presumptively construed against the drafting party.
45. Survival. Tenant's indemnity obligations herein, including, without
limitation, those set forth in Paragraph 18 shall survive termination of this
Lease.
46. Estoppel Certificates. Tenant shall from time to time, within
fifteen (15) days after request by Landlord and without charge, give a Tenant
Estoppel Certificate in the form attached hereto as Exhibit D and containing
such other matters as may be reasonably requested by Landlord to any person,
firm or corporation specified by Landlord. If Tenant does not return the Tenant
Estoppel Certificate within such fifteen-day period, Tenant shall be deemed to
have consented to the information contained therein as if Tenant had executed
such Tenant Estoppel Certificate and returned it to Landlord.
47. Time. Time is of the essence in every particular of this Lease,
including, without limitation, obligations for the payment of money.
48. Captions and Headings. The captions and headings in this Lease have
been inserted herein only as a matter of convenience and for reference and in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Lease.
49. Waiver of Jury Trial. TO THE EXTENT ALLOWED BY APPLICABLE LAW,
TENANT AND LANDLORD HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR
ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS LEASE OR ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION
IS A MATERIAL INDUCEMENT TO LANDLORD'S ACCEPTING THIS LEASE.
24
<PAGE>
50. Signage. Tenant shall have the right to install signs containing
Tenant's trade name and such other identification signs on the Premises as are
permitted by applicable governmental laws and regulations. Tenant shall obtain
all governmental permits, licenses and approvals necessary to erect such signs,
and shall maintain such signs in good condition and repair. Tenant shall not
remove any identification signs without first obtaining Landlord's written
consent, which shall not be unreasonably withheld or delayed.
51. Guaranty. At the time of Tenant's execution of this Lease, Tenant
shall obtain the execution of the guaranty agreement in the form of Exhibit F
attached hereto ("Guaranty") by the Guarantor named therein ("Guarantor"). As a
condition to Tenant's exercise of a Renewal Term and accompanying Tenant's
notice of such exercise, Tenant shall deliver to Landlord a reaffirmation of the
Guaranty executed by Guarantor.
52. Pre-Existing Conditions. Notwithstanding anything to the contrary
contained herein, with respect to any condition on the Premises which was
created prior to the Term hereof which is or has been rendered unlawful or no
longer in compliance with any applicable law or regulation, including, but not
limited to, the discovery of Hazardous Materials on the Premises which were not
caused by the Tenant's use or occupancy of the Premises or the requirement of
any governmental entity to make alterations or repairs to the Premises which are
not necessitated by Tenant's use or occupancy of the Premises ("Pre-Existing
Conditions"), Landlord agrees to use commercially reasonable efforts to have the
condition remedied or payment for such condition paid by the party who created
such condition or any other third party who might reasonably be deemed liable
for such condition. In the event that Landlord is unable to seek recovery from
any such third party after reasonable efforts to do so, Landlord shall notify
Tenant of the condition and the costs associated with remediation or correction
thereof or of any liability it has incurred thereby. Within ten (10) days
following receipt of notice thereof, Tenant shall notify Landlord of its intent
to (i) correct or remediate the condition within a reasonable time thereafter or
(ii) request that Landlord remediate or correct the condition, in which case
Tenant's Base Rent hereunder shall increase by the product of such amount,
multiplied by ____________ percent (____%) annually throughout the remainder of
the Term or until Landlord has been compensated in full for such costs,
whichever comes first. In the event that Tenant agrees to correct or remediate
the Pre-Existing Condition and fails to do within a reasonable time thereafter,
Landlord shall give the Tenant written notice of its failure to comply. If the
condition is not fully corrected or remediated within thirty (30) days
thereafter, Landlord may commence to correct or remediate the Pre-Existing
Condition and raise Tenant's Base Rent hereunder in the manner set forth above.
25
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Lease the
day and year first above written.
LANDLORD:
MAR MAR REALTY LIMITED
PARTNERSHIP, a Delaware limited
partnership (SEAL)
By: MAR MAR REALTY TRUST,
ATTEST: Its General Partner
By: By:
Its: Its:
TENANT:
ATTEST:
By: By:
Its: Its:
26
Exhibit 10.6
LEASE AGREEMENT
BY AND BETWEEN
MAR MAR REALTY LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
AND
----------------------------------------------------
DATED
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Premises.........................................................1
2. Condition of Premises............................................1
3. Term.............................................................1
(a) Initial Term...............................................1
(b) Renewal Term...............................................2
4. Rent.............................................................2
(a) Base Rent..................................................2
(b) Adjustment of Base Rent....................................2
(c) Payment of Base Rent.......................................3
(d) Draft Withdrawal of Rent...................................3
(e) Late Charge, Interest......................................3
(f) Payment Without Abatement..................................4
5. Holding Over.....................................................4
6. Use of Leased Premises; Compliance with Laws.....................4
(a) Permitted Use..............................................4
(b) Continuous Operations......................................4
(c) Laws.......................................................4
7. Tenant's Covenant to Repair......................................4
8. Landlord's Obligation............................................5
9. Surrender........................................................5
10. Alterations......................................................5
(a) Prohibition................................................5
(b) Permitted Renovations......................................5
(c) Conditions.................................................5
(d) Additions, Expansions and Structural Alterations...........7
11. Utilities and Other Services.....................................7
12. Performance by Landlord of Tenant's Obligations..................7
(a) Landlord's Self Help.......................................7
(b) Landlord's Inspections.....................................7
13. Entry............................................................8
14. Assignment and Subletting........................................8
(a) Transfers Prohibited Without Consent.......................8
(b) Change of Control Prohibited Without Consent...............8
(c) Adequate Assurances........................................9
(d) Subleases, Concessions and Licenses........................9
(e) Effect of Consent..........................................9
15. Taxes and Assessments............................................9
16. Casualty........................................................10
(a) Restoration and Repair....................................10
(b) Escrow of Insurance Proceeds..............................10
(c) Uninsured Losses..........................................10
17. Insurance.......................................................11
18. Environmental Matters...........................................13
<PAGE>
(a) Tenant's Covenant.........................................13
(b) Clean Up..................................................13
(c) Indemnification...........................................13
19. Costs and Attorneys' Fees.......................................13
20. Default; Remedies...............................................14
(a) Default...................................................14
(b) Remedies..................................................15
(c) Tenant's Affiliates.......................................17
21. Eminent Domain..................................................17
(a) Complete Taking...........................................17
(b) Partial Taking............................................18
(c) Award.....................................................18
(d) Disputes..................................................18
22. Liability of Landlord...........................................18
23. Indemnification of Landlord.....................................19
24. Notice of Claim or Suit.........................................19
25. Liens, Generally................................................20
26. Mechanics Liens.................................................20
27. Contest of Liens................................................20
28. Notices of Commencement of Construction.........................21
29. Limitation on Liability of Landlord.............................21
30. Franchise and License Agreements................................21
31. "Net" Lease.....................................................21
32. Representations, Warranties and Special Covenants...............21
33. Notices.........................................................21
34. No Waiver.......................................................22
35. Quiet Enjoyment.................................................22
36. Subordination...................................................22
37. Attornment......................................................23
38. Rights of Mortgagees and Assignees..............................23
39. Brokers.........................................................24
40. Invalidity......................................................24
41. Counterparts....................................................24
42. Memorandum of Lease.............................................24
43. Cumulative......................................................24
44. Governing Law...................................................24
45. Successors and Assigns, Relationship............................24
46. Entire Agreement................................................24
47. Survival........................................................25
48. Estoppel Certificates...........................................25
49. Time............................................................25
50. Captions and Headings...........................................25
51. Waiver of Jury Trial............................................25
52. Signage.........................................................25
53. Guaranty........................................................25
54. Right of First Refusal..........................................25
<PAGE>
INDEX OF DEFINED TERMS
Section
-------
Affiliate .....................................................Exhibit E(l)(c)
Annual Financial Statements ..................................Exhibit E(10)(b)
Arbitrator(s) ....................................................Exhibit F(g)
Bank .....................................................................4(c)
Base Month ............................................................4(b)(i)
Base Rent ................................................................4(a)
Beneficiary .........................................................Exhibit D
Business ......................................................Exhibit E(l)(a)
Cash Flow Coverage Ratio ........................................Exhibit E(11)
CERCLA ..................................................................18(a)
Certificate .........................................................Exhibit D
Change of Control .......................................................14(b)
Code ........................................................Exhibit E (15)(a)
Commencement Date ........................................................3(a)
Company......................................................Exhibit E(1 5)(c)
ERISA Affiliate ...............................................Exhibit E(8)(e)
ERISA .........................................................Exhibit E(8)(e)
Events of Default .......................................................20(a)
Fair Market Monthly Rental ..........................................Exhibit F
Fair Market Rental ..................................................4(b)(iii)
Five-Year Adjustment Date ...........................................4(b)(iii)
Franchise .........................................................20(a)(viii)
GAAP .........................................................Exhibit E(10)(b)
Guarantor ..................................................................53
Guaranty ....................................................................3
Hazardous Materials ....................................................1 8(a)
Improvements ................................................................1
Initial Term .............................................................3(a)
Inspection Report ......................................................1 2(b)
Intellectual Property ............................................Exhibit D(4)
Land ........................................................................1
Landlord ................................................Exhibit D Recitals(A)
Lease ...................................................Exhibit D Recitals(A)
Lease ...............................................................Term 3(b)
Leased Premises .........................................Exhibit D Recitals(A)
Liabilities ............................................................1 8(c)
Material Adverse Change .......................................Exhibit E(l)(c)
Material Agreements ..............................................Exhibit E(2)
Memorandum ..........................................................Exhibit B
Mortgagee ..................................................................38
Net Worth .......................................................Exhibit E(14)
Notice of Commencement .....................................................28
Offer ...................................................................54(a)
Option Property .........................................................54(a)
Permitted Use ............................................................6(a)
<PAGE>
Person ........................................................Exhibit E(l)(c)
Personalty ..................................................................1
Premises ....................................................................1
Price Index ...........................................................4(b)(i)
Price Index ..............................................................6(c)
Price Index for Base Month.............................................4(b)(i)
RCRA ...................................................................1 8(a)
REIT ........................................................Exhibit E(1 S)(c)
Renewal Term(s) ..........................................................3(b)
Rent .....................................................................4(c)
Rent Collection Amount ...................................................4(c)
Tenant Benefit ................................................Exhibit E(8)(e)
Tenant ..............................................................Exhibit D
Term .....................................................................3(b)
Title IV Plan .................................................Exhibit E(8)(e)
Yearly Adjustment Date ...............................................4(b)(ii)
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("LEASE") is made this _______ day of
___________,199_, by and between MAR MAR REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership ("LANDLORD") and
________________________________________________ a ("TENANT").
In consideration of the mutual promises and agreements herein contained,
the parties agree as follows:
1. Premises. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, subject to the conditions hereinafter expressed: (a) the real
property located in County, more particularly described on EXHIBIT A hereto (the
"LAND"), upon which exists certain improvements in the nature of an automobile
dealership, together with related paved parking and appurtenant improvements and
any replacements thereof (together the "Improvements"); and (b) certain
furniture, fixtures, equipment, furnishings and other personal property and any
replacements thereof used or utilized in connection with the ownership and
operation of the Improvements as more particularly described on EXHIBIT C hereto
(collectively the "PERSONALLY"). As used herein, the Land, Improvements and
Personalty are collectively referred to as the "PREMISES".
2. Condition of Premises. Tenant acknowledges and agrees that the Premises
are and shall be leased by Landlord to Tenant in its present "AS-IS" condition,
subject to all liens, encumbrances and restrictions affecting the Premises.
LANDLORD MAKES ABSOLUTELY NO REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH
RESPECT TO THE PREMISES OR THE CONDITION THEREOF EITHER TO ITS FITNESS FOR USE,
CONDITION, PURPOSE OR OTHERWISE AS TO THE QUALITY OR MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE
BY TENANT. Tenant acknowledges that Landlord has not investigated and does not
warrant or represent to Tenant that the Premises are fit for the purposes
intended by Tenant or for any other purposes whatsoever. Tenant acknowledges and
agrees that the Premises are to be leased to Tenant in their existing condition,
i.e., "AS-IS", as of the Commencement Date and at all times thereafter. Tenant
acknowledges that Tenant shall be solely responsible for any and all actions,
repairs, permits, approvals and costs required for the rehabilitation,
renovation, use, occupancy and operation of the Premises in accordance with
applicable governmental requirements, including, without limitation, all
governmental charges and fees, if any, which may be due or payable to applicable
authorities. By leasing the Premises, Tenant warrants and represents to Landlord
that Tenant has examined and approved all things concerning the Premises which
Tenant deems material to Tenant's leasing and use of the Premises. Tenant
further acknowledges and agrees that: (a) neither Landlord nor any agent of
Landlord has made any representation or warranty, express or implied, concerning
the Premises or which have induced Tenant to execute this Lease except as
contained in this Lease; and (b) any other representations and warranties are
expressly disclaimed by Landlord.
3. Term.
(a) Initial Term. This Lease shall be for a ____ (_____) year period
beginning
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
1
<PAGE>
__________, 199_, (the "COMMENCEMENT DATE"), and ending at midnight
_________________, unless modified or earlier terminated pursuant to the terms
hereof (the "INITIAL TERM"). Landlord may terminate this Lease by written notice
to Tenant given on or before if the closing of Landlord's purchase of the
Premises does not occur by such date.
(b) Renewal Term. Provided Tenant is not in default hereunder, at
the expiration of the Initial Term, Tenant shall have the option to renew this
Lease for two (2) additional five (5) year periods (the "RENEWAL TERM(S)"). Each
Renewal Term shall automatically commence as of the end of the Initial Term or
the initial Renewal Term, as applicable, unless Tenant gives Landlord written
notice of termination not less than one hundred eighty (180) days prior to the
expiration of the Initial Term or the expiration of the initial Renewal Term, as
applicable. As used herein, the Term, the Initial Term and the Renewal Term(s),
if exercised, shall be referred to hereinafter collectively as the "TERM" OR
"LEASE TERM".
4. Rent.
(a) Base Rent. "BASE RENT" for the first year of the Initial Term
shall be ____________________________________ AND NO/100 DOLLARS ($__________)
per year.
(b) Adjustment of Base Rent.
i. Definitions: For the purpose of calculating the cost of
living adjustments, the following definitions shall apply: (A) the term
"BASE MONTH" shall mean the calendar month which is one year prior to the
applicable Yearly Adjustment Date; (B) the term "PRICE INDEX" shall mean
the "Consumer Price Index-United States City Average All Urban Consumers"
published by the Bureau of Labor Statistics of the United States
Department of Labor (1982-84 = 100), or any renamed local index covering
the metropolitan area in which the Premises are located or any other
successor or substitute index appropriately adjusted; and (C) the term
"PRICE INDEX FOR THE BASE MONTH" shall mean the Price Index for the Base
Month.
ii. Effective as of: (A) the first (1st) anniversary of the
Commencement Date; and (B) each anniversary date thereafter throughout the
Term (except for the Five-Year Adjustment Dates, each, a "YEARLY
ADJUSTMENT DATE"), there shall be made a cost of living adjustment of the
annual Base Rent payable hereunder. Each yearly adjustment shall be
calculated by multiplying the Base Rent for the prior lease year by the
percentage difference between the Price Index for the month preceding the
applicable Yearly Adjustment Date and the Price Index for the Base Month;
provided that in no event shall the cost of living adjustment on any
Yearly Adjustment Date be a downward adjustment or be less than one
percent (1%) or greater than three percent (3%). If the Price Index for
the month preceding the applicable Yearly Adjustment Date is not available
as of any Yearly Adjustment Date, then the cost of living adjustment shall
be calculated using the most current available Price Index. In no event
shall any adjustment made pursuant to this PARAGRAPH 4, or any decrease in
the Price Index, ever result in a decrease in the annual Base Rent payable
hereunder to below the then current Base Rent.
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
2
<PAGE>
iii. Effective as of: (A) the fifth (5th) anniversary of the
Commencement Date; and (B) each five-year anniversary date thereafter
throughout the Term (each, a "FIVE-YEAR ADJUSTMENT DATE"), there shall be
made a market-based adjustment to the annual Base Rent payable hereunder.
Each such adjustment shall be equal to the greater of: (i) the annual Base
Rate which would be payable hereunder calculated as if the Five-Year
Adjustment Date were a Yearly Adjustment Date; or (ii) the "FAIR MARKET
RENTAL" determined as set forth on EXHIBIT F attached hereto and
incorporated by this reference.
(c) Payment of Base Rent. Tenant shall pay Base Rent monthly, in
advance, on the first (1st) day of each calendar month during the Lease Term
without notice, demand or setoff. The Base Rent for any partial month shall be
paid in advance and prorated daily from such date to the first (1st) day of the
next calendar month. The first (1st) payment of Base Rent shall be due and
payable on or before the execution of this Lease. All Rent shall be made by
direct deposit by Tenant of immediately available funds into a checking account
established with a bank, savings bank or other depository institution designated
by Landlord ("Bank") and controlled exclusively by Landlord entitled "Rent
Collection Account" (or such other name as may be designated by Landlord) ("RENT
COLLECTION ACCOUNT"). Landlord (or, at Landlord's option, Landlord's agent, if
any), or such officers or other agents as may be designated by Landlord, shall
be the sole signatory on the Rent Collection Account. All interest accrued in
the Rent Collection Account shall belong to Landlord and shall not be credited
to Tenant. No funds in the Rent Collection Account shall be subject to
withdrawal by or for the benefit of Tenant. "RENT" shall mean and include all
Base Rent, additional rent and other sums due hereunder.
(d) Draft Withdrawal of Rent. Instead of requiring Tenant to pay
Rent in the manner set forth in PARAGRAPH 4(C) above, Landlord may, at its sole
option, require Tenant, within thirty (30) days after notice to Tenant, to
execute and deliver to Landlord any documents or authorizations required by
Landlord to give effect to an automated debiting system, whereby any or all
payments by Tenant (as designated from time to time by Landlord) of whatsoever
nature required or contemplated by this Lease shall be debited monthly or from
time to time, as otherwise provided for herein for payment and such amounts,
from Tenant's account in the Bank or another financial institution designated by
Landlord and credited to Landlord's bank account as Landlord shall designate
from time to time. Tenant shall maintain sufficient funds in Tenant's account to
cover all such payments. Tenant shall promptly pay all service fees and other
charges connected therewith, including, without limitation, any charges
resulting from insufficient funds in Tenant's bank account or any charges
imposed on Landlord. Tenant shall remain responsible to Landlord for all
payments of Rent, even if Tenant's bank account is insufficiently debited in any
given month. Such insufficient amounts shall be immediately due and payable to
Landlord upon written demand.
(e) Late Charge, Interest. If Tenant fails to make any payment of
Rent or any other sums or amounts to be paid by Tenant hereunder on or before
the date such payment is due and payable, Tenant shall pay to Landlord an
administrative late charge of five percent (5%) of the amount of such payment.
In addition, such past due payment shall bear interest at the lesser of eighteen
percent ( 18%) or the maximum interest rate then allowable under the laws of the
State in which the Premises is located from the date such payment became due to
the date of payment thereof by Tenant. Such late charge and interest shall
constitute additional rent and shall be due and payable with the next
installment of Rent due hereunder.
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
3
<PAGE>
(f) Payment Without Abatement. No abatement, diminution or reduction
of Rent shall be allowed to Tenant or any person claiming under Tenant, under
any circumstances or for any reason whatsoever.
5. Holding Over. If Tenant or any other person or party shall remain in
possession of the Premises or any part thereof following the expiration of the
Term or earlier termination of this Lease without an agreement in writing
between Landlord and Tenant with respect thereto, the person or party remaining
in possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Lease by such tenant at sufferance shall
be double the rate or rates in effect immediately prior to the expiration of the
Term or earlier termination of this Lease. In no event, however, shall such
holding over be deemed or construed to be or constitute a renewal or extension
of this Lease.
6. Use of Leased Premises; Compliance with Laws.
(a) Permitted Use. Tenant shall use the Premises for an automobile
dealership ("PERMITTED USE") and for no other purpose. Tenant's use of the
Premises shall, subject to the right of diligent contest, comply with all laws,
ordinances, orders, regulations or zoning classifications of any lawful
governmental authority, agency or other public or private regulatory authority
(including insurance underwriters or rating bureaus) having jurisdiction over
the Premises. Tenant, shall make or cause to be made all alterations, additions
and improvements requiring expenditures as are required to be made under any
applicable laws, ordinances, rules or regulations, now or hereinafter adopted or
enacted provided all such alterations, additions and improvements are made in
accordance with PARAGRAPH 10 hereof. Tenant shall not perform any act or follow
any practice relating to the Premises which shall constitute a nuisance and
shall operate the Business on the Premises in an efficient and professional
manner. Subject to the terms and provisions of this Lease, Tenant shall have the
right to control the automobile dealership business being conducted at the
Premises.
(b) Continuous Operations. During the Term, Tenant shall keep the
Premises and the Business open to the public and continuously operating for the
Permitted Use during normal business hours standard for the industry of which
the Business is a part.
(c) Laws. Notwithstanding the generality of the foregoing, Tenant
shall, at its sole expense, maintain the Premises in full compliance with all
applicable federal, state or municipal laws, ordinances, rules and regulations
currently in existence or hereafter enacted or rendered governing accessibility
for the disabled or handicapped, including, but not limited to, any applicable
provisions of The Architectural Barriers Act of 1968, The Rehabilitation Act of
1973, The Fair Housing Act of 1988, The Americans With Disabilities Act, the
accessibility code(s), if any, of the State in which the Premises are located,
and all regulations and guidelines promulgated under any or all of the
foregoing, as the same may be amended from time to time (collectively the
"ACCESSIBILITY LAWS").
7. Tenant's Covenant to Repair. Tenant shall, at all times during the Term
and at its sole cost and expense, put, keep, replace and maintain the Premises
(including, without limitation, the
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
4
<PAGE>
Improvements and the Personalty) in good repair and in good, safe and
substantial order and condition, shall make all repairs and replacements
thereto, both inside and outside, structural and non-structural, ordinary and
extraordinary, howsoever the necessity or desirability for repairs and
replacements may occur, and whether or not necessitated by wear, tear,
obsolescence or defects, latent or otherwise, and shall use all reasonable
precautions to prevent waste, damage or injury. Tenant shall also at its own
cost and expense install, maintain and replace all landscaping, signs,
sidewalks, roadways, driveways and parking areas within the Premises in good
repair and in good, safe and substantial order and condition and free from dirt,
standing water, rubbish and other obstructions or obstacles.
8. Landlord's Obligation. Landlord shall not be required to make any
alterations, reconstructions, replacements, changes, additions, improvements or
repairs of any kind or nature whatsoever to the Premises or any portion thereof
(including, without limitation, any portion of the Improvements or any
Personalty) at any time during the Term.
9. Surrender. Tenant shall on the last day of the Lease Term, or upon the
sooner termination of this Lease, peaceably and quietly surrender the Premises
to Landlord, in as good condition as they were when received, ordinary wear and
tear excepted, and free of all liens and encumbrances.
10. Alterations.
(a) Prohibition. Except as hereinafter expressly provided in this
PARAGRAPH 10, no portion of the Premises shall be demolished, removed or altered
by Tenant in any manner whatsoever without the prior written consent and
approval of Landlord, which may be withheld by Landlord in its sole and absolute
discretion. Notwithstanding the foregoing, however, Tenant shall be entitled and
obligated to undertake all alterations to the Premises required by any
applicable law or ordinance including, without limitation, any alterations
required by any Accessibility Laws, and, in such event, Tenant shall comply with
the provisions of PARAGRAPH 10(C) below. The foregoing notwithstanding, if the
existing Premises is "grandfathered" such that alterations which would normally
be required to comply with law are not required with respect to the Premises,
Landlord may, from time to time, at its option require Tenant to make the
alteration(s) in order to comply with the current law. However, Tenant shall not
be entitled to alter the otherwise "grandfathered" structure without Landlord's
prior written consent.
(b) Permitted Renovations. Landlord acknowledges that various minor,
non-structural alterations may be undertaken by Tenant from time to time with
the approval of Landlord, which approval shall not be unreasonably withheld or
delayed. Tenant shall be entitled to perform all such work on or about the
Improvements; provided, however, that the conditions in PARAGRAPH 10(C) below
shall be met.
(c) Conditions. The following conditions shall be met by Tenant for
any alterations to the Premises permitted under PARAGRAPHS 10(A) and 10(B):
i. Before the commencement of any such work, plans and
specifications therefor or a detailed itemization including costs thereof
shall be furnished to Landlord for
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its review and approval. Landlord's approval of Tenant's plans shall
create no responsibility or liability on the part of Landlord for their
completeness, design, sufficiency or compliance with all laws, rates,
regulations of governmental agencies or authorities.
ii. If the cost of such work will exceed _________________ AND
NO/100 DOLLARS ($__________), then Tenant shall deposit in Landlord's
name, in an escrow account at the Bank or other financial institution
designated by Landlord, the anticipated cost of such work, as certified by
Tenant's contractor, who shall be approved by Landlord. Such proceeds
shall be disbursed periodically by Landlord upon certification of Tenant's
contractor that such amounts are the amounts paid or payable for such
work. Tenant shall, at the time of establishment of such escrow account
and from time to time thereafter until said work shall have been completed
and paid for, furnish Landlord with adequate evidence that at all times
the undisbursed portion of the escrowed funds, together with any funds
made available by Tenant, is sufficient to pay for the work in its
entirety. Tenant shall obtain, and make available to Landlord, receipted
bills and, upon completion of the work, full and final waivers of lien.
iii. Before the commencement of any such work, Tenant shall
obtain any required approvals from all governmental departments or
authorities having or claiming jurisdiction of or over the Premises, and
from any public utility companies having an interest therein. In any such
work, Tenant shall comply with all applicable laws, ordinances,
requirements, orders, directions, rules and regulations of the federal,
state, county and municipal governments and of all other governmental
authorities having or claiming jurisdiction of or over the Premises and of
all their respective departments, bureaus and offices, and with the
requirements and regulations, if any, of such public utilities, of the
insurance underwriting board or insurance inspection bureau having or
claiming jurisdiction, or any other body exercising similar functions, and
of all insurance companies then writing policies covering the Premises or
any part thereof.
iv. Tenant represents and warrants to Landlord that all such
construction work will be performed in a good and workmanlike manner and
in accordance with the terms, provisions and conditions of this Lease and
all governmental requirements.
v. Landlord shall have the right to inspect any such
construction work at all times during normal working hours and to maintain
at the Premises for that purpose (at its own expense) such inspector(s) as
it may deem necessary so long as such inspections do not interfere with
Tenant's work (but Landlord shall not thereby assume any responsibility
for the proper performance of the work in accordance with the terms of
this Lease, nor any liability arising from the improper performance
thereof).
vi. All such work shall be performed at Tenant's cost and
expense and free of any expense to Landlord and free of any liens on
Landlord's fee simple interest on or Tenant's leasehold interest in the
Premises.
vii. Upon substantial completion of any such work Tenant shall
procure a certificate of occupancy, if applicable, from the appropriate
governmental authorities
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verifying the substantial completion thereof.
viii. Tenant shall, indemnify and save and hold Landlord
harmless from and against and reimburse Landlord for any and all loss,
damage, cost and expense (including, without limitation, reasonable
attorneys' fees) incurred by or asserted against Landlord which are
occasioned by or result, directly or indirectly, from any construction or
renovation activities conducted upon the Premises; whether or not the same
is caused by or the fault of Tenant or any contractor, subcontractor,
laborer, supplier, materialman or any other third party.
(d) Additions, Expansions and Structural Alterations. Except as
expressly permitted in PARAGRAPH 10(A) above, nothing in this Lease shall be
deemed to authorize Tenant to construct and erect any additions to or expansions
of the Improvements, or perform any alterations of a structural nature
whatsoever; it being understood that Tenant may do so only with the prior
written consent and approval of Landlord, which consent and approval may be
withheld by Landlord in its sole and absolute discretion and may be conditioned
upon the payment by Tenant to Landlord of a fee (which fee shall be considered
additional rent).
11. Utilities and Other Services. Tenant shall be liable for and shall pay
directly all charges, fees and amounts (together with any applicable penalties,
late charges, taxes or assessments thereon) when due for water, gas,
electricity, air conditioning, heat, septic, sewer, refuse collection, telephone
and any other utility charges or similar items in connection with the use or
occupancy of the Premises. Landlord shall not be responsible or liable in any
way whatsoever for the quality, quantity, impairment, interruption, stoppage, or
other interference with any utility service, including, without limitation,
water, air conditioning, heat, gas, electric current for light and power,
telephone, or any other utility service provided to or serving the Premises or
any damage or injury caused thereby. No such interruption, termination or
cessation of utility services shall relieve Tenant of its duties and obligations
pursuant to this Lease, including, without limitation, its obligation to pay all
Rent as and when the same shall be due hereunder.
12. Performance by Landlord of Tenant's Obligations.
(a) Landlord's Self Help. If Tenant shall default in the performance
of any term, provision, covenant or condition on its part to be performed
hereunder, Landlord may, after notice to Tenant and a reasonable time to perform
after such notice (or without notice if, in Landlord's reasonable opinion, an
emergency exists) perform the same for the account and at the expense of Tenant.
If, at any time and by reason of such default, Landlord is compelled to pay, or
elects to pay, any sum of money or do any act which will require the payment of
any sum of money, or is compelled to incur any expense in the enforcement of its
rights hereunder or otherwise, such sum or sums, together with interest thereon
at the highest rate allowed under the laws of the State where the Premises is
located, shall be deemed additional rent hereunder and shall be repaid to
Landlord by Tenant promptly when billed therefor, and Landlord shall have all
the same rights and remedies in respect thereof as Landlord has in respect of
the rents herein reserved.
(b) Landlord's Inspections. Landlord, its agents or representatives
shall have the right, but not the obligation, to enter upon the Premises to
perform annual inspections of the
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Premises to confirm that Tenant is performing all of Tenant's obligations under
this Lease, including but not limited to, Tenant's obligations under PARAGRAPH 7
and that Tenant has not violated any of its covenants under this Lease,
including, but not limited to the covenants under PARAGRAPH 12. Upon completion
of such inspection, Landlord may deliver to Tenant a written report ("INSPECTION
REPORT") outlining certain defaults, if any, in Tenant's obligations hereunder.
Within ten (10) days of Tenant's receipt of such Inspection Report, Tenant shall
either: (i) object to Landlord in writing as to any portion of the Inspection
Report, specifically describing such objection; or (ii) begin to perform any and
all required work outlined in the Inspection Report which Tenant has not
objected to, and diligently complete such work. If Tenant objects to any item in
the Inspection Report, then within ten (10) days of Landlord's receipt of
Tenant's objection notice, both Landlord and Tenant shall select a third party
licensed engineer mutually satisfactory to Landlord and Tenant or if a single
engineer cannot be agreed upon, then Landlord and Tenant shall each, at their
own cost, select a licensed engineer and the two chosen engineers shall select a
third licensed engineer, the cost of the third engineer being paid equally by
Landlord and Tenant. The engineer(s) shall determine, by majority vote, if the
work outlined in the Inspection Report should be performed by Tenant. Such
determination shall be final and binding on Landlord and Tenant.
13. Entry. Landlord, any mortgagee for the Premises and their agents or
representatives may enter the Premises at reasonable times during normal
business hours upon twenty-four (24) hours prior written notice (except during
emergencies, in which case Landlord shall endeavor to give such notice as
Landlord deems reasonable under the circumstances or as provided for inspections
under PARAGRAPHS 10 and 12) for the purpose of inspecting the Premises, or
performing any work which Landlord elects to undertake by reason of Tenant's
default under the terms of this Lease. Landlord shall use reasonable efforts not
to disturb Tenant as a result of any such entry by Landlord, its agents or
representatives.
14. Assignment and Subletting.
(a) Transfers Prohibited Without Consent. Tenant shall not, without
the prior written consent of Landlord, in each instance, sell, assign or
otherwise transfer this Lease, or Tenant's interest in the Premises, in whole or
in part, or any rights or interest which Tenant may have under this Lease, or
sublet the Premises, or any part thereof, or grant or permit any lien or
encumbrance on or security interest in Tenant's interest in this Lease. If
given, the consent of Landlord to an assignment, transfer, subletting or
encumbrance shall in no event be construed to relieve Tenant or such assignee or
subtenant from the obligation of obtaining the express consent in writing of
Landlord to any further assignment, transfer, subletting or encumbrance. Any
assignment, transfer, sublease or encumbrance in violation of this Article shall
be voidable at Landlord's option.
(b) Change of Control Prohibited Without Consent. Tenant shall not,
without the prior written consent of Landlord, in each instance, engage in or
permit to occur a Change of Control. "CHANGE OF CONTROL" shall be deemed an
assignment hereunder. Change of Control of Tenant shall mean: (i) the issuance
or sale by Tenant or the sale by any shareholder, stockholder, member, partner
or owner of equity interests of Tenant of a controlling interest in Tenant
(which shall mean the effective voting control of Tenant); (ii) the sale,
conveyance or other transfer of all or substantially all of the assets of Tenant
(whether by operation of law or otherwise); (iii) any
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transaction, or series of transactions, pursuant to which Tenant is merged with
or consolidated into another entity and Tenant is not the surviving entity; or
(iv) the sale, assignment, transfer, exchange or other disposition of the stock,
membership interest, general partner interest, or other legal or beneficial
interest in Tenant (or any direct or indirect owner thereof) which results in a
direct or indirect change or transfer of management or control of Tenant, or a
merger, consolidation or other combination of Tenant (or any direct or indirect
owner thereof) with another entity which results in a change or transfer of
management or control of Tenant.
(c) Adequate Assurances. Without limiting any of the foregoing
provisions of this PARAGRAPH 14, if, pursuant to the U.S. Bankruptcy Code, as
the same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Lease in disregard of
the restrictions contained in this PARAGRAPH 14, the assignee agrees to provide
adequate assurance to Landlord: (i) of the continued use of the Premises solely
in accordance with the Permitted Use thereof and in compliance with all other
terms of this Lease; (ii) of the continuous operation of the business in the
Premises in strict accordance with the requirements of PARAGRAPH 6 hereof; and
(iii) of such other matters as Landlord may reasonably require at the time of
such assumption or assignment. In addition, adequate assurance shall mean that
any such assignee shall have a net worth (exclusive of good will) of not less
than ______________________ AND NO/100 DOLLARS ($________). Such assignee shall
expressly assume this Lease by an agreement in recordable form.
(d) Subleases, Concessions and Licenses. Tenant may continue any
subleases, concession agreements or license agreements at the Premises which
were in effect, with Landlord's written approval, immediately prior to the
Commencement Date and as identified on SCHEDULE 14(D) hereto. Further, Landlord
shall not unreasonably withhold its consent to any future sublease, concession
agreement or license agreement proposed to be entered into in replacement of any
such currently existing sublease, concession agreement or license agreement.
(e) Effect of Consent. Unless expressly agreed by Landlord in
writing to the contrary, Landlord's consent to any assignment, sublease,
concession agreement, license agreement or any transfer of this Lease shall not
operate to release any Tenant-assignor from its obligations hereunder, with
respect to which said Tenant assignor shall remain personally liable.
15. Taxes and Assessments. Throughout the Term, Tenant shall bear, pay and
discharge all taxes, assessments and other governmental impositions and charges
of every kind and nature whatsoever, extraordinary as well as ordinary, and each
and every installment thereof which shall or may during the Term hereof be
assessed or imposed upon, or arise in connection with, the use, occupancy or
possession of the Premises or any part thereof, including, without limitation,
ad valorem real and personal property taxes, and all taxes assessed or imposed
in lieu of or in addition to any of the foregoing by virtue of all present or
future laws, ordinances, rules or regulations of federal, state, county and
municipal governments and of all other governmental authorities whatsoever.
Tenant shall maintain a separate trust account at the Bank for Landlord's
benefit in which it shall make monthly deposits of one-twelfth of the estimated
yearly requirement for taxes and assessments together with such additional
deposits as may be reasonably required by Landlord to ensure that sufficient
funds will be available to pay all such taxes, assessments and impositions as
and when they become due. Tenant shall provide Landlord as of the first day of
each calendar
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month during the Term, a detailed accounting from the Bank, together with
Tenant's estimate of the applicable tax and assessment requirements (including
due dates) delivered to Landlord on or before the fifteenth (15th) day of the
applicable calendar month. Upon request of Landlord, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of any tax, assessment,
imposition or charge required to be paid by Tenant pursuant to the foregoing.
16. Casualty.
(a) Restoration and Repair. Other than as set forth in this
SUBPARAGRAPH (A), if, during the Term, the Improvements and/or Personalty shall
be destroyed or damaged in whole or in part by fire or any cause whatsoever,
Tenant shall give Landlord immediate notice thereof and shall repair,
reconstruct or replace the Improvements and/or Personalty, or the portion
thereof so destroyed or damaged (whichever is reasonably required), at least to
the extent of the value and character thereof existing immediately prior to such
occurrence. All work shall be started as soon as practicable and completed at
Tenant's sole cost and expense. Tenant shall, however, immediately take such
action as is necessary to assure that the Premises (or any portion thereof) does
not constitute a nuisance or otherwise presents a health or safety hazard.
Tenant shall continue to pay all Rent and additional charges due hereunder
without abatement. The foregoing notwithstanding, if during the Initial Term
greater than eighty percent (80%) of the value of the Improvements and/or
Personalty are damaged or destroyed, or if during any Renewal Term more than
sixty percent (60%) of the value of the Improvements and/or Personalty are
damaged or destroyed, then Landlord may at its option elect to terminate this
Lease and receive all insurance proceeds for such damage and destruction.
(b) Escrow of Insurance Proceeds. In the event of a casualty
resulting in an insurance loss payment for the Improvements and/or Personalty in
an amount greater than ___________________ AND NO/100 DOLLARS ($________), the
proceeds of all insurance policies maintained by Tenant plus the amount of any
deductible shall be deposited in Landlord's name in an escrow account at the
Bank or another financial institution designated by Landlord, and shall be used
by Tenant (subject to SUBPARAGRAPH (A) above) for the repair, reconstruction or
restoration of the Improvements and/or Personalty. Such proceeds shall be
disbursed periodically by Landlord upon certification of the architect or
engineer having supervision of the work that such amounts are the amounts paid
or payable for the repair, reconstruction or restoration. Tenant shall, at the
time of establishment of such escrow account and from time to time thereafter
until said work shall have been completed and paid for, furnish Landlord with
adequate evidence that at all times the undisbursed portion of the escrowed
funds, together with any funds made available by Tenant, is sufficient to pay
for the repair, reconstruction or restoration in its entirety. If a casualty
results in a loss payment for the Improvements and/or Personalty in an amount
equal to or less than the amount stated above, then the proceeds shall be paid
to Tenant, and shall be applied by Tenant (subject to SUBPARAGRAPH (A) above)
toward the repair, reconstruction and restoration of the Premises in its
entirety. Tenant shall obtain, and make available to Landlord, receipted bills
and, upon completion of the work, full and final waivers of lien.
(c) Uninsured Losses. Nothing contained herein shall relieve Tenant
of its obligations under this PARAGRAPH 16 even if the destruction or damage is
not covered, either in whole or in part, by insurance.
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17. Insurance.
(a) Insurance By Tenant. Throughout the Term, Tenant shall, at its
sole cost and expense, maintain in full force and effect the following types and
amounts of insurance coverage:
i. Hazard Insurance. Tenant shall keep the Improvements and
Personalty, including all permitted alterations, changes, additions and
replacements thereof and thereto, insured against loss or damage caused
by: (A) fire, and other hazards and perils generally included under
extended coverage, including flood and earthquake; (B) sprinkler leakage;
(C) vandalism and malicious mischief; (D) boiler and machinery; and (E)
other perils commonly covered by "All Risk" insurance, all in an amount
which reasonably assures there will be sufficient proceeds to replace the
Improvements and Personalty in the event of a loss against which such
insurance is issued but in no event less than 100% of the full replacement
value thereof (exclusive of foundations). All insurance required
hereunder, and all other insurance maintained by Tenant on the
Improvements and Personalty in excess of or in addition to that required
hereunder, shall be carried in favor of Landlord and Tenant, as their
respective interests may appear.
ii. Liability Insurance. Tenant shall provide and keep in full
force and effect a policy of broad form comprehensive general public
liability and property damage insurance providing coverage against
liability for personal injury, death and property damage having limits of
not less than Five Million Dollars ($5,000,000) per occurrence, and Five
Million Dollars ($5,000,000) aggregate.
iii. Worker's Compensation and Employer's Liability Insurance.
Tenant shall provide and keep in full force and effect workers'
compensation insurance, in a form prescribed by the laws of the State in
which the Premises is located, and employers' liability insurance with
limits of not less than Five Million Dollars ($5,000,000).
iv. Builder's Risk Insurance. Tenant shall, prior to the
commencement of and during the construction of any construction,
restoration, renovation or alteration to the Premises, provide and keep in
full force and effect builders' risk insurance in accordance with the
requirements of this PARAGRAPH 17.
v. Business Interruption Insurance. Tenant shall provide and
keep in full force and effect business interruption insurance, without a
provision for co-insurance, in an amount sufficient to pay Rent, operating
expenses, taxes and insurance for the Premises for a period of at least
twelve (12) months.
vi. Other Insurance. In addition, Tenant shall, at Landlord's
request, provide and keep in full force and effect such other insurance
for such risks and in such amounts as may from time to time be commonly
insured against in the case of business operations similar to those
contemplated by this Lease to be conducted by Tenant on the Premises.
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vii. Landlord as Additional Insured. Any and all insurance
maintained by Tenant as required by this Lease, or in excess of or in
addition to that required hereunder, shall name Landlord and any mortgagee
requested by Landlord as an additional insured(s), and shall provide a
waiver of subrogation from its insurance carrier.
viii. Insurance Escrows. Tenant shall maintain a separate
trust account at the Bank for Landlord's benefit in which it shall make
monthly deposits of one-twelfth of the estimated yearly premium for those
insurance coverages for which Landlord notifies Tenant it must escrow,
together with such additional deposits as may be reasonably required by
Landlord to ensure that sufficient funds will be available to pay all such
premiums as and when they become due. Tenant shall provide Landlord as of
the first day of each calendar month during the Term, a detailed
accounting from the Bank, together with Tenant's estimate of the
applicable insurance premiums (including due dates) delivered to Landlord
on or before the fifteenth (15th) day of the applicable calendar month.
Upon request of Landlord, Tenant shall promptly furnish to Landlord
satisfactory evidence of the payment of any insurance premium required to
be paid by Tenant pursuant to the foregoing.
(b) Carriers and Features. All insurance policies required to be
carried by Tenant as provided in this PARAGRAPH 17 shall be issued by insurance
companies approved by Landlord and authorized and licensed to do business in the
State in which the Premises is located with a Best's Insurance Rating of not
less than "A-" or a Best's Financial Category of not less than "VIII" or as
otherwise required by Landlord, with deductibles not more than Five Thousand
Dollars ($5,000) per occurrence. Landlord shall have the right from time to time
to require Tenant to increase the amount and/or type of coverage to be
maintained under this Lease. All such policies shall be for periods of not less
than one year and Tenant shall renew the same at least thirty (30) days prior to
the expiration thereof. All such policies shall require not less than thirty
(30) days written notice to Landlord prior to any cancellation thereof or any
change reducing coverage thereunder.
(c) Tenant shall pay the premiums for all insurance policies which
Tenant is obligated to carry under this Article and, at least twenty (20) days
prior to the date any such insurance must be in effect, deliver to Landlord a
copy of the policy or policies, or a certificate or certificates thereof, along
with evidence that the premiums therefor have been paid for at least the next
ensuing quarter-annual period.
(d) Failure to Procure Insurance. If Tenant fails to procure
insurance required under this Article or fails to maintain the same in full
force and effect continuously during the Term, Landlord shall be entitled to
procure the same and Tenant shall immediately reimburse Landlord for such
premium expense as additional rent.
(e) Waiver of Subrogation. If any property owned by Tenant and
located in the Premises shall be stolen, damaged or destroyed by an insured
peril, Landlord shall not have any liability to Tenant, nor to any insurer of
Tenant, for or in respect of such theft, damage or destruction, and Tenant shall
require all policies of insurance carried by it on its property in the Premises
to contain or be endorsed with a provision by which the insurer designated
therein shall waive its right of subrogation against Landlord.
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18. Environmental Matters.
(a) Tenant's Covenant. Throughout the Term of this Lease, Tenant
covenants that it shall not cause, permit or allow any chemical substances,
asbestos, asbestos containing materials, oil, gasoline, other petroleum products
or by-products, formaldehyde, polychlorinated biphenals (PCB's), lead or lead
dust, fuel storage tanks, natural or synthetic gas products or any toxic,
carcinogenic, radioactive, dangerous or hazardous material, substance, chemical,
waste, contamination or pollutant the generation, use, maintenance, storage or
removal of which is regulated, prohibited or penalized under the Resources
Conservation Recovery Act ("RCRA"), 42 U.S.C. Section 6901, et seq; the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. Section 9601, et seq; and any other federal, state or local laws
pertaining to so-called "hazardous substances" or "hazardous materials"
(collectively, the "HAZARDOUS MATERIALS") to be placed, stored, dumped,
dispensed, released, discharged, deposited, used, transported, located or
generated on any portion of the Premises; provided, however, that minor
quantities of such substances may be used or stored by Tenant on the Premises on
the condition that such quantities and the use thereof are permitted by and in
compliance with, or are exempt from applicable governmental regulations.
(b) Clean Up. Tenant shall immediately clean up any Hazardous
Materials found on or within any portion of the Premises, and shall remediate
the Premises, to comply with any and all laws, ordinances, rules or regulations
regarding Hazardous Materials and clean-up thereof, and to pay for all clean-up
and remediation costs at no cost to Landlord.
(c) Indemnification. Tenant shall indemnify, release and hold
Landlord its successors, assigns, officers, directors, shareholders and
employees, harmless from and against all Liabilities, suffered by, incurred by
or assessed against such parties, their agents or other representatives, whether
incurred as a result of legal action taken by any governmental entity or agency,
taken by any private claimant, or taken by Landlord, before or after the
expiration of the Term as a result of the presence, disturbance, discharge,
release, removal or clean-up of any Hazardous Materials upon or under, on or off
site, associated with, generated on or flowing or originating from the Premises.
The term "LIABILITIES" as used in this PARAGRAPH 18 is hereby defined as any and
all liabilities, expenses, demands, damages, punitive or exemplary damages,
consequential damages, costs, cleanup costs, response costs, losses, causes of
action, claims for relief, attorneys and other legal fees, other professional
fees, penalties, fines, assessments and charges.
19. Costs and Attorneys' Fees. If either party shall bring an action to
recover any sum due hereunder, or for any breach hereunder, and shall obtain a
judgment or decree in its favor, the court may award to such prevailing party
its reasonable costs and reasonable attorneys' fees, specifically including
reasonable attorneys' fees incurred in connection with any appeals (whether or
not taxable or assessable as such by law). Landlord shall also be entitled to
recover from Tenant Landlord's reasonable attorneys' fees and costs incurred in
any bankruptcy action filed by or against Tenant, including, without limitation,
those incurred in seeking relief from the automatic stay, in dealing with the
assumption or rejection of this Lease, in any adversary proceeding, and in the
preparation and filing of any proof of claim.
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20. Default; Remedies.
(a) Default. Upon the occurrence of any one or more of the following
events (the "EVENTS OF DEFAULT"), Landlord shall have the right to exercise any
rights or remedies available in this Lease, at law or in equity. Events of
Default shall be:
i. Tenant's failure to pay when due any Rent, or any other sum
of money payable hereunder (whether as additional rent or otherwise) and
such failure is not cured within five (5) days after the date such sum was
due;
ii. if Tenant becomes bankrupt or insolvent, or files any
debtor proceedings, or files pursuant to any statute a petition in
bankruptcy or insolvency or for reorganization, or files a petition for
the appointment of a receiver or trustee for all or substantially all of
its assets, and such petition or appointment shall not have been set aside
within sixty (60) days from the date of such petition or appointment, or
if any of the foregoing are filed against Tenant, or if Tenant makes an
assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due, or if Tenant's
interest in this Lease is attached, seized or made subject to any other
judicial seizure and such seizure or attachment is not discharged within
sixty (60) days;
iii. if Tenant becomes bankrupt or insolvent, or files any
debtor proceedings, or files pursuant to any statute a petition in
bankruptcy or insolvency or for reorganization, or files a petition for
the appointment of a receiver or trustee for all or substantially all of
its assets, and such petition or appointment shall not have been set aside
within sixty (60) days from the date of such petition or appointment, or
if any of the foregoing are filed against Tenant, or if Tenant makes an
assignment for the benefit of creditors or shall admit in writing its
inability to pay its debts generally as they become due, or if Tenant's
interest in this Lease is attached, seized or made subject to any other
judicial seizure and such seizure or attachment is not discharged within
sixty (60) days;
iv. Tenant's failure to provide insurance coverage (or allows
such coverage to be canceled or lapse) pursuant to its obligation
hereunder;
v. if Tenant is liquidated or dissolved, or begins proceedings
toward such liquidation or dissolution, or, in any manner, permits the
sale or divestiture of substantially all of its assets;
vi. if a Change of Control occurs or the estate or interest of
Tenant in the Premises or any part thereof is voluntarily or involuntarily
transferred, assigned, conveyed, levied upon or attached in any
proceeding, unless Tenant is contesting such lien or attachment in good
faith in accordance with PARAGRAPH 27 hereof;
vii. if, except as a result of damage, destruction or a
partial or complete condemnation, Tenant voluntarily ceases operations on
the Premises for a period in excess of thirty (30) days;
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viii. if there has been a default or a notice of default under
or a termination or relinquishment of the franchise or license pursuant to
which Tenant or an Affiliate conducts business on or from the PREMISES
("FRANCHISE"), provided that such event shall not constitute an Event of
Default if (i) no other Event of Default enumerated in this PARAGRAPH 20
shall occur and be continuing, and (ii) at a date no later than the period
allowed to Tenant pursuant to the Franchise to cure such default,
termination or relinquishment, Tenant or an Affiliate has cured such
default thereunder so that there is no default, termination or
relinquishment of the Franchise, or Tenant has entered into a written new
or amended Franchise for operation of motor vehicle retail or motor
vehicle related businesses at the Premises with a substitute franchisor or
licensor acceptable to Landlord on terms and conditions acceptable to
Landlord;
ix. Tenant's failure to provide Landlord immediate notice of
Tenant's receipt of notice of (A) a default or potential default by Tenant
under the Franchise, or (B) the Franchisor's intent to terminate, suspend
or not renew the Franchise;
x. if Tenant vacates, abandons or fails to continuously
operate the Business on the Premises for the Permitted Use; or
xi. if Tenant or any of its Affiliates defaults under any
other lease with Landlord or an Affiliate of Landlord.
(b) Remedies. If any of the Events of Default hereinabove specified
shall occur, Landlord, at any time thereafter, shall have and may exercise any
one or more of the following rights and remedies:
i. Landlord may, by written notice thereof to Tenant,
terminate this Lease and, peaceably or pursuant to appropriate legal
proceedings, re-enter, retake and resume possession of the Premises for
Landlord's own account and, for Tenant's breach of and default under this
Lease, recover immediately from Tenant any and all Rent and other sums and
damages due or in existence at the time of such termination, including,
without limitation: (A) all Rent and other sums, charges, payments, costs
and expenses agreed and/or required to be paid by Tenant to Landlord
hereunder; (B) all costs and expenses of Landlord in connection with the
recovery of possession of the Premises, including reasonable attorneys'
fees and court costs; and (C) all costs and expenses of Landlord in
connection with any reletting or attempted reletting of the Premises or
any part or parts thereof, including, without limitation, brokerage fees,
attorneys' fees and the cost of any alterations or repairs which may be
reasonably required to so relet the Premises, or any part or parts
thereof.
ii. Landlord may, by written notice thereof to Tenant,
terminate Tenant's option to renew this Lease for any or all of the
Renewal Terms.
iii. Landlord may, pursuant to any prior notice required by
law, and without terminating this Lease, peaceably or pursuant to
appropriate legal proceedings, re-enter, retake and resume possession of
the Premises for the account of Tenant, make such alterations of and
repairs to the Premises as may be reasonably necessary in order to relet
the
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same or any part or parts thereof and relet or attempt to relet the
Premises or any part or parts thereof for such term or terms (which may be
for a term or terms extending beyond the Term), at such Rent and upon such
other terms and provisions as Landlord, in its sole discretion may deem
advisable. Landlord shall be under no obligation to relet the Premises or
otherwise mitigate Landlord's damages, unless otherwise required by
applicable law. If Landlord relets or attempts to relet the Premises,
Landlord shall be the sole judge as to the terms and provisions of any new
lease or sublease and of whether or not a particular proposed new tenant
or sublessee is acceptable to Landlord. Upon any such reletting, all rents
received by Landlord from such reletting shall be applied: (A) first, to
the payment of all costs and expenses of recovering possession of the
Premises; (B) second, to the payment of any costs and expenses of such
reletting, including brokerage fees, attorneys' fees and the cost of any
alterations and repairs reasonably required for such reletting; (C) third,
to the payment of any indebtedness, other than Rent, due hereunder from
Tenant to Landlord, and to satisfy any liens encumbering Tenant's
leasehold interest; (D) fourth, to the payment of all Rent and other sums
due and unpaid hereunder; and (E) fifth, the residue, if any, shall be
held by Landlord and applied in payment of future Rent as the same may
become due and payable hereunder. If the rents received from such
reletting during any period shall be less than that required to be paid
during that period by Tenant hereunder, then Tenant shall promptly pay any
such deficiency to Landlord and failing the prompt payment thereof by
Tenant to Landlord, Landlord shall immediately be entitled to institute
legal proceedings for the recovery and collection of the same. Such
deficiency shall be calculated and paid at the time each payment of Rent
shall otherwise become due under this Lease, or, at the option of
Landlord, immediately. Landlord shall, in addition, be immediately
entitled to sue for and otherwise recover from Tenant any other damages
occasioned by or resulting from any abandonment of the Premises or other
breach of or default under this Lease other than a default in the payment
of Rent. No such re-entry, retaking or resumption of possession of the
Premises by Landlord for the account of Tenant shall be construed as an
election on the part of Landlord to terminate this Lease unless a written
notice of such intention shall be given to Tenant or unless the
termination of this Lease be decreed by a court of competent jurisdiction.
Notwithstanding any such re-entry and reletting or attempted reletting of
the Premises or any part or parts thereof for the account of Tenant
without termination, Landlord may at any time thereafter, upon written
notice to Tenant, elect to terminate this Lease or pursue any other remedy
available to Landlord for Tenant's previous breach of or default under
this Lease.
iv. Landlord may, without re-entering, retaking or resuming
possession of the Premises, sue for all Rent and all other sums, charges,
payments, costs and expenses due from Tenant to Landlord hereunder either:
(A) as they become due under this Lease, taking into account that Tenant's
right and option to pay the Rent hereunder on a monthly basis in any
particular Lease Year is conditioned upon the absence of a default on
Tenant's part in the performance of its obligations under this Lease; or
(B) at Landlord's option, accelerate the maturity and due date of the
whole or any part of the Rent for the entire then-remaining unexpired
balance of the Term, as well as all other sums, charges, payments, costs
and expenses required to be paid by Tenant to Landlord hereunder,
including, without limitation, damages for breach or default of Tenant's
obligations hereunder in existence at the time of such acceleration, such
that all sums due and payable under this Lease shall,
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following such acceleration, be treated as being and, in fact, be due and
payable in advance as of the date of such acceleration. Landlord may then
proceed to recover and collect all such unpaid Rent and other sums so sued
for from Tenant by distress, levy, execution or otherwise. Regardless of
which of the foregoing alternative remedies is chosen by Landlord under
this SUBPARAGRAPH (B), Landlord shall not be required to relet the
Premises nor exercise any other right granted to Landlord pursuant to this
Lease, nor shall Landlord be under any obligation to minimize or mitigate
Landlord's damages or Tenant's loss as a result of Tenant's breach of or
default under this Lease.
v. Landlord may require Tenant to immediately transfer to
Landlord all amounts held by Tenant in the trust account established
pursuant to PARAGRAPH 15 above and, thereafter, to deposit on the first
day of each month together with and in addition to the regular installment
of Rent, an amount equal to one twelfth (1/12) of the yearly taxes and
assessments as estimated by Landlord to be sufficient to enable Landlord
to pay, at least thirty (30) days before they become delinquent, all
taxes, assessments, and other similar charges and insurance premiums
against the Premises or any part thereof. Such added payments shall not
be, nor be deemed to be, trust funds, but may be commingled with the
general funds of Landlord, and no interest shall be payable with respect
thereto. Upon demand of Landlord, Tenant shall deliver to Landlord such
additional moneys as are necessary to make up any deficiencies in the
amounts necessary to enable Landlord to pay such taxes, assessments and
similar charges and insurance premiums.
vi. In addition to the remedies hereinabove specified and
enumerated, Landlord shall have and may exercise the right to invoke any
other remedies allowed at law or in equity as if the remedies of reentry,
unlawful detainer proceedings and other remedies were not herein provided.
Accordingly, the mention in this Lease of any particular remedy shall not
preclude Landlord from having or exercising any other remedy at law or in
equity. Nothing herein contained shall be construed as precluding Landlord
from having or exercising such lawful remedies as may be and become
necessary in order to preserve Landlord's right or the interest of
Landlord in the Premises and in this Lease, even before the expiration of
any notice periods provided for in this Lease, if under the particular
circumstances then existing the allowance of such notice periods will
prejudice or will endanger the rights and estate of Landlord in this Lease
and in the Premises.
(c) Tenant's Affiliates. Landlord may enter into leases with
Affiliates of Tenant. As an inducement to Landlord entering into leases with
Tenant's Affiliates, Tenant and Tenant's Affiliates shall not receive or collect
any payments, dividends, disbursements, distributions, contributions or any
other sums from Tenant or Tenant's Affiliates at any time after an Event of
Default has occurred under this Lease or a default has occurred (and the
applicable notice and cure periods, if any, have expired) under any other lease
between Landlord and: (i) Tenant; (ii) any Affiliate of Tenant; (iii) Guarantor;
or (iv) any Affiliate of Guarantor.
21. Eminent Domain.
(a) Complete Taking. If the whole of the Premises shall be taken or
condemned for any public or quasi-public use or purpose, by right of eminent
domain or by purchase in lieu
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thereof, or if a substantial portion of the Premises shall be so taken or
condemned that the portion remaining is not sufficient and suitable, in the
mutual reasonable judgment of Landlord and Tenant, for the continued operation
of the business contemplated by this Lease to be conducted thereon, therein or
therefrom so as to effectively render the Premises untenantable, then this Lease
and the Term hereby granted shall cease and terminate as of the date on which
the condemning authority takes possession and all Rent shall be paid by Tenant
to Landlord up to that date or refunded by Landlord to Tenant if Rent has
previously been paid by Tenant beyond that date.
(b) Partial Taking. If a portion of the Premises is taken, and the
portion or portions remaining can, in the mutual reasonable judgment of Landlord
and Tenant, be adapted and used for the conduct of Tenant's business operation,
such that the Premises are not effectively rendered untenantable, then Tenant
shall promptly restore the remaining portion or portions thereof to a condition
comparable to their condition at the time of such taking or condemnation, less
the portion or portions lost by the taking, and this Lease shall continue in
full force and effect except that the Rent payable hereunder shall, if
necessary, be equitably adjusted to take into account the portion or portions of
the Premises lost by the taking and any award received by the parties.
(c) Award. The entire award for the Premises or the portion or
portions thereof so taken shall be apportioned between Landlord and Tenant as
follows: (i) if this Lease terminates due to a taking or condemnation, Landlord
shall be entitled to the entire award; or (ii) if this Lease does not terminate
due to such taking or condemnation, Tenant shall be entitled to the award to the
extent required for restoration of the Premises, and Landlord shall be entitled
to the balance of the award not applied to restoration. If this Lease does not
terminate due to a taking or condemnation, Tenant shall, with due diligence,
restore the remaining portion or portions of the Premises in the manner
hereinabove provided. In such event, the proceeds of the award to be applied to
restoration shall be deposited with the Bank or another financial institution
designated by Landlord as if such award were insurance proceeds, and the amount
so deposited will thereafter be treated in the same manner as insurance proceeds
are to be treated under PARAGRAPH 16(B) of this Lease until the restoration has
been completed and Tenant has been reimbursed for all the costs and expenses
thereof. If the award is insufficient to pay for the restoration, Tenant shall
be responsible for the remaining cost and expense of such restoration.
(d) Disputes. If Landlord and Tenant cannot agree in respect of any
matters to be determined under this Article, a determination shall be requested
of the court having jurisdiction over the taking or condemnation; provided,
however, that if said court will not accept such matters for determination,
either party may have the matters determined by a court otherwise having
jurisdiction over the parties.
22. Liability of Landlord. Landlord shall not be liable to Tenant, its
employees, agents, contractors, business invitees, licensees, customers,
clients, family members or guests for any damage, injury, loss, compensation or
claim, including, but not limited to, claims for the interruption of or loss to
Tenant's business, based on, arising out of or resulting from any cause
whatsoever, including, but not limited to: (a) repairs to any portion of the
Premises; (b) interruption in Tenant's use of the Premises; (c) any accident or
damage resulting from the use or operation (by Landlord, Tenant or any other
person or persons) of any equipment within the Premises, including without
limitation, heating, cooling, electrical or plumbing equipment or apparatus; (d)
the termination of
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this Lease by reason of the condemnation or destruction of the Premises in
accordance with the provisions of this Lease; (e) any fire, robbery, theft,
mysterious disappearance or other casualty; (f) the actions of any other person
or persons; and (g) any leakage or seepage in or from any part or portion of the
Premises, whether from water, rain or other precipitation that may leak into, or
flow from, any part of the Premises, or from drains, pipes or plumbing fixtures
in the Improvements. Any goods, property or personal effects stored or placed by
Tenant or its employees in or about the Premises shall be at the sole risk of
Tenant.
23. Indemnification of Landlord. In addition to any other indemnification
obligations in this Lease, Tenant shall defend, indemnify and save and hold
Landlord harmless from and against any and all liabilities, obligations, losses,
damages, injunctions, suits, actions, fines, penalties, claims, demands, costs
and expenses of every kind or nature, including reasonable attorneys' fees and
expenses and court costs and actual or consequential damages, incurred by,
imposed upon or asserted against Landlord, its officers, trustees, employees,
shareholders, agents or Affiliates, arising directly or indirectly from or out
of: (a) any breach, violation or nonperformance by Tenant or any person claiming
under Tenant, or the employees, agents, contractors, invitees or visitors of
Tenant of any of the terms, provisions, representations, warranties, covenants
or conditions of this Lease on Tenant's part to be performed or any law,
ordinance or governmental requirement of any kind; (b) any use, condition,
operation or occupancy of the Premises; (c) any acts, omissions or negligence of
Tenant, in, on, or about the Premises, (d) any accident, injury, death or damage
to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors or any other person which shall happen at, in or
upon the Premises, however occurring; (e) any matter or thing growing out of the
condition, occupation, maintenance, alteration, repair, use or operation by any
person of the Premises, or any part thereof, or the operation of the business
contemplated by this Lease to be conducted thereon, thereat, therein, or
therefrom; (f) any failure of Tenant to comply with any laws, ordinances,
requirements, orders, directions, rules or regulations of any governmental
authority, including, without limitation, the Accessibility Laws; (g) any
contamination of the Premises, or the ground waters thereof, arising on or after
the date Tenant takes possession of the Premises and occasioned by the use,
transportation, storage, spillage or discharge thereon, therein or therefrom of
any toxic or hazardous chemicals, compounds, materials or substances or any
violation of the covenants of PARAGRAPH 18 above; (h) any discharge of toxic or
hazardous sewage or waste materials from the Premises into any septic facility
or sanitary sewer system serving the Premises arising on or after the date
Tenant takes possession of the Premises; (i) any brokers or agents fees and
commissions; or (j) any other act or omission of Tenant, its employees, agents,
invitees, customers, licensees or contractors.
Tenant's indemnity obligations under this PARAGRAPH 23 and elsewhere in
this Lease arising prior to the termination or assignment of this Lease shall
survive any such termination or assignment.
24. Notice of Claim or Suit. Tenant shall promptly notify Landlord of any
claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord of which Tenant receives notice or of which Tenant acquires knowledge.
If Landlord is made a party to any action for damages or other relief against
which Tenant has indemnified Landlord, as aforesaid, then Tenant shall defend
Landlord, pay all costs and shall provide effective counsel to Landlord in such
litigation or, at Landlord's option, shall pay all attorneys' fees and costs
incurred by Landlord in connection
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with its own defense or settlement of said litigation.
25. Liens, Generally. Tenant shall not create or cause to be imposed,
claimed or filed upon the Premises, or any portion thereof, or upon the interest
of Landlord therein, any lien, charge or encumbrance whatsoever. If, because of
any act or omission of Tenant, any such lien, charge or encumbrance shall be
imposed, claimed or filed, Tenant shall, at its sole cost and expense, cause the
same to be fully paid and satisfied or otherwise discharged of record (by
bonding or otherwise) and Tenant shall indemnify and save and hold Landlord
harmless from and against any and all costs, liabilities, suits, penalties,
claims and demands whatsoever, and from and against any and all attorneys' fees,
at both trial and all appellate levels, resulting or on account thereof and
therefrom. If Tenant shall fail to comply with the foregoing provisions of this
PARAGRAPH 25, then Landlord shall have the option of paying, satisfying or
otherwise discharging (by bonding or otherwise) such lien, charge or encumbrance
and Tenant shall reimburse Landlord, upon demand and as additional rent, for all
sums so paid and for all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon, until paid.
26. Mechanics Liens. Landlord's interest in the Premises shall not be
subjected to liens of any nature by reason of Tenant's construction, alteration,
renovation, repair, restoration, replacement or reconstruction of any
improvements on or in the Premises, or by reason of any other act or omission of
Tenant (or of any person claiming by, through or under Tenant) including, but
not limited to, mechanics' and materialmen's liens. All persons dealing with
Tenant are hereby placed on notice that such persons shall not look to Landlord
or to Landlord's credit or assets (including Landlord's interest in the
Premises) for payment or satisfaction of any obligations incurred in connection
with the construction, alteration, renovation, repair, restoration, replacement
or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right
or authority to subject Landlord's interest in the Premises to any mechanic's or
materialmen's lien or claim of lien. If a lien, a claim of lien or an order for
the payment of money shall be imposed against the Premises on account of work
performed, or alleged to have been performed, for or on behalf of Tenant, Tenant
shall, within thirty (30) days after written notice of the imposition of such
lien, claim or order, cause the Premises to be released therefrom by the payment
of the obligation secured thereby or by furnishing a bond or by any other method
prescribed or permitted by law. If a lien is released, Tenant shall thereupon
furnish Landlord with a written instrument of release in form for recording or
filing in the appropriate office of land records of the County in which the
Premises is located, and otherwise sufficient to establish the release as a
matter of record.
27. Contest of Liens. Tenant may, at its option, contest the validity of
any lien or claim of lien if Tenant shall have first posted an appropriate and
sufficient bond in favor of the claimant or paid the appropriate sum into court,
if permitted by law, and thereby obtained the release of the Premises from such
lien. If judgment is obtained by the claimant under any lien, Tenant shall pay
the same immediately after such judgment shall have become final and the time
for appeal therefrom has expired without appeal having been taken. Tenant shall,
at its own expense, defend the interests of Tenant and Landlord in any and all
such suits; provided, however, that Landlord may, at its election, engage its
own counsel and assert its own defenses, in which event Tenant shall cooperate
with Landlord and make available to Landlord all information and data which
Landlord deems necessary or desirable for such defense.
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28. Notices of Commencement of Construction. If required or allowed by the
laws of the State in which the Premises are located, prior to commencement by
Tenant of any work on the Premises which shall have been previously permitted by
Landlord as provided in this Lease, Tenant shall record or file a notice of the
commencement of such work (the "NOTICE OF COMMENCEMENT") in the land records of
the County in which the Premises are located, identifying Tenant as the party
for whom such work is being performed, stating such other matters as may be
required by law and requiring the service of copies of all notices, liens or
claims of lien upon Landlord. Any such Notice of Commencement shall clearly
reflect that the interest of Tenant in the Premises is that of a leasehold
estate and shall also clearly reflect that the interest of Landlord as the fee
simple owner of the Premises shall not be subject to mechanics or materialmen's
liens on account of the work which is the subject of such Notice of
Commencement. A copy of any such Notice of Commencement shall be furnished to
and approved by Landlord and its attorneys prior to the recording or filing
thereof, as aforesaid.
29. Limitation on Liability of Landlord. If Tenant is awarded a money
judgment against Landlord, then Tenant's sole recourse for satisfaction of such
judgment shall be limited to execution against the Premises. In no event shall
any stockholder, shareholder, partner, employee, officer or beneficiary of
Landlord be personally liable for the obligations of Landlord hereunder.
30. Franchise and License Agreements. Tenant shall keep and maintain in
full force during the Term all Franchise agreements, management agreements,
service and maintenance contracts, equipment leases and other contracts or
agreements involving or relating to the operation of the Premises for its
Permitted Use. Tenant shall, at its sole cost and expense, pay all franchise
fees, license fees, management fees or other expenses of any kind or nature
whatsoever in connection with its operation of the Premises for its Permitted
Use.
31. "Net" Lease. Landlord and Tenant acknowledge and agree that this Lease
shall be and constitute what is generally referred to as a "triple net" or
"absolute net" lease, such that Tenant shall be obligated hereunder to pay all
costs and expenses incurred with respect to, and associated with, the Premises
and the business operated thereon and therein, including, without limitation,
all taxes and assessments, utility charges, insurance costs, maintenance costs
and repair and restoration expenses (all as more particularly herein provided)
together with any and all other assessments, charges, costs and expenses of any
kind or nature whatsoever related to, or associated with, the Premises and the
business operated thereon and therein; provided, however, that Landlord shall
nonetheless be obligated to pay any debt service on any mortgage encumbering
Landlord's fee simple interest in the Premises, and Landlord's personal income
taxes (if any) with respect to the Rent received by Landlord under this Lease.
Except as expressly hereinabove provided, Landlord shall bear no cost or expense
of any type or nature with respect to, or associated with, the Premises.
32. Representations, Warranties and Special Covenants. The
Representations, Warranties and Special Covenants attached hereto as EXHIBIT E
are incorporated herein by this reference.
33. Notices. All notices, approvals, requests, consents and other
communications given pursuant to this Lease shall be in writing and shall be
deemed to have been duly given (i) when actually received if (a) either (x) hand
delivered, (y) sent by facsimile transmission (in which event proof of delivery
shall be by telephone) (and a duplicate of such notice in (x) or (y) or such
notice
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shall be deposited in a regularly maintained receptacle for the deposit of
United States mail, sent by registered or certified mail, postage and charges
prepaid); (ii) two (2) days after the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, sent by registered
or certified mail, postage and charges prepaid; or (iii) the next business day
if sent via a national overnight delivery service, addressed as follows or at
such other address as either party may specify from time to time by notice to
the other party at least five (5) days prior notice of the changed address:
TO TENANT: with a copy to:
Attention:
Telephone: Telephone:
Telefax: Telefax:
TO LANDLORD: with a copy to:
Mar Mar Realty Limited Partnership ____________________________________
6407 Idlewild Road ____________________________________
Building 2, Suite 111 ____________________________________
Charlotte, North Carolina 28212 Attention: _________________________
Attention: B.F. Bracy
Telephone: (704) 566-4081 Telephone: _________________________
Telefax: (704) 566-6031 Telefax: ___________________________
34. No Waiver. No course of dealing between Landlord and Tenant, or any
delay or omission of Landlord or Tenant to insist upon a strict performance of
any term or condition of this Lease shall be deemed a waiver of any right or
remedy that such party may have, and shall not be deemed a waiver of any
subsequent breach of such term or condition.
35. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the Rent
and observing and keeping the covenants, agreements and stipulations of this
Lease on its part to be kept, shall lawfully, peaceably and quietly hold, occupy
and enjoy the Premises during the Term without hindrance, ejection or
molestation. Landlord covenants and warrants that it is lawfully seized of the
Premises and has good, right and lawful authority to enter into this Lease for
the full term aforesaid, that the Premises are free and clear of all
encumbrances that would prevent Landlord from having such right and authority
and that Landlord will put Tenant in actual possession of the Premises on the
Commencement Date.
36. Subordination. This Lease, Tenant's interest hereunder and Tenant's
leasehold interest in and to the Premises are hereby agreed by Tenant to be and
are hereby made junior, inferior, subordinate and subject in right, title,
interest, lien, encumbrance, priority and all other respects to any mortgage
(which term when used anywhere in this Lease includes deeds of trust and other
security instruments and interests) or mortgages now or hereafter in force and
effect upon or encumbering Landlord's interest in the Premises, or any portion
thereof, and to all collateral assignments by Landlord to any third party or
parties of any of Landlord's rights under this Lease
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or the rents, issues and profits thereof or therefrom as security for any
liability or indebtedness, direct, indirect or contingent, of Landlord to such
third party or parties, and to all future modifications, extensions, renewals,
consolidations and replacements of, and all amendments and supplements to any
such mortgage, mortgages or assignments. Upon recording of any such mortgage,
mortgages or assignments, the same shall be deemed to be prior in effect, lien
and encumbrance to this Lease, Tenant's interest hereunder and Tenant's
leasehold interest in and to the Premises irrespective of the dates of
execution, delivery or recordation of any such mortgage, mortgages or
assignments and in the event of any conflict between the terms of this Lease and
the terms of such instrument, the terms of such instrument shall control. The
foregoing subordination provisions of this PARAGRAPH 36 shall be automatic and
self-operative without the necessity of the execution of any further instrument
or agreement of subordination on the part of Tenant. However, if Landlord or the
holder or proposed holder of any such mortgage, mortgages or assignments shall
request that Tenant execute and deliver any further instrument or agreement of
subordination of this Lease, Tenant's interest hereunder or Tenant's leasehold
interest in the Premises to any such mortgage, mortgages or assignments in
confirmation or furtherance of or in addition to the foregoing subordination
provisions of this PARAGRAPH 36, Tenant shall promptly execute and deliver the
same to the requesting party. If, within fifteen (15) days following Tenant's
receipt of a written request by Landlord or the holder or proposed holder of any
such mortgage, mortgages or assignments, Tenant shall fail or refuse or shall
have not executed any such further instrument or agreement of subordination, for
whatever reason, Tenant shall be in breach and default of its obligation to do
so and of this Lease and Landlord shall be entitled thereupon to exercise any
and all remedies available to Landlord pursuant to this Lease or otherwise
provided by law.
37. Attornment. Tenant shall attorn, and be bound under all of the terms,
provisions, covenants and conditions of this Lease, to any successor of the
interest of Landlord under this Lease for the balance of the Term remaining at
the time of the succession of such interest to such successor. In particular, if
any proceedings are brought for the foreclosure of any mortgage or security
interest encumbering or collateral assignment of Landlord's interest in the
Premises, or any portion thereof, then Tenant shall attorn to the purchaser at
any such foreclosure sale and recognize such purchaser as Landlord under this
Lease, subject, however, to all of the terms and conditions of this Lease.
Tenant agrees that neither the purchaser at any such foreclosure sale nor the
foreclosing mortgagee or holder of such security interest or collateral
assignment shall have any liability for any act or omission of Landlord, be
subject to any offsets or defenses which Tenant may have as claim against
Landlord, or be bound by any advance rents which may have been paid by Tenant to
Landlord for more than the current period in which such rents come due.
38. Rights of Mortgagees and Assignees. At the time of giving any notice
of default to Landlord, Tenant shall mail or deliver to the holders of any
mortgage on the Premises or holder of security interest in or collateral
assignment of this Lease who have, in writing, notified Tenant of their
interests (individually a "MORTGAGEE") a copy of any such notice. No notice of
default or termination of this Lease by Tenant shall be effective until any
Mortgagee shall have been furnished a copy of such notice by Tenant. If Landlord
fails to cure any default by it under this Lease, then the Mortgagee shall have,
at its option, a period of sixty (60) days after the expiration of Landlord's
cure period within which to remedy such default of Landlord or to cause such
default to be remedied. If the Mortgagee elects to cure any such default by
Landlord, then Tenant shall accept such performance on the part of such
Mortgagee as though the same had been performed by Landlord,
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
23
<PAGE>
and for such purpose Tenant hereby authorizes any Mortgagee to enter upon the
Premises to the extent necessary to exercise any of Landlord's rights, powers
and duties under this Lease. If, in the event of any default by Landlord which
is reasonably capable of being cured by a Mortgagee, the Mortgagee promptly
commences and diligently pursues to cure the default, then Tenant will not
terminate this Lease or cease to perform any of its obligations under this Lease
so long as the Mortgagee is, with due diligence, engaged in the curing of such
default.
39. Brokers. Landlord and Tenant represent and warrant to the other that
neither of them have engaged or contracted with any person, firm or entity to
serve or act as a broker, agent or finder for the purpose of leasing the
Premises, and that no broker's or real estate or other similar commissions or
fees are or shall be due in respect of the transaction contemplated by this
Lease. Landlord and Tenant each shall indemnify, defend and save harmless the
other from and against any cost and expense, including reasonable attorney's
fees, incurred by the other as a result of the untruth of any of the foregoing
representations made by it.
40. Invalidity. If any provision of this Lease shall be declared invalid
or unenforceable, the remainder of this Lease shall continue in full force and
effect.
41. Counterparts. This Lease may be executed in two (2) or more
counterparts, which taken together shall be deemed one (1) original.
42. Memorandum of Lease. The parties hereto agree not to record this
Lease. The parties agree to execute and to record in the appropriate local
registry a Memorandum of this Lease in the form attached as EXHIBIT B.
43. Cumulative. All rights and remedies of Landlord and Tenant herein
shall be cumulative and none shall be exclusive of any other or of any rights
and remedies allowed by law.
44. Governing Law. This Lease shall be governed by, construed, and
enforced in accordance with the laws of the state in which the Premises is
located.
45. Successors and Assigns, Relationship. The covenants, terms,
conditions, provisions, and undertakings in this Lease shall extend to and be
binding upon the permitted successors, and assigns of the respective parties
hereto, and shall be construed as covenants running with the land. This Lease
creates and evidences a lease between Landlord and Tenant, and not a
partnership, joint venture, or other type of ownership inconsistent with a
lease, and neither Landlord or Tenant shall make any representation to the
contrary.
46. Entire Agreement. This Lease, together with any exhibits attached
hereto, contains the entire agreement and understanding between the parties.
There are no oral understandings, terms, or conditions, and neither party has
relied upon any representation, express or implied, not contained in this Lease.
All prior understandings, terms, or conditions are deemed merged in this Lease.
This Lease cannot be changed or supplemented orally, but may be modified or
amended only by a written instrument executed by the parties. Any disputes
regarding the interpretation of any portion of this Lease shall not be
presumptively construed against the drafting party.
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
24
<PAGE>
47. Survival. Tenant's indemnity obligations herein, including, without
limitation, those set forth in PARAGRAPH 18 shall survive termination of this
Lease.
48. Estoppel Certificates. Tenant shall from time to time, within fifteen
(15) days after request by Landlord and without charge, give a Tenant Estoppel
Certificate in the form attached hereto as EXHIBIT D and containing such other
matters as may be reasonably requested by Landlord to any person, firm or
corporation specified by Landlord. If Tenant does not return the Tenant Estoppel
Certificate within such fifteen-day period, Tenant shall be deemed to have
consented to the information contained therein as if Tenant had executed such
Tenant Estoppel Certificate and returned it to Landlord.
49. Time. Time is of the essence in every particular of this Lease,
including, without limitation, obligations for the payment of money.
50. Captions and Headings. The captions and headings in this Lease have
been inserted herein only as a matter of convenience and for reference and in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Lease.
51. Waiver of Jury Trial. TO THE EXTENT ALLOWED BY APPLICABLE LAW, TENANT
AND LANDLORD HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
EITHER OF THEM OR THEIR HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS
MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS LEASE OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LANDLORD'S ACCEPTING THIS LEASE.
52. Signage. Tenant shall have the right to install signs containing
Tenant's trade name and such other identification signs on the Premises as are
permitted by applicable governmental laws and regulations and approved by
Landlord. Tenant shall obtain all governmental permits, licenses and approvals
necessary to erect such signs, and shall maintain such signs in good condition
and repair.
53. Guaranty. At the time of Tenant's execution of this Lease, Tenant
shall obtain the execution of the guaranty agreement in the form of EXHIBIT G
attached hereto ("GUARANTY") by the Guarantor named therein ("GUARANTOR"). As a
condition to Tenant's exercise of a Renewal Term and accompanying Tenant's
notice of such exercise, Tenant shall deliver to Landlord a reaffirmation of the
Guaranty executed by Guarantor.
54. Right of First Refusal. Tenant grants Landlord a right of first
refusal as follows:
(a) If Tenant receives a bona fide offer to purchase the Business
located on the Premises, including none, some or all of the improvements,
fixtures, furniture, equipment, personal property and inventory not already a
part of the Premises, but at the time of the Offer, used in the operation of the
Business (the "OPTION PROPERTY"), which Tenant desires to accept, then Tenant
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
25
<PAGE>
shall give Landlord written notice of and provide Landlord with a copy of the
bona fide offer to purchase the Option Property containing all of the terms of
the proposed sale ("Offer"). Landlord shall either accept or reject such Offer
within sixty (60) days of Landlord's receipt of such Offer. If Landlord elects
to purchase the Option Property, the sale will be consummated on substantially
the same terms set forth in the Offer. If Landlord elects not to purchase the
Option Property, or if Landlord fails to deliver notice to Tenant of its
election to purchase the Option Property to Tenant within the sixty (60) days
after Landlord's receipt of such Offer, then Tenant shall be free to sell the
Option Property to the third party on the terms set forth in the Offer within
one hundred eighty (180) days after Tenant's receipt of notice of such election
by Landlord or the expiration of such sixty (60) day period, whichever is
earlier. If the sale is not concluded within such time, such Offer will be
deemed expired and Landlord's right of first refusal pursuant to this PARAGRAPH
54 shall be reinstated.
(b) If Tenant receives a notice of a default or potential default by
Tenant under the Franchise, then Tenant shall give Landlord written notice of
and provide Landlord with a copy of such notice. Notwithstanding Landlord's
other rights and remedies hereunder, Landlord may within sixty (60) days of
Landlord's receipt of such notice, elect to purchase the Option Property. If
Landlord elects to purchase the Option Property, the purchase price of the
Option Property shall be based upon an evaluation of the net book valuation of
the Option Property, subject to adjustment as may be agreed upon by the parties
and such other terms and conditions as the parties may agree. If Landlord elects
not to purchase the Option Property, or if Landlord fails to deliver notice to
Tenant of its election to purchase the Option Property to Tenant within the
sixty (60) days after Landlord's receipt of such notice, then Landlord shall
continue to maintain all other rights and remedies under this Lease for such
notice of default under the Franchise and Landlord's right of first refusal
pursuant to this PARAGRAPH 54 shall be continue.
(c) If Landlord elects to purchase the Offer Property or the Option
Property pursuant to this PARAGRAPH 54, Landlord may assign its rights and
obligations with respect to such purchase to another party and the sale will be
consummated on the terms set forth above.
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
26
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Lease the day
and year first above written.
LANDLORD:
MAR MAR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership (SEAL)
By: MAR MAR REALTY TRUST,
Its General Partner
By:_______________________________________
Its:______________________________________
TENANT:
By:_______________________________________
Its:______________________________________
________________________________________________________________________________
Lease Agreement Property Name
Tenant Name City, State
27
Exhibit 10.7
FORM OF
LEASE AGREEMENT
BETWEEN
ADVANCE STORES COMPANY, INCORPORATED
AND
MAR MAR REALTY LIMITED PARTNERSHIP
<PAGE>
This LEASE AGREEMENT is made _______________________, 1998 by and
between MAR MAR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership,
herein called "LANDLORD"; and ADVANCE STORES COMPANY, INCORPORATED, a Virginia
corporation, herein called "TENANT".
- WITNESSETH -
Premises: That for and in consideration of the rental reserved herein
and the mutual covenants and agreements herein contained, LANDLORD does hereby
demise and lease unto TENANT that certain parcel of land containing
_____________ acres situated in the ______________________________ of
_____________________, _____________________ County, _______________________ ,
and outlined in red on a survey made by _________________________ attached
hereto as Exhibit "A" consisting of one (1) page which has been initialed by
LANDLORD and TENANT. LANDLORD shall erect upon said _______ acre parcel for
TENANT'S use a __________ square foot building and other improvements, such as
parking (the _______ acre parcel, building and other improvements being herein
collectively called the "Leased premises").
LANDLORD ________________
TENANT __________________
<PAGE>
1. CONSTRUCTION OF LEASED PREMISES:
a. Construction: LANDLORD agrees to construct on the leased
premises, at its exclusive risk and expense, a building and other improvements
such as parking facilities in accordance with the plans and specifications
(herein called the "Plans") attached hereto as Exhibit "B" consisting of ______
pages, each of which has been initialed by LANDLORD and TENANT. Any changes to
the Plans shall be made only by a written change order duly signed by LANDLORD
and TENANT. The improvements shall be constructed in compliance with all
applicable federal, state and local laws and the rules and regulations of the
departments and bureaus having jurisdiction thereof.
b. LANDLORD'S Guarantee: LANDLORD guarantees all of the
construction work provided for in paragraph la against defective workmanship and
materials through the end of the first full year following the date of the
commencement of the initial term of this lease. TENANT shall have the right,
from time to time, to inspect such work. In the event of any defective
workmanship or materials, LANDLORD will, at its own risk and expense, repair or
replace such defective workmanship and materials of which TENANT shall have
given written notice of prior to the expiration of the guarantee period set
forth above. In the event LANDLORD fails to repair or replace such defective
workmanship or materials, TENANT may do so and deduct the cost thereof from the
rent payments to become due.
c. Substantial Completion: The construction work provided for
in paragraph la shall be deemed to have been substantially completed when all of
the following shall have occurred:
(i) LANDLORD shall have substantially performed all
of said construction work. Such work shall be deemed to have been substantially
performed when such
LANDLORD______________
TENANT _______________
2
<PAGE>
work has been entirely completed in accordance with the Plans and in compliance
with all applicable laws, rules and regulations except for minor or
insubstantial details of construction, decoration or mechanical adjustments
remaining to be done, the completion of which will not materially interfere with
TENANT'S use of the leased premises, provided that nothing herein shall relieve
LANDLORD from its obligation to complete such work. In the event there is any
work that has not been entirely completed, LANDLORD and TENANT shall execute and
deliver to the other a letter agreement drawn by the TENANT listing such
incomplete work and the approximate dates when the same shall be completed by
LANDLORD. In the event LANDLORD fails to do so, TENANT may complete such work
and deduct the cost thereof from the rent payments to become due.
(ii) A certificate of occupancy authorizing use of
the leased premises for TENANT'S intended use shall have been issued by the
governmental department or bureau having jurisdiction of the leased premises.
(iii) LANDLORD shall have given TENANT written notice
that all of the foregoing have occurred.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
3
<PAGE>
2. TERM/OPTIONS:
a. Initial Term: The initial term of this lease (herein
referred to as the "initial term") shall commence on the date when the leased
premises shall have been substantially completed as provided in paragraph 1
hereof or on ___________________, _______, whichever date shall occur later, and
shall terminate at midnight on __________________, ________. Upon commencement
of the term of this lease, LANDLORD and TENANT shall enter into a written
agreement setting forth the commencement date, but the failure to execute such
agreement shall not prevent the commencement of the term. TENANT'S obligation to
commence payment of the rent provided in paragraph 3 hereof shall coincide with
the commencement of the term of this lease; however, in the event the
commencement date commences on any day other than the first day of any calendar
month, TENANT shall pay to LANDLORD on the commencement of the term the
proportionate amount of rent due for the balance of such month.
b. Options: LANDLORD grants to TENANT the option to extend
this lease for two (2) additional terms of five (5) years upon the same terms
and conditions as herein contained. In order to exercise said option to extend
this lease, TENANT shall give LANDLORD written notice at least three (3) months
prior to the expiration of the then term of this lease; however, in case TENANT
fails to timely exercise said option, LANDLORD shall give TENANT written notice
inquiring whether TENANT desires to exercise such option; TENANT may, within
fifteen (15) days of receipt of such notice from LANDLORD, exercise such option
to extend this lease, which exercise shall constitute a valid and timely
exercise of said option.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
4
<PAGE>
3. RENT:
a. Guaranteed Rent: TENANT shall pay LANDLORD during each
rental year of this lease the following monthly sums (the "minimum guaranteed
rent") which shall be payable, in advance, on the first day of each month:
<TABLE>
<S> <C>
Commencement through , , - $ per month
---------------------- --------- ------------------
1st Option , through , , - $ per month
--------------------- -------- ----------------------- -------- ----------------
2nd Option , through , , - $ per month
---------------------- -------- --------------------- -------- ----------------
</TABLE>
b. Percentage Rent: In addition to the minimum guaranteed
rent, should the sum of ______% of TENANT'S gross sales during any rental year
exceed the total of the minimum guaranteed rent payable in such rental year,
TENANT will pay LANDLORD, as additional rent due hereunder, a sum equivalent to
such excess (the "percentage rental"). The percentage rental shall be determined
and payable on or before the ninetieth (90th) day following the close of each
rental year based on the gross sales made from the leased premises for each such
year. A statement signed by an officer of TENANT showing in reasonable detail
the amount of the gross sales during the preceding rental year shall accompany
TENANT'S payment of the percentage rental for such period.
TENANT shall prepare and keep at its principal offices until at least
twelve (12) months following the end of each rental year an accurate account of
its gross sales as herein defined disclosing the cash receipts, and such other
information as may be reasonably necessary to determine said gross sales,
including all such sales records which would normally be examined by an
independent accountant pursuant to accepted accounting standards if an audit of
TENANT'S sales were to be performed. Upon written request from LANDLORD, TENANT
shall furnish to LANDLORD any audit of sales made from the leased premises as
done by the regular accounting firm employed by TENANT. LANDLORD may, at its
option and expense, acting alone or through
LANDLORD_______________
TENANT ________________
5
<PAGE>
its duly authorized representatives, inspect TENANT'S record of sales made from
the leased premises at any time or from time to time, provided such inspection
covering a rental year is made within twelve (12) months following receipt of
TENANT'S statement for such rental year. Any claim by LANDLORD for revision of
any statement of sales or for additional percentage rental must be made in
writing to TENANT within fifteen (15) months after the receipt of TENANT'S
statement for such rental year for which additional rental is allegedly due. At
its option, LANDLORD, at any reasonable time, or from time to time, no more than
once during a rental year, may have made a complete audit of TENANT'S entire
sales record relating to the leased premises covering the then current and
immediately preceding rental year. If such audit shall disclose a deficiency in
percentage rental paid for any rental year to the extent of five percent (5%) or
more, TENANT shall promptly pay to LANDLORD the amount of such deficiency and,
in addition, unless such deficiency is the result of a non-willful error, TENANT
shall pay the cost of such audit. In the event such audit discloses a deficiency
for percentage rental of twenty percent (20%) or more in excess of rentals
thereto paid for such rental year, and if such deficiency is not the result of a
non-willful error, LANDLORD shall have an additional remedy, at its option, to
terminate this lease. LANDLORD shall hold in confidence all sales and other
information obtained from TENANT'S records.
c. Definitions:
(i) Gross Sales: The term "gross sales" as used herein shall
mean the actual sales price for all goods, wares and merchandise sold and actual
charges for all labor services performed by TENANT upon or from the leased
premises, whether for cash or otherwise, including, but not limited to, such
sales and services where the orders therefore originate in, at or from the
leased premises or from some other place, pursuant to mail, telephone, telegraph
or similar orders
LANDLORD_______________
TENANT ________________
6
<PAGE>
received at the leased premises; provided, however, that the following
transactions shall be expressly excluded from the term "gross sales": (a)
exchanges of merchandise between stores of TENANT where such exchange is made
solely for the convenient operation of TENANT'S business and not for the purpose
of consummating a sale made in, at or from the leased premises; (b) returns of
merchandise to shippers or manufacturers; (c) voluntary or involuntary cash or
credit refunds to customers on transactions otherwise included in gross sales;
(d) sales of fixtures, machinery and equipment used in the conduct of TENANT'S
business at said leased premises; and (e) all sums collected from customers in
the form of sales tax, excise tax or similar tax imposed upon and collected by
TENANT by and for any duly constituted governmental authority.
(ii) Rental Year: The term "rental year" as used herein shall
mean: (a) in the calendar year in which the initial term of this lease
commences, that period from the date of commencement of the lease until December
31st next following; and (b) that period from January 1 to December 31 for all
other years during the term of this lease.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
7
<PAGE>
4. TENANT'S FURNISHINGS. FIXTURES AND EQUIPMENT: TENANT, at its sole
cost and expense, may supply and install in or on the leased premises any
furnishings, fixtures or equipment, including a satellite dish and any necessary
cables or supporting equipment, which it deems necessary for its use of said
premises; provided, however, that TENANT shall repair, at its own expense, any
damage to the leased premises occasioned by such installation. LANDLORD and
TENANT recognize that TENANT will commence the installation of its furnishings,
fixtures and equipment prior to final completion of the leased premises provided
for in paragraph 1 hereof, and agree to cooperate with each other in this
respect. LANDLORD agrees that TENANT may at TENANT'S sole risk enter the leased
premises in order to commence such installation free from any rent and such
entry shall not be construed as an acceptance of the leased premises, such
acceptance being controlled solely by the provisions of paragraph 1 hereof.
LANDLORD shall not under any circumstances be liable for any furnishings,
fixtures or equipment installed by TENANT. Any such furnishings, fixtures and
equipment supplied and installed in the leased premises, except those
permanently attached, shall be and remain the property of TENANT and TENANT
shall have the right and obligation to remove same at any time so long as TENANT
is not in default in the performance of any of the terms and conditions of this
lease. Furthermore, TENANT'S right to remove said furnishings, fixtures and
equipment shall extend to fifteen (15) days next following the date of
termination of this lease, provided TENANT shall not then be in default of the
terms and conditions of this lease. Any damage to the leased premises occasioned
by the removal of said furnishings, fixtures and equipment shall be repaired by
TENANT at its sole cost and expense.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
8
<PAGE>
5. ALTERATIONS AND ADDITIONS: TENANT shall have the right to alter,
improve and rearrange the interior partition walls of the leased premises as
necessary for the convenience of the conduct of the TENANT'S business. TENANT
shall not alter, improve or rearrange the structural walls of the leased
premises without the prior written approval of LANDLORD, which approval shall
not be unreasonably withheld. TENANT shall pay all costs for any of the
foregoing alterations or additions and upon termination or cancellation of this
lease, all alterations and additions shall become the property of LANDLORD.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
9
<PAGE>
6. MAINTENANCE AND REPAIRS:
a. LANDLORD: In addition to the provisions of subparagraph c
and d of this paragraph, LANDLORD shall maintain and keep in good order and
repair (which shall include replacement, if necessary) the roof, "uttering and
downspouts, the structural walls and foundations (neither windows nor doors are
regarded as walls for the purpose of this paragraph), the electrical wiring
(from the utility company's distribution lines to the leased premises) serving
the leased premises, the water line (from the city water main to but not
including the water meter) serving the leased premises, and the sanitary sewer
serving the leased premises (from the main city sewer line to the leased
premises), and all other structural components of the leased premises within
thirty (30) days after written notice of the necessity of such repairs has been
given by TENANT; or if not capable of repair within 30 days, LANDLORD shall
commence to repair and diligently proceed with the completion of such repairs;
provided, however, that the cost of any such repairs required as a result of the
negligence or willful act of TENANT, its customers or licensees, agents,
servants or employees, shall be borne by TENANT. Should LANDLORD fail to comply
with said maintenance and repairs after notice, TENANT shall have the right to
do so and deduct the cost thereof from the rental due hereunder.
b. TENANT: In addition to the provisions of subparagraph c of
this paragraph and excepting damage by fire or other cause and any repairs or
replacements which are the obligation of LANDLORD, TENANT shall maintain and
keep in good order and repair the leased premises, including the electrical,
plumbing and sewer systems as well as any and all interior non-structural
maintenance.
LANDLORD_______________
TENANT ________________
10
<PAGE>
repairs, LANDLORD shall have the right to enter the leased premises and make the
necessary repairs and perform any maintenance required. Any costs incurred by
LANDLORD in so performing TENANT'S obligations shall be paid by TENANT within
fifteen (15) days after receipt of notice of said expenditures.
c. Maintenance of Heating/Air Conditioning System: TENANT
shall maintain and repair the heating/air conditioning system; however, if, as
and to the extent that there are major breakdowns in the system then TENANT and
LANDLORD will share equally the expense of replacing the system with a new
system or of repairing the same, including labor and parts. A "major breakdown",
as used in the preceding sentence, shall mean that if the whole system needs to
be replaced or if the cost of any repairs, including labor and parts, shall be
equal to or shall exceed $500.00, then a "major breakdown" exists. LANDLORD
shall reimburse TENANT within fifteen (15) days of receipt of notice regarding
LANDLORD'S share of the aforesaid costs and should LANDLORD fail to do so TENANT
shall have the right to deduct such share thereof from the rental due hereunder.
d. Maintenance of the Parking Lot and Sidewalks. etc.:
LANDLORD shall maintain and repair the parking lot, sidewalks and all other
areas of the leased premises that are not structurally a part of the building
within thirty (30) days after written notice of the necessity of such repairs
has been given by TENANT. In the event any of such repairs are required as a
result of negligence or willful act of TENANT, its customers or employees, the
cost thereof shall be borne by TENANT. Should LANDLORD fail to comply with said
maintenance and repair obligation after notice, TENANT shall have the right to
do so and deduct the cost thereof from the rental due hereunder.
LANDLORD_______________
TENANT ________________
11
<PAGE>
e. Manufacturer's Warranties: Upon TENANT'S acceptance of the
leased premises LANDLORD shall promptly assign to TENANT all manufacturer's
warranties with respect to the mechanical installations within the leased
premises, including, without limitation, the heating and air conditioning
system(s).
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
12
<PAGE>
7. INSURANCE: TENANT, at its sole cost and expense, shall keep the
leased premises insured to the extent of its full replacement value against loss
or damage by fire, with extended coverage. Furthermore, TENANT shall maintain
with respect to the leased premises a policy of public liability, naming TENANT
and LANDLORD as insured, with limits of $1,000,000 for any one person and
$1,000,000 for any one accident and property damage insurance in limits of
$50,000 in companies authorized to do business in ______________. TENANT upon
request, shall exhibit such policies to LANDLORD or provide LANDLORD with
evidence thereof. Such policies of insurance shall name TENANT and LANDLORD as
the insured, as their interest may appear.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
13
<PAGE>
8. REAL ESTATE TAXES: TENANT shall reimburse LANDLORD for all real
estate taxes, assessments or other governmental charges which may be levied or
assessed by any lawful authority against the leased premises. If the term of
this lease commences or terminates during any part of a year, TENANT shall be
responsible for said taxes and charges for only that portion of the year for
which TENANT is responsible to pay rent hereunder. TENANT shall reimburse
LANDLORD for such taxes within thirty (30) days of receipt from LANDLORD of a
statement of said taxes. LANDLORD agrees that TENANT may challenge any
assessment of property taxes imposed upon the leased premises with the
appropriate taxing authorities, and LANDLORD will cooperate with TENANT in
making such challenge.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
14
<PAGE>
9. DAMAGE OR DESTRUCTION OF THE LEASED PREMISES: In the event of total
or partial destruction of or damage to the leased premises by fire or any other
cause during the term hereof, LANDLORD shall be obligated to and shall with due
diligence rebuild or restore the leased premises to a condition comparable to
that existing prior to the occurrence of said destruction or damage.
If in TENANT'S reasonable discretion any such destruction or damage to
the leased premises is such as to prevent the operation of TENANT'S business on
the leased premises, or to make it impractical so to do, then the rent, taxes
and any other charges to be paid by TENANT hereunder shall abate from the
occurrence of any destruction or damage up to and including the time that the
leased premises has been rebuilt or restored. The amount of such abatement is to
be determined by taking a fraction, the numerator of which shall be the square
foot area of the building which is a part of the leased premises which is usable
in the operation of TENANT'S business on the leased premises following any
destruction or damage thereto and the denominator of which shall be the total
square foot area, inside dimensions, of such building. The amount of which
results from the multiplication of such fraction by all rent and taxes and all
other charges that would have been due from TENANT to LANDLORD hereunder but not
for the destruction or damage, shall be the amount payable by TENANT for the
period commencing with any destruction or damage and terminating with the
completion, by LANDLORD, of the aforesaid rebuilding or restoration.
In the event of the total destruction of the leased premises during the
last one (1) year of the term of this lease, LANDLORD shall not be obligated to
so rebuild and restore, and at the option of either LANDLORD or TENANT
(exercised by notice to the other within thirty (30) days of such destruction)
this lease shall terminate: Anything herein contained to the contrary
notwithstanding,
LANDLORD_______________
TENANT ________________
15
<PAGE>
if the leased premises is totally destroyed by reason of fire or other cause
occurring during the last one (1) year of the term of this lease or any renewal
period thereof, LANDLORD shall rebuild the leased premises, at LANDLORD'S
expense, if prior to the expiration of thirty (30) days after such destruction,
TENANT shall have elected to exercise any option which TENANT may then have to
extend this lease for an additional period.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
16
<PAGE>
10. CONDEMNATION:
a. Total: If the whole of the leased premises shall be
acquired or taken by eminent domain for any public or quasi-public use or
purpose or by private purchase in lieu thereof, then this lease and the term
hereof shall automatically cease and terminate as of the date of title vesting
in such proceedings.
b. Partial: If any part of the leased premises shall be so
taken and such partial taking shall render that portion not so taken unsuitable
for the purposes for which the leased premises were leased, then LANDLORD and
TENANT shall each have the right to terminate this lease by written notice given
to the other within sixty (60) days after the date of title vesting in such
proceeding. If any part of the leased premises shall be so taken and this lease
shall not be terminated, as aforesaid, then this lease and all of the terms and
provisions thereof shall continue in full force and effect, except that the
maximum guaranteed annual rent shall be reduced in the same proportion that the
gross leasable area of the leased premises taken bears to the original gross
leasable area leased and, LANDLORD shall, upon receipt of the award in
condemnation, make all necessary repairs and alterations (exclusive of TENANT'S
furnishings, fixtures, equipment and signs) to restore the portion of the leased
premises remaining to as near its former condition as the circumstances will
permit, and to the building of which the leased premises forms a part to the
extent necessary to constitute the portion of the building not so taken a
complete architectural unit; and TENANT, at TENANT'S expense, shall make all
necessary repairs and alterations to TENANT'S furnishings, fixtures, equipment
and signs.
LANDLORD_______________
TENANT ________________
17
<PAGE>
c. Rent: If this lease is terminated as provided in this
paragraph all rent shall be paid by TENANT up to the date of termination and
LANDLORD shall refund any rents paid by TENANT in advance and not yet earned.
d. Award: All damages or compensation awarded or paid for any
such taking, whether for the whole or any part of the leased premises, shall
belong to and be the property of LANDLORD without any participation by TENANT;
provided, however, that nothing herein contained shall be construed to preclude
TENANT from prosecuting any claim directly against the condemning authority, but
not against LANDLORD, for the value of or damages to and/or for the cost of
removal of movable trade fixtures and other personal property which under the
terms of this lease would remain TENANT'S property upon the expiration of the
term of this lease, as may be recoverable by TENANT in TENANT'S own right.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
18
<PAGE>
11. USE/SIGNS/UTILITIES:
a. USE: TENANT shall use the leased premises only for the
purpose of operating and conducting therein a business of the type conducted by
the chain of stores operated by TENANT, which is generally the sale of
automobile parts and accessories, including tires, batteries and wheels.
Furthermore, TENANT'S use shall comply with all ordinances, laws, rules or
regulations promulgated by any governmental body having jurisdiction over the
leased premises.
b. Signs: TENANT may erect or place signs on the exterior of
the leased premises, including a separate standing pylon sign facing any public
road adjacent to the leased premises, provided that the erection of any such
signs be in accordance with all local ordinances.
c. Utilities: TENANT shall procure for its own account and
shall pay the cost of all utility charges, including water, electricity, heat
and sewer, used by TENANT in or at the leased premises.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
19
<PAGE>
12. ASSIGNMENT OR SUBLETTING: TENANT may not assign or sublet the whole
or any part of the leased premises without the prior written consent of
LANDLORD, which will not be unreasonably withheld; provided, however, any such
assignment or subletting to which LANDLORD consents shall not release TENANT of
its obligation hereunder.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
20
<PAGE>
13. DEFAULT:
a. Events of Default: The following shall constitute an event
of default hereunder;
(i) TENANT'S failure to pay the rent or other charges
when due and which remain unpaid for more than ten (10) days after written
notice from LANDLORD; or
(ii) TENANT'S failure to perform any of the other
terms, conditions or covenants contained in this lease which has continued for
more than thirty (30) days after written notice thereof from LANDLORD; provided,
however, that if the nature of such default is such that it can not reasonably
be cured within said thirty (30) days, and work thereon has commenced within
said period and diligently prosecuted, no default shall have occurred; or
(iii) TENANT shall become bankrupt or insolvent, or
file any debtor proceedings, or take or have taken against TENANT in any court
pursuant to any statute either of the United States or of any state a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of TENANT'S property; or
(iv) TENANT makes an assignment for the benefit of
creditors, or petitions for or enters into an arrangement; or
(v) TENANT shall abandon the leased premises or
suffer the lease to be taken under any writ of execution.
b. Remedies: If any event of default has occurred then
LANDLORD. without excluding other rights or remedies it may have, shall have the
immediate right of re-entry and may remove all persons and property from the
leased premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of TENANT, all without
LANDLORD_______________
TENANT ________________
21
<PAGE>
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby. If LANDLORD
should elect to re-enter as herein provided, or should it take possession
pursuant to legal proceedings, it may either terminate this lease or it may from
time to time without terminating this lease make such alterations and repairs as
may be necessary in order to relet the leased premises, and relet said leased
premises for such term and at such rentals and upon such other terms and
conditions as LANDLORD may deem advisable. In the event of such reletting, all
rentals received by LANDLORD shall be applied, first, to the payment of any
indebtedness other than rent due hereunder from TENANT to LANDLORD; second, to
the payment of any costs and expenses of such reletting, including the expense
of alterations and repairs; third, to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by LANDLORD and applied in
payment of any future rent due and unpaid hereunder. If such reletting shall
yield rentals insufficient for any month to pay the rent due by TENANT hereunder
for that month, TENANT shall be liable to LANDLORD for the deficiency and same
shall be paid monthly. No such re-entry or taking possession of the leased
premises by LANDLORD shall be construed as an election to terminate this lease
unless a written notice of such intention be given by LANDLORD to TENANT at the
time of such re-entry. Notwithstanding any such re-entry and reletting without
termination, LANDLORD may at any time thereafter elect to terminate this lease
for such previous breach, in which event it may recover from TENANT damages
incurred by reason of such breach, including the cost of recovering the leased
premises and the difference in value between the rent reserved hereunder for the
remainder of the term and the fair market rental value of the leased premises
for the remainder of the term. In determining the rent which would be payable by
TENANT hereunder, subsequent to default, the annual rent for each year
LANDLORD_______________
TENANT ________________
22
<PAGE>
of the unexpired term shall be equal to the average annual rent paid by TENANT
from the commencement of the term to the date of default.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
23
<PAGE>
14. NON-COMPETITION: LANDLORD shall not, for as long as this lease
remains in force and effect, either directly or indirectly, lease to any third
person any land or building, whether presently owned or hereafter acquired,
within _______ mile(s) from the leased premises for the purpose of conducting
thereon a business similar to that being conducted by TENANT upon the leased
premises; nor shall LANDLORD itself, nor any of its individual stockholders,
partners or beneficiaries, as the case may be, either directly or indirectly,
own or operate any such business within said _______ mile(s) radius.
TENANT shall, in the event that there is a breach of any of the
provisions of this paragraph, have the following rights and remedies, none of
which shall be exclusive of the others or any other remedy otherwise available
to TENANT:
a. TENANT may institute proceedings to enjoin the violation in
its name or in the name of LANDLORD.
b. If such conflicting use continues for a period of thirty
(30) days after written notice thereof shall have been given by TENANT to
LANDLORD, TENANT may, at any time thereafter, elect to terminate this lease, and
on such election, this lease shall, on the date fixed in the notice of such
election, be terminated, and TENANT shall be released and discharged of and from
any and all further liability hereunder.
c. As long as such condition exists, TENANT'S only obligation
concerning the payment of rent shall be the payment of percentage rental only,
with no minimum guaranteed annual rent, on the basis of the percentage of gross
sales set forth in paragraph 3b hereof, such percentage rental to be payable
only after the expiration of each rental year.
LANDLORD_______________
TENANT ________________
24
<PAGE>
d. TENANT may hold LANDLORD liable for any costs and expenses,
including counsel fees, sustained or incurred in connection with any proceedings
instituted by TENANT, and if LANDLORD does not institute and proceed diligently
with suit to enjoin such conflicting use may hold LANDLORD liable for any and
all other damages sustained or to be sustained by reason of the violation of
such covenant.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
25
<PAGE>
15. HAZARDOUS SUBSTANCES:
a. Definition: As used herein, "Hazardous Substance" means any
substance that is toxic, ignitable, reactive, or corrosive and is regulated by
any local government, the State of Pennsylvania, or the United States of
America. "Hazardous Substance" includes any and all material or substances that
are defined as "hazardous substance" pursuant to state, federal, or local
governmental law. "Hazardous Substance" includes but is not restricted to
asbestos, polychlorobiphenyls ("PCBs"), and petroleum.
b. LANDLORD'S Covenants and Indemnification: LANDLORD
covenants that the leased premises shall be free of Hazardous Substances as of
the commencement date of the term of this lease. LANDLORD agrees to indemnify
and hold TENANT harmless from any and all claims, damages, fines, judgments,
penalties, costs, liabilities or losses (including, without limitation, any and
all sums paid for settlement of claims, attorneys' fees, consultant, and expert
fees) arising during or after the lease term from or in connection with the
presence or suspected presence of Hazardous Substances in or on the leased
premises unless the Hazardous Substances are present solely as a result of the
breach of the provisions of subparagraph c of this paragraph. Without limitation
of the foregoing, this indemnification shall include any and all costs incurred
due to any investigation of the leased premises or any cleanup, removal, or
restoration mandated by a federal, state, or local agency or political
subdivision unless the Hazardous Substances are present solely as a result of
the breach of the provisions of subparagraph c of this paragraph. This
indemnification shall specifically include any and all costs due to Hazardous
Substances that flow, diffuse, migrate, or percolate into, onto, or under the
leased premises after the term of this lease commences.
LANDLORD_______________
TENANT ________________
26
<PAGE>
c. TENANT'S Covenants and Indemnification: TENANT covenants
that during the period of its possession of the leased premises TENANT, its
agents, employees, contractors and invitees, shall comply with all federal,
state and local Hazardous Substance laws, regulations and ordinances that are
applicable to TENANT'S use of the leased premises, the failure of which shall
constitute an event of default under this lease. TENANT agrees to indemnify and
hold LANDLORD harmless from any and all claims, damages, fines, judgments,
penalties, costs, liabilities, or losses (including, without limitation, any and
all sums paid for settlement of claims, attorneys' fees, consultant, and expert
fees) arising during or after the lease term and arising as a result of the
default by TENANT, its agents, employees, contractors or invitees, of the
foregoing covenant. Without limitation of the foregoing, this indemnification
shall include any and all costs incurred due to any investigation of the leased
premises or any cleanup, removal, or restoration mandated by a federal, state,
or local agency or political subdivision.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
27
<PAGE>
16. NOTICES AND RENT PAYMENTS:
a. Notices: Notices under this lease shall be deemed to have
been given if in writing, and when deposited in the United States mail,
certified or registered, return receipt requested, with postage prepaid, and
addressed as follows:
To LANDLORD At: Mar Mar Realty Limited Partnership
Independence Office Park
6407 Idlewild Road, Bldg. 2, Suite 111
Charlotte, NC 28212
To TENANT At: Advance Stores Company, Inc.
P.O. Box 2710
Roanoke, VA 24001
Attn: Real Estate Department
Or to either at such other place as either of them may give notice to the other,
pursuant to the provisions of this paragraph, from time to time.
b. Rent: All payments of rent to be made hereunder by TENANT
shall be mailed to LANDLORD at the address provided for in subparagraph a of
this paragraph.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
LANDLORD_______________
TENANT ________________
28
<PAGE>
17. MISCELLANEOUS:
a. Identity of Interest: The execution of this lease or the
performance of any act pursuant to the provisions thereof shall not be deemed or
construed to have the effect of creating between LANDLORD and TENANT the
relationship of principal or agent, or of a partnership or joint venture.
b. Landlord's Title: LANDLORD covenants that it will acquire
lawful title and right to make this lease for the term and upon the conditions
herein set forth and that it will provide TENANT with evidence thereof
satisfactory to TENANT prior to the time on which the initial term shall
commence. If at any time during the term hereof the title or right of LANDLORD
to make this lease shall fail or for any reason it shall appear LANDLORD is
unable to make this lease for the term or on the conditions herein set forth,
TENANT may cancel this lease.
c. Quiet Enjoyment: LANDLORD covenants that it will put TENANT
into complete and exclusive possession of the leased premises and that upon
TENANT'S paying the rent and performing all of the covenants of this lease to be
performed by it hereunder, TENANT shall during the term hereof freely, peaceably
and quietly occupy and enjoy the full possession of the leased premises and all
of the rights and privileges herein granted, including any easement rights,
without molestation or hindrance, lawful or otherwise.
d. Holding Over: Any holding over after the expiration of the
term hereof with the consent of LANDLORD shall be construed to create a tenancy
from month to month at the rent herein reserved, prorated on a monthly basis;
and such tenancy shall otherwise be subject to the terms and conditions set
forth in this lease.
LANDLORD_______________
TENANT ________________
29
<PAGE>
e. Surrender of Leased Premises: TENANT shall surrender to
LANDLORD the leased premises at the expiration of the term hereof, or any
extension thereof, or upon termination by virtue of TENANT'S default, in good
and broom clean condition, reasonable wear and tear and damage by fire or other
cause not occasioned by TENANT'S negligence excepted.
f. Loss or Damage of Property: LANDLORD shall not be liable
for any loss or damage to TENANT'S property however occurring except as may
result directly from failure of LANDLORD to perform any act required of it under
the terms of this lease or in the event same shall have arose from or out of any
occurrence occasioned by the act or omission of LANDLORD, its agents,
contractors, employees, servants, lessees, or concessionaires.
g. Right of Entry: LANDLORD, its agents and representatives,
shall have the right to enter the leased premises at all reasonable times for
the purpose of (a) inspection of the leased premises, (b) making repairs,
replacements, alterations or additions to the leased premises, (c) exhibiting
the leased premises to prospective tenants during the last one hundred twenty
(120) days of the term, and any such entry herein authorized shall not be or
constitute an eviction or deprivation of any right conferred hereunder upon
TENANT.
h. Care of Leased Premises: TENANT shall maintain the
landscaped areas on the leased premises and keep the leased premises clean and
neat, and free from rubbish, litter or obstructions of any kind.
i. Excusable Delay: Except for the payment of rent, if
LANDLORD or TENANT is delayed or prevented from performing any of its
obligations under this lease by reason of strike or labor troubles or any
outside cause whatsoever beyond LANDLORD'S or TENANT'S
LANDLORD_______________
TENANT ________________
30
<PAGE>
reasonable control, the period of such delay or such prevention shall be deemed
added to the time herein provided for the performance of any such obligations by
LANDLORD or TENANT.
j. Non-waiver: The failure of LANDLORD or TENANT to insist
upon strict performance of any of the terms, conditions and covenants herein
contained shall not be deemed to be a waiver of any rights or remedies that
LANDLORD or TENANT may have, and shall not be deemed a waiver of any subsequent
breach or default in the terms, conditions and covenants herein contained except
as may be expressly waived in writing.
k. Conditions Precedent to TENANT'S Covenants: The covenants
of TENANT herein contained, including the obligation to pay rent, are expressly
made subject, in addition to the other conditions contained in this lease, to
the leased premises being vacant at the commencement of the term and TENANT
being able to obtain all necessary governmental permits and authority for
operating and conducting upon the leased premises a business of the type
conducted by the chain of stores operated by TENANT. In the event the leased
premises are not vacant or TENANT is unable to obtain any of such governmental
permits or authority, TENANT shall have the right to cancel this lease upon
giving written notice to LANDLORD.
l. Indemnification of LANDLORD: TENANT will indemnify LANDLORD
and save it harmless from and against any and all claims, actions, damages,
liability and expense in connection with loss of life, personal injury and/or
damage to property rising from or out of any occurrence in, upon, or at the
leased premises, or the occupancy or use by TENANT of the leased premises or any
part thereof, or occasioned wholly or in part by any act or omission of TENANT,
its agents, contractors, employees, servants, lessees or concessionaires.
Nothing contained in this paragraph shall be construed to require TENANT to
indemnify LANDLORD for any loss of life,
LANDLORD_______________
TENANT ________________
31
<PAGE>
personal injury and/or damage to property rising from or out of any occurrence
occasioned by the act or omission of LANDLORD, its agents, contractors,
employees, servants, lessees or concessionaires.
m. Waiver of Subrogation: Notwithstanding any other provision
herein, LANDLORD shall not be liable to TENANT and TENANT shall not be liable to
LANDLORD for any loss or damage caused by any of the perils or casualties
enumerated in standard fire, extended coverage, boiler and machinery policies or
multiperil physical damage policies and recovered by the insured party from its
insurers even if such fire or other casualty or peril resulted from the
negligence of the other party; and to the extent of such recovery, each party
hereto releases and waives all rights and claims against the other.
n. Short Form Lease: TENANT agrees not to record this lease,
and LANDLORD and TENANT agree to execute, acknowledge and deliver, if either
party shall so request, a "Short Form Lease" suitable for recording.
o. Pre-existing Conditions: Nothing contained in this lease
shall be construed to impose any responsibility upon TENANT with regard to any
loss, injury or other claim arising as a result of any condition that existed on
the leased premises at the time of TENANT'S taking possession thereof.
p. Governing Law: The laws of the State of shall govern the
validity, performance and enforcement of this lease.
q. Prior Negotiations, Etc.: All negotiations, considerations,
representations and understandings between LANDLORD and TENANT prior to the
execution of this lease are incorporated herein.
LANDLORD_______________
TENANT ________________
32
<PAGE>
r. No Offer: TENANT'S delivery to a prospective landlord of
this form of lease shall not be deemed an offer to lease even though such form
be completed in every respect.
s. Captions: The captions in this lease are for convenience
only and not a part of this lease, and do not in any way limit or amplify the
terms and provisions of this lease.
t. Grammatical Usage: In construing this lease, feminine or
neuter pronouns shall be substituted for those masculine in form and vice versa,
and plural terms shall be substituted for singular and singular for plural in
any place in which the context so requires. Furthermore, the use of the neuter
singular pronoun to refer to LANDLORD or TENANT shall be deemed a proper
reference even though LANDLORD or TENANT may be an individual, a partnership, a
corporation, or a group of two or more individuals or corporations.
u. Successors and Assigns: This lease agreement along with its
covenants and conditions shall inure to the benefit of and be binding upon
LANDLORD, and the heirs, personal representatives, successors and assigns (as
the case may be) of LANDLORD, and shall bind the TENANT, its successors and
assigns.
v. Entire Agreement: This lease contains all of the promises,
agreements and conditions between the parties hereto, and any subsequent
agreements between the parties altering the terms hereof must be reduced to
writing and executed by both parties.
w. Counterparts: This lease has been executed in several
counterparts; but the counterparts shall constitute but one and the same
instrument.
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LANDLORD_______________
TENANT ________________
33
<PAGE>
IN WITNESS WHEREOF, LANDLORD and TENANT have executed this Lease
Agreement in duplicate originals on the day and year first above written.
ATTEST LANDLORD
(SEAL)_______________________________ By:________________________________
TENANT
ADVANCE STORES COMPANY,
INCORPORATED
By:________________________________
(SEAL)_______________________________
LANDLORD_______________
TENANT ________________
34
EXHIBIT 10.8
CONTRIBUTION AGREEMENT
RELATING TO
THE CAPITALIZATION
OF
MAR MAR REALTY TRUST
BY
AND
AMONG
MAR MAR REALTY TRUST,
MAR MAR REALTY L.P.
AND
VARIOUS CONTRIBUTORS IDENTIFIED HEREIN
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1: DEFINITIONS...................................................................................1
1.1 Definitions............................................................................1
ARTICLE 2: CONTRIBUTION PROVISIONS................................................................................8
2.1 [Intentionally Omitted]................................................................8
2.2 [Intentionally Omitted]................................................................8
2.3 Property Contributors..................................................................8
2.4 Partnership Interest Contributors......................................................8
2.5 Title Insurance........................................................................9
2.6 Survey................................................................................10
2.7 Access to Information; Environmental Audits...........................................11
2.8 Investigation.........................................................................11
ARTICLE 3: COVENANTS AND OTHER AGREEMENTS...............................................................12
3.1 Implementing Agreement................................................................12
3.2 Preservation of Business..............................................................12
3.3 Consents and Approvals................................................................12
3.4 Maintenance of Insurance..............................................................12
3.5 Exclusivity...........................................................................13
3.6 New Contracts and Liens...............................................................13
3.7 Leasing Arrangements..................................................................13
3.8 Obligation to Supplement Information..................................................13
3.9 TI and Repair Contracts...............................................................13
3.10 Damage................................................................................14
3.11 Condemnation..........................................................................14
3.12 Material Agreements...................................................................14
3.13 Completion of IPO.....................................................................14
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS...............................................15
4.1 Due Organization......................................................................15
4.2 Due Authorization.....................................................................15
4.3 Conflicts.............................................................................16
4.4 Litigation............................................................................16
4.5 Contractors and Suppliers; Service, TI and Repair Contracts...........................16
4.6 Leases and Rent Roll..................................................................17
4.7 Operating Statements..................................................................17
4.8 Permits, Legal Compliance and Notice of Defects.......................................17
4.9 Environmental.........................................................................18
4.10 [Intentionally Omitted]...............................................................19
4.11 Ownership of the Title Holding Partnerships and Properties............................19
4.12 Distributions and Payments............................................................19
i
<PAGE>
4.13 Securities............................................................................20
4.14 No Brokers............................................................................20
4.15 Solvency..............................................................................20
4.16 Certain Tax Matters...................................................................21
ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PARTNERSHIP..........................................................................22
5.1 Due Organization......................................................................22
5.2 Due Authorization.....................................................................22
5.3 Conflicts.............................................................................23
5.4 Litigation............................................................................23
5.5 Solvency..............................................................................23
5.6 Written Materials.....................................................................24
5.7 No Brokers............................................................................24
5.8 Financial Statements..................................................................24
5.9 REIT and Partnership Status...........................................................24
ARTICLE 6: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE PARTNERSHIP..........................................................................24
6.1 Representations and Warranties........................................................24
6.2 Compliance with Agreements and Covenants..............................................25
6.3 Tenant Estoppels......................................................................25
6.4 Other Contracts.......................................................................25
6.5 Legal Proceedings.....................................................................25
6.6 IPO Closing...........................................................................26
6.7 Representation Letter. ..............................................................26
6.8 Consents and Approvals................................................................26
6.9 Other Conditions......................................................................26
ARTICLE 7: CONDITIONS PRECEDENT TO OBLIGATIONS OF CONTRIBUTORS..........................................26
7.1 Representations and Warranties........................................................26
7.2 Compliance with Agreements and Covenants..............................................26
7.3 Legal Proceedings.....................................................................27
7.4 IPO Closing...........................................................................27
7.5 Minimum Asset Size....................................................................27
7.6 Consents and Approvals................................................................27
7.7 Release of Liability..................................................................27
7.8 Tax Related Agreement.................................................................27
7.9 Other Conditions......................................................................27
ARTICLE 8: CLOSING......................................................................................28
8.1 Closing...............................................................................28
8.2 Deliveries by Contributors............................................................28
8.3 Deliveries by the Company and the Partnership.........................................30
ARTICLE 9: COOPERATION ON TAX MATTERS...................................................................31
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ARTICLE 10: POST-CLOSING COVENANTS OF CONTRIBUTOR........................................................32
ARTICLE 11: PRORATIONS AND ADJUSTMENTS...................................................................32
11.1 Prorations............................................................................32
11.2 Tenant Reconciliations and Post-Closing Adjustments...................................35
11.3 Leasing Commissions...................................................................35
11.4 TI Contracts, Tenant Allowances and Capital Improvements..............................35
11.5 Repair Contracts......................................................................37
11.6 Tenant Deposits.......................................................................37
11.7 Wages.................................................................................37
11.8 Utility Deposits......................................................................37
11.9 Sales Commissions.....................................................................37
11.10 [Intentionally Omitted]......................................................37
ARTICLE 12: TERMINATION AND REMEDIES.....................................................................38
12.1 Termination...........................................................................38
12.2 Effect of Termination.................................................................38
12.3 Termination as to Specific Properties.................................................38
ARTICLE 13: INDEMNIFICATION..............................................................................39
13.1 Contributors' Indemnity...............................................................39
13.2 Partnership's Indemnity...............................................................39
13.3 Company's Indemnity...................................................................40
13.4 Environmental Excluded................................................................40
13.5 Procedure.............................................................................40
13.6 Limitation on Liability...............................................................40
13.7 Exclusivity...........................................................................41
ARTICLE 14: MISCELLANEOUS................................................................................41
14.1 Survival.............................................................................41
14.2 Expenses.............................................................................41
14.3 Additional Actions and Documents.....................................................41
14.4 Remedies Cumulative..................................................................42
14.5 Entire Agreement; Amendment..........................................................42
14.6 Notices..............................................................................42
14.7 Waivers..............................................................................42
14.8 Counterparts.........................................................................42
14.9 Governing Law........................................................................42
14.10 Assignment.............................................................................43
14.11 No Third Party Beneficiaries...........................................................43
14.12 Confidentiality........................................................................43
14.13 Severability...........................................................................45
14.14 Company Access to Information..........................................................45
14.15 Information and Audit Cooperation......................................................45
14.16 Binding Effect.........................................................................45
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14.17 Headings...............................................................................45
14.18 Limitation of Liability................................................................45
14.19 Waiver of Jury Trial...................................................................46
EXHIBITS
A - Form of Partnership Agreement
B - Form of Registration Rights and Lock-Up Agreement
E - Certificate of Advance Stores Company, Incorporated
F - Form of Tenant Estoppel
G - Joint Escrow Instruction Letter - New Title Insurance
H - Form of Bill of Sale and Assignment and Assumption of Leases,
Contracts and Intangible Property
K - Form of Audit Letter
L - Tax Information
M - Form of Tax-Related Agreement
N - Title Holding Partnerships Tax Returns
SCHEDULES
A - Properties, Descriptions and Contribution Amounts per Contributor
1.2 - Assumed Mortgage Debt
1.3 - Current Title Policies
2.3 - Property Contributors
2.4 - Partnership Interest Contributors and Title Holding Partnerships
4.5 - Service Contracts, TI Contracts and Repair Contracts
4.9 - Environmental Reports
10.1 - Contributor Maintenance Obligations
11.3 - Leasing Commissions
X - Disclosures
</TABLE>
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT ("Agreement") is made and entered into as
of the ____ day of July, 1998, among the parties set forth on the signature
pages hereto that are designated as a Contributor (together, the "Contributors"
and, individually, a "Contributor"), Mar Mar Realty Trust, a Maryland real
estate investment trust (the "Company"), and Mar Mar Realty L. P., a Delaware
limited partnership (the "Partnership"), under the following circumstances:
RECITALS:
1. Each Contributor owns, either directly or indirectly, the properties
or leasehold interests therein (such properties or leasehold interests, together
with all other rights, privileges, hereditaments and interests appurtenant
thereto constituting Real Property, and all Improvements, Leases, Personal
Property and Intangible Property (each as defined herein) relating thereto, the
"Properties" and, individually, a "Property") listed opposite its name on
Schedule A.
2. The Contributors, the Partnership and the Company desire, subject to
the terms and conditions hereinafter set forth, that the Contributors will
contribute the Properties, directly or indirectly, to the Partnership in
exchange for LP Units (as defined herein), pursuant to a partnership agreement
("Partnership Agreement") substantially in the form of Exhibit A in which the
Contributors shall be limited partners and the Company shall be the sole general
partner, as determined according to the Contribution Amount for, and net equity
in, each Property, all as provided for herein.
3. The Company and the Contributors will, contemporaneously with the
IPO Closing Date (as defined herein), enter into a registration rights and
lock-up agreement substantially in the form of Exhibit B (the "Registration
Rights Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, the parties
hereto agree as follows:
ARTICLE 1: DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Adjusted Contribution Amount" means, with respect to each
Contributor, the aggregate Contribution Amount for all Properties
contributed, directly or indirectly, by such Contributor increased or
decreased as follows: first, by deducting the principal amount of all
then-outstanding mortgage indebtedness encumbering the Properties owned
by such Contributor as of the Final Allocation Date; second, by
deducting the amount (determined by the Company in good faith and
agreed to by such Contributor) of all liabilities, claims,
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demands, losses or damages arising from any breaches by such
Contributor of its representations and warranties in Article 4 which
are known prior to the Final Allocation Date; third, at the election of
a Contributor (which election must be made by written notice to the
Company prior to the Final Allocation Date), by deducting any Net
Proration Amount which is due to the Partnership from such Contributor
(any Net Proration Amount due to such Contributor from the Partnership
shall be made in cash in accordance with Article 11); fourth, to the
extent provided in Section 3.10, by deducting the amount of any damage
(determined by the Company in good faith and agreed to by such
Contributor) to a Property owned by such Contributor as determined
prior to the Final Allocation Date; fifth, by deducting the amount of
any other known and determinable liabilities (determined by the Company
in good faith and agreed to by such Contributor) relating to a Property
owned by such Contributor as determined prior to the Final Allocation
Date; sixth, by deducting the Contribution Amount (and not making any
adjustments pursuant to clauses "first" through "fifth" above) for any
Properties which, subsequent to the date hereof and prior to the
Determination Time, have been excluded from the Consolidation pursuant
to Section 12.3; and seventh, by deducting the amount of any deed
transfer tax relating to the contribution of any of the Properties
located in the Commonwealth of Pennsylvania. If any of the items
discussed in clauses "second," "third," "fourth" and "fifth" above have
occurred, but there has not been agreement between the Company and the
applicable party on or before the required adjustment date as set forth
above, then, to the extent of such disagreement, such item shall not
result in an adjustment to the Contribution Amount of such party,
provided, that no party shall be deemed to have waived any of its other
rights or remedies with respect to such item.
"Assignment" has the meaning set forth in Section 8.2(b).
"Assumed Mortgage Debt" means the existing mortgage
indebtedness as set forth on Schedule 1.2 which encumbers certain of
the Properties to be contributed, directly or indirectly, by
Contributors to the Partnership and which indebtedness will be assumed
by the Partnership at the Closing.
"Business Day" means any day of the year other than
Saturday, Sunday or any other day on which banks located in New York,
New York generally are closed for business.
"Closing" has the meaning set forth in Section 8.1.
"Closing Date" has the meaning set forth in Section 8.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means common shares of beneficial interest,
par value $0.01 per share, of the Company.
"Company" has the meaning set forth in the Preamble.
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"Consolidation" means the consolidation of the Properties as
contemplated by this Agreement.
"Consolidation Expenses" means all costs and expenses
incurred by the Company and the Partnership in structuring and
consummating the Consolidation, including, but not limited to, legal
fees, advisory fees, accounting fees, environmental audit and
engineering fees, transfer taxes (except for those respecting the
Properties located in the Commonwealth of Pennsylvania and being
contributed hereunder), title insurance and survey fees, lender fees
and all other costs and expenses in connection with (a) the formation
and organization of the Partnership and the Company, (b) the
structuring of the terms and conditions of the Consolidation, (c) the
offering and issuance of Common Shares and Units, (d) all steps taken
to conduct the transaction in compliance with applicable Federal and
state corporate, partnership, securities and other laws, (e) the
receipt of all necessary consents and approvals, including those
required from regulatory bodies on or before (and remaining in effect
at the consummation of) the Consolidation, (f) the solicitation of the
Contributors to participate in the Consolidation and (g) the
acquisition by the Partnership in the Consolidation of the assets and
the assumption of the Assumed Mortgage Debt. All environmental audit
and engineering fees, transfer taxes (except for those respecting the
Properties located in the Commonwealth of Pennsylvania and being
contributed hereunder) and title insurance and survey fees incurred
specifically in connection with the Consolidation shall be paid by the
Company and the Partnership and shall be considered "Consolidation
Expenses". "Consolidation Expenses", however, do not include costs and
expenses which have been incurred by the Contributors in the ordinary
course of business which are not related to the Consolidation, costs
related to the Consolidation as to which the Contributors have agreed
separately to bear directly, or costs related to the independent review
of the Consolidation by the Contributors or their own individual
investment advisors and legal counsel.
"Contributed Capital" means, as of the Closing, the sum of
(a) the aggregate Adjusted Contribution Amount of all Contributors and
other persons who are contributing their properties to the Partnership
for cash using a formula equivalent to the definition of Adjusted
Contribution Amount and (b) the product of the IPO Share Price and the
number of Common Shares issued to the public in the IPO.
"Contribution Amount" means, with respect to each
Contributor, the dollar amount assigned individually to each Property,
and in the aggregate to all Properties to be contributed, directly or
indirectly, by such Contributor as set forth on Schedule A.
"Contributors" has the meaning set forth in the Preamble.
"Determination Time" means the time at which the Form S-11
registration statement of the Company for the IPO is declared effective
by the Securities and Exchange Commission.
"Environmental Laws" has the meaning set forth in Section
4.9.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Fair Market Value" means, with respect to any Common Shares
or Units, the closing sales price if the Common Shares are listed on a
national securities exchange, or if not so listed, as reported on the
NASDAQ National Market System, or if there have been no sales on any
such exchange or the NASDAQ National Market System on any day, the
average of the highest bid and lowest asked prices at the end of such
day, or if on any day the Common Shares are not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 P.M., New York time, on such day, or if on any day the
Common Shares are not so quoted, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a
period of 21 days consisting of the day as of which "Fair Market Value"
is being determined and the 20 consecutive business days prior to such
day; provided that, if the Common Shares are listed on any national
securities exchange, the term "business days" as used in this sentence
means business days on which such exchange is open for trading. If at
any time the Common Shares are not listed on any national securities
exchange or the NASDAQ National Market System or quoted in the NASDAQ
System or the domestic over-the-counter market, the "Fair Market Value"
shall be the fair value thereof determined in good faith by the
Company's Board of Trustees.
"Final Allocation Date" means the last day of the calendar
month first preceding the month in which the final preliminary
prospectus generally distributed to prospective purchasers in
connection with the IPO is dated.
"GP Units" means partnership units issued to the Company as
general partner evidencing ownership in the Partnership as provided in
the Partnership Agreement.
"Hazardous Materials" has the meaning set forth in Section
4.9.
"Improvement" has the meaning set forth in the definition of
Real Property.
"Intangible Property" means, with respect to each Property,
all intangible property now or on the Closing Date owned by the
Contributors or the Title Holding Partnerships (or in which the
Contributors or the Title Holding Partnerships have any interest, but
only to the extent of such interest) and used in connection with the
Real Property or the Personal Property, to the extent assignable in
accordance with its terms or under applicable law, including, without
limitation, all right, title and interest in and to all: licenses,
approvals, applications and permits issued or approved by any
governmental authority and relating to the use, operation, ownership,
occupancy and/or maintenance of the Real Property or the Personal
Property; TI Contracts, Repair Contracts and Service Contracts; utility
arrangements; indemnities; claims against third parties; plans;
drawings; specifications; surveys; maps; engineering reports and other
technical descriptions; books and records;
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<PAGE>
insurance proceeds and condemnation awards; and all other intangible
rights used in connection with or relating to the Real Property or the
Personal Property, including rights, if any, to current and past names
of the Real Property.
"IPO" means the initial public offering of Common Shares of
the Company.
"IPO Closing Date" means the date on which the IPO is
consummated.
"IPO Filing Date" means the date on which the Form S-11
registration statement relating to the IPO is first filed with the
Securities and Exchange Commission.
"IPO Proceeds" means, with respect to each Contributor, an
amount equal to the product obtained by multiplying the Ownership Units
issued to such Contributor by the IPO Share Price.
"IPO Share Price" means the initial public offering price of
the Common Shares in the IPO.
"Landlord Default" has the meaning set forth in Section 6.3.
"Leases" means, with respect to each Property, all leases
and other agreements granting the right to occupy or use the
Improvements, including leases which may be made by the Contributors or
the Title Holding Partnerships after the date hereof and before the
Closing as permitted by this Agreement.
"Lien" means any mortgage, lien (statutory or other),
charge, restriction, pledge, security interest, option, lease or
sublease, claim, right of any third party, easement, encroachment or
other encumbrance.
"LP Units" means partnership units issued to a limited
partner evidencing ownership in the Partnership as provided in the
Partnership Agreement.
"Net Proration Amount" means, with respect to each
Contributor in relation to the Company and the Partnership, an amount
equal to the sum of all the credits and debits between such parties
with respect to the items to be prorated under Article 11 of this
Agreement.
"Operating Expense Pass-Throughs" has the meaning set forth
in Section 11.1(c).
"Ownership Units" means, with respect to each Contributor, a
number of LP Units as provided in Article 2, equal to the Adjusted
Contribution Amount for such Contributor as the case may be, divided by
(ii) the IPO Share Price.
"Partnership" has the meaning set forth in the Preamble.
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<PAGE>
"Partnership Agreement" has the meaning set forth in the
Recitals.
"Partnership Interest Contributor" means each Contributor
which owns an interest in a Title Holding Partnership, as set forth on
Schedule 2.4.
"Permitted Exceptions" means (a) those exceptions contained
on Schedule "B" of the title policy currently held by the applicable
Contributor or Title Holding Partnership, a list of which title
policies is set forth on Schedule 1.3 (excluding Liens securing or
evidencing indebtedness other than Assumed Mortgage Debt), (b) such
additional encumbrances as do not adversely affect the use, value or
marketability of the Property affected thereby, (c) those additional
matters that may be specifically approved in writing by the Company
(which approval shall not be unreasonably withheld), (d) the Leases,
(e) Liens for taxes which are not yet due and payable and (f) Liens
evidencing or securing Assumed Mortgage Debt to the extent and in the
manner such Liens are in existence on the date hereof.
"Person" means any individual, corporation, partnership,
limited liability company, trust, unincorporated organization,
association or other entity.
"Personal Property" means, with respect to each Property,
all tangible property owned by the Contributor or the Title Holding
Partnership (or in which the Contributors and the Title Holding
Partnerships have any interest, but only to the extent of such
interest) now or on the Closing Date and used in conjunction with the
operation, maintenance, ownership and/or occupancy of the Real Property
including, without limitation: furniture; furnishings; art work;
sculptures; paintings; office equipment and supplies; landscaping;
plants; lawn equipment; and whether stored on or off the Real Property,
tools and supplies, maintenance equipment, materials and supplies used
in connection with the operation, maintenance, ownership or occupancy
of the Real Property, shelving and partitions and any construction and
finish materials and supplies not incorporated into the Improvements
and held for repairs and replacements thereto, wherever located. The
Personal Property does not include tools, supplies and equipment owned
by the property manager.
"Private Offering Materials" means the private offering
materials distributed to the Contributors from the Company, together
with any amended or supplemental materials regarding the Consolidation
distributed prior to the date of this Agreement by the Company to all
Contributors.
"Property" has the meaning set forth in the Recitals and
each Property is described on Schedule A.
"Real Property" means, with respect to each Property, the
fee simple absolute estate (or other estate set forth on Schedule A) in
and to the real property described or referred to on Schedule A,
together with all rights, privileges, hereditaments and interests
appurtenant thereto including, without limitation: any water and
mineral rights, development rights, air
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<PAGE>
rights, easements and any and all rights of the Contributors and the
Title Holding Partnerships in and to any streets, alleys, passages and
other rights of way; and all buildings and other improvements located
on or affixed to such real property and all replacements and additions
thereto (collectively, "Improvements").
"Registration Rights Agreement" has the meaning set forth in
the Recitals.
"Rent Roll" means the rent roll(s) specified in Section 4.6.
"Repair Contracts" has the meaning set forth in Section 3.9.
"Securities Act" has the meaning set forth in Section 4.13.
"Service Contracts" means, with respect to each Property,
all management, service, supply, equipment rental and other contracts
related to the operation of the Real Property or the Personal Property.
"Tax" or "Taxes" means all taxes, however, denominated,
imposed by any federal, state, local or foreign government or any
agency or political subdivision of any government, which taxes shall
include, without limiting the generality of the foregoing, all income
or profits taxes (including any interest, penalties or additions
attributable to or imposed on or with respect to any such taxes), real
property gain taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other government charges, and other
obligations of the same or of a similar nature to any of the foregoing.
"Tax Return" means any return, report, information return or
schedule or other document (including, without limitation, any related
or supporting information or schedule, such as self-employment
schedules and returns, federal Tax Form 1099's for all applicable
transactions, property tax filings, sales and use tax returns, federal
and state payroll reports and federal Tax Form 5500's) filed or
required to be filed with any federal, state, local or foreign
governmental entity or other authority in connection with the
determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements
relating to any Tax.
"TI Contracts" has the meaning set forth in Section 3.9.
"Title Company" means, at the Company's option, (a) with
respect to each Property, the title insurance company which issued the
owner's policy currently held by the applicable Contributor or Title
Holding Partnership covering such Property, or (b) a nationally
recognized title insurance company acceptable to the Company.
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<PAGE>
"Title Holding Partnership" means an entity holding title to
a property which is organized under state law as a general or limited
partnership and is treated as a partnership for U.S. federal income tax
purposes and not as an association taxable as a corporation.
"Underlying Shares" has the meaning set forth in Section
4.13.
"Units" means partnership units evidencing ownership in the
Partnership as provided in the Partnership Agreement, whether LP Units
or GP Units.
ARTICLE 2: CONTRIBUTION PROVISIONS
Upon the terms and subject to the conditions of this Agreement, the
events set forth in this Article 2 shall be effected as of the IPO Closing Date.
The contribution of the Properties to the Partnership pursuant to this Article 2
shall constitute "Capital Contributions" pursuant to Section 4.1 of the
Partnership Agreement and are intended to be governed by Section 721 of the
Code.
2.1 [Intentionally Omitted]
2.2 [Intentionally Omitted]
2.3 Property Contributors. Each Contributor listed on Schedule 2.3
hereby agrees to convey and transfer each of the Properties listed on Schedule
2.3 opposite its name, subject to no Liens other than Permitted Exceptions, and
the Partnership agrees to accept such Properties and to issue to such
Contributor on the IPO Closing Date a number of LP Units equal to its Ownership
Unit amount.
2.4 Partnership Interest Contributors. Each Partnership Interest
Contributor hereby agrees to sell, transfer and assign to the Partnership all
right, title and interest in and to the partnership interest it holds in the
Title Holding Partnership listed on Schedule 2.4 opposite its name, free and
clear of all Liens, and the Partnership hereby agrees to purchase such
partnership interest and to issue to such Partnership Interest Contributor on
the IPO Closing Date a number of LP Units equal to its Ownership Unit amount
relating to such Title Holding Partnership (determined as provided in clause (b)
of the definition of "Adjusted Contribution Amount" and in the definition of
"Ownership Units").
2.5 Title Insurance.
(a) Each of the Properties is currently covered by an owner's or
lender's policy of title insurance held by the applicable Contributor or Title
Holding Partnership.
(b) The Company or the Partnership shall obtain (or cause to be
obtained) from the Title Company at Closing an owner's or lender's title
insurance policy issued by the Title Company in favor of the Partnership, (i)
dated the Closing Date, (ii) in the full amount of the Contribution Amount with
respect to the applicable Property, (iii) in the form of an American Land Title
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<PAGE>
Association Owner's Policy, Standard Form B (or such other form as is acceptable
to the Company, if such ALTA form is not available in the state in which the
applicable Property is located), (iv) subject only to the standard exclusions
from coverage contained in such policy and the Permitted Exceptions, with full
extended coverage over all standard and general exceptions (where available),
and (v) which policy shall contain the following endorsements, if available in
such state:
(A) an ALTA 3.1 zoning endorsement;
(B) a non-imputation endorsement;
(C) an owner's comprehensive endorsement;
(D) an access endorsement;
(E) a contiguity endorsement, if applicable;
(F) a survey endorsement; and
(G) such other endorsements as the Company shall
reasonably require after review of the survey, title
insurance commitment and Leases.
(c) The transactions contemplated by this Article 2 shall be closed by
means of a New York style closing, with the concurrent delivery of the documents
of title and transfer of interests, delivery of the title policy and/or
endorsements, and delivery of the applicable Ownership Units. The Company and/or
the Partnership shall provide any undertaking to the Title Company reasonably
necessary to effectuate the New York style closing.
(d) At the Company's request, each Contributor or Title Holding
Partnership shall promptly deliver to the Company a copy of its existing title
insurance policy. Each Contributor and Title Holding Partnership shall, at or
prior to Closing, deliver or cause to be delivered such commercially reasonable
affidavits, certificates, information and customary instruments of
indemnification, such as lien indemnitees, as shall be reasonably required to
induce the Title Company to issue the title insurance policies contemplated by
this Section 2.5.
2.6 Survey.
(a) Prior to the Closing, the Company shall obtain a survey of each
Property, prepared by a land surveyor licensed to perform surveys in the state
in which such Property is located, that either:
(i) meets the "Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys" as adopted by the American Land Title
Association/American Society and American Congress on Surveying and
Mapping in 1992 (or equivalent in the state in which such Property is
located), and is certified by such surveyor as of a date not earlier
than six
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<PAGE>
months prior to the Closing Date in favor of the Company and the
appropriate Title Company and any lender(s) designated by the Company,
and contains and discloses, subject to reasonable exceptions that do
not materially adversely affect the use, value or marketability of such
Property, the following:
(A) The boundaries of the Real Properties
conforming to the legal description
contained in Schedule A, which boundaries
enclose a contiguous and uninterrupted area;
(B) The location of all Improvements thereon;
(C) That all Improvements are within lot lines
and applicable side-yard, rear-yard, and
building line or set-back requirements;
(D) The location of all streets and public ways;
(E) No encroachment of the Improvements on the
Real Properties onto adjacent premises or
onto any public way and no encroachment of
any building or improvement on adjacent
premises onto the Real Properties;
(F) The area of the Real Property, expressed in
square feet;
(G) The location of all easements and
rights-of-way, recorded or visible; and
(H) Whether the Properties are located in an
area designated by an agency of the United
States as being subject to flood hazards; or
(ii) is otherwise in such form (and accompanied by such
certificates, affidavits or undertakings) as shall be required by the
Title Company to issue the so-called comprehensive endorsement
contemplated by Section 2.5 and to delete the so-called standard survey
exceptions in the applicable title insurance policy.
(b) At the Company's request, each Contributor and Title Holding
Partnership shall promptly deliver to the Company a copy of the surveys of its
Properties in its possession.
2.7 Access to Information; Environmental Audits. At all times before
the Closing Date, each Contributor and Title Holding Partnership shall provide
the Company and its affiliates, their respective agents, employees, consultants
and representatives, with continuing and reasonable access to all files, books,
records and other materials in the possession or control of such Contributor or
Title Holding Partnership relating to the Properties and to the operations,
assets and liabilities of such Contributor or Title Holding Partnership and the
right to examine, inspect and make copies of such materials as appropriate.
During such period, each Contributor and Title Holding Partnership
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<PAGE>
shall also provide for such parties to have reasonable physical access to the
Properties for the purpose of conducting surveys, architectural, engineering,
geotechnical and environmental inspections and tests (including sampling and
invasive testing for the presence of Hazardous Materials performed in connection
with Phase I environmental audits and, if necessary and with the prior written
approval of the Contributor, Phase II environmental audits), feasibility studies
and any other inspections, studies or tests reasonably required by them. If such
prior written approval of a Contributor or Title Holding Partnership to perform
such a Phase II environmental audit is not provided, such Property shall not be
contributed, directly or indirectly, to the Partnership unless the Company shall
agree. The Company may conduct a "walk-through" of tenant spaces upon reasonable
and appropriate notice to tenants and subject to the rights of tenants. In the
course of its investigations, the Company may make inquiries to third parties
including, without limitation, contractors, property managers, parties to TI
Contracts, Repair Contracts or Service Contracts, if any, lenders, tenants and
municipal, local and other governmental officials and representatives.
2.8 Investigation.
Notwithstanding any other provision of this Agreement, the Company
shall have a period expiring at the close of business on the 60th day following
the date hereof to perform such examinations, inspections, testing, studies
and/or investigations of the condition of the title to each Property and the
environmental condition of each Property. If, at the conclusion of such 60-day
period, the Company shall, in its sole and absolute discretion, be dissatisfied
with the condition of title or environmental condition of one or more Properties
(a "Disqualified Property") it shall so notify the applicable Contributor in
writing and may exclude such Disqualified Property or Properties from the
Consolidation, in which event the Contribution Amount of such Contributor shall
be adjusted accordingly. If the Company shall not have provided such notice as
to any Disqualified Property, the Company shall not be entitled to assert a
breach of any representation or warranty for any purpose hereunder including,
without limitation, Section 12.3 (except as a result of actions by the
Contributor occurring after conclusion of such 60-day period).
ARTICLE 3: COVENANTS AND OTHER AGREEMENTS
3.1 Implementing Agreement. Subject to the terms and conditions hereof,
each party hereto shall use its commercially reasonable efforts to take all
action required of it to fulfill its obligations under the terms of this
Agreement and to facilitate the consummation of the transactions contemplated
hereby. The covenants of the Contributors made in this Article 3 are made by
each Contributor severally solely with respect to itself, and the covenants with
respect to Properties are made by each Contributor solely with respect to each
Property in which such Contributor has an ownership interest.
3.2 Preservation of Business. From the date of this Agreement until the
Closing Date, the Contributors shall cause the Properties to be operated only in
the ordinary and usual course of business and consistent with past practice and
maintained in good working condition and repair (ordinary wear and tear
excepted), shall preserve the goodwill and advantageous relationships of the
Contributors and the Title Holding Partnerships with customers, suppliers,
independent contractors,
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employees and other Persons material to the operation of the Properties, shall
perform their material obligations under the Leases and other material
agreements affecting the Properties and shall not take or permit any action or
omission which would cause any of the representations or warranties of the
Contributors contained herein to become inaccurate or any of the covenants of
the Contributors herein to be breached. Notwithstanding the foregoing, the Title
Holding Partnerships shall be permitted to make distributions of items to its
partners (other than the Properties owned by it as of the date hereof) prior to
Closing so long as such distributions would not cause any of the representations
or warranties of the Contributors contained hereto to become inaccurate or any
of the covenants of the Contributors herein to be breached.
3.3 Consents and Approvals. The Contributors shall use their
commercially reasonable efforts to obtain all consents, approvals, certificates
and other documents required in connection with the performance by them of this
Agreement and the consummation of the transactions contemplated hereby prior to
the Final Allocation Date. The Contributors and the Title Holding Partnerships,
as the case may be, shall make all filings, applications, statements and reports
to all governmental authorities and other Persons which are required to be made
prior to the Closing Date by or on behalf of the Contributors, the Title Holding
Partnerships or any of their respective affiliates pursuant to any applicable
law or contract in connection with this Agreement and the transactions
contemplated hereby. The Company and the Partnership shall make all filings,
applications, statements and reports to all governmental authorities and other
Persons which are required to be made prior to the Closing Date by or on behalf
of the Company and the Partnership or any of their affiliates pursuant to any
applicable law or contract in connection with this Agreement and the
transactions contemplated hereby.
3.4 Maintenance of Insurance. The Contributors shall, or shall cause
the Title Holding Partnerships to, continue to carry their existing or
equivalent insurance with respect to the Properties through the Closing Date and
shall use their commercially reasonable efforts not to allow any material
breach, default, termination or cancellation of such insurance policies or
agreements to occur or exist.
3.5 Exclusivity. Without the Company's prior written consent which will
not be unreasonably withheld or delayed, the Contributors shall not provide,
except as may be required to be disclosed pursuant to a law or an order of any
court, any Confidential Material (as defined in Section 14.12(b)) concerning the
Properties to, solicit offers for, or participate in any discussions or
negotiations with, any Person other than the Company and the Partnership and the
Contributors' consultants and advisors and holders of debt currently encumbering
the Properties concerning any sale, financing, merger or other similar
transaction involving the Properties.
3.6 New Contracts and Liens. Without the Company's prior written
consent in each instance which will not be unreasonably withheld or delayed, the
Contributors, directly or indirectly, shall not, except as permitted by Section
3.7, grant, enter into, or amend, terminate or grant concessions regarding any
Liens affecting title to any Property or any contract or agreement that will be
an obligation affecting the Properties or binding on the Company or the
Partnership after the Closing except contracts entered into in the ordinary
course of business that are terminable without
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cause on 30 days' notice (and the Contributors, as the case may be, agree, or to
cause the Title Holding Partnerships, to terminate any such contracts by the
Closing Date if the Company or the Partnership gives any such party notice at
least 30 days before the Closing Date).
3.7 Leasing Arrangements. The Contributors, directly or indirectly,
shall not enter into, amend, terminate or grant concessions regarding any Lease
unless the Company has given its written consent, which consent shall not be
unreasonably withheld or delayed. The Contributors shall provide the Company
with all material information related to each request for consent, including,
without limitation, lease form, lease terms, leasing commissions, tenant
improvement obligations and other lease procurement costs, description of
tenant's business and tenant's financial statements or a Dunn & Bradstreet
credit report.
3.8 Obligation to Supplement Information. From time to time prior to
the Closing, the Contributors, the Company and the Partnership, shall promptly
disclose in writing to each other party to this Agreement any matter hereafter
arising or discovered which, to its knowledge, (a) would be reasonably likely to
have a material adverse effect on the condition, value, use or marketability of
a Property, or (b) if existing, occurring or known at the date of this Agreement
would have been required to be disclosed to the other parties or which would
render inaccurate in a material way any representation or warranty by the
disclosing party. No information provided pursuant to this Section 3.8 shall be
deemed to cure any inaccuracy in or breach of any representation, warranty or
covenant made in this Agreement.
3.9 TI and Repair Contracts. At least 10 days before the Closing Date,
the Contributors shall notify the Company in a written progress report as to
those contracts for tenant improvements under Leases ("TI Contracts"), if any,
and for repairs or restoration being performed on the Properties ("Repair
Contracts"), if any, that will not be completed by the Closing Date. Adjustments
for TI Contracts and Repair Contracts, if any, shall be made according to
Article 11. At the Closing, the Contributors shall assign or cause to be
assigned to the Partnership all of their, or the Title Holding Partnership's,
rights under, and the Partnership shall assume all of the Contributors' or Title
Holding Partnership's obligations under, any TI Contracts, Repair Contracts and
Service Contracts relating to the Properties.
3.10 Damage. The Contributors shall promptly after learning of the same
give the Company and the Partnership written notice of any material damage to
one or more of their, or the Title Holding Partnership's, respective Properties,
describing such damage, whether such damage is covered by insurance and the
estimated cost of repairing such damage. In the event of any such damage to one
or more of the Properties which under the applicable lease is not the Tenant's
responsibility to repair, (a) the Contributor or Title Holding Partnership
owning such damaged Property shall, to the extent practicable, begin repairs
prior to the Closing out of any insurance proceeds received by such Contributor
or Title Holding Partnership for the damage, (b) at the Closing, all insurance
proceeds due to such Contributor or Title Holding Partnership and not yet
received and all proceeds received by such Contributor or Title Holding
Partnership but not expended prior to the Closing shall be assigned or given, as
the case may be, to the Partnership (including rent loss insurance applicable to
any period from and after the Closing Date), (c) any
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uninsured damage or deductible and any post-closing rent abatement not covered
by rent loss insurance proceeds delivered to such Contributor or Title Holding
Partnership, as reasonably estimated by the Company and reasonably approved by
such Contributor, shall be credited to the Partnership at Closing and (d) the
Partnership shall assume the responsibility for the repair after the Closing.
The appropriate Contributor shall be entitled to any excess of the insurance
proceeds received for the damage over and above the actual cost of repair and
restoration.
3.11 Condemnation. The Contributors shall promptly after learning of
the same give the Company and the Partnership written notice of any eminent
domain proceedings that are contemplated, threatened or instituted by any body
having the power of eminent domain with respect to one or more of their, or the
Title Holding Partnership's, respective Properties. By notice to the applicable
Contributor after the Company and the Partnership receive notice of such
contemplated, threatened or instituted proceedings, the Company and such
Contributor shall have the joint right during the pendency of this Agreement to
negotiate and otherwise deal with the condemning authority in respect of such
matter and shall cooperate in good faith in doing so. At the Closing, the
Contributor or the Title Holding Partnership shall assign to the Partnership its
entire right, title and interest in and to any condemnation award.
3.12 Material Agreements. The Contributors and the Title Holding
Partnerships shall not materially amend, modify or terminate any material
agreement except such agreements that may terminate pursuant to their own terms
prior to the Closing, except with the consent of the Company and the
Partnership, which will not be unreasonably withheld or delayed.
3.13 Completion of IPO. The Company shall use its commercially
reasonable efforts to complete the IPO (subject to the terms and conditions of
this Agreement) and to cause the proceeds of the IPO to be contributed to the
Partnership in accordance with the terms of the Partnership Agreement.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS
Each Contributor hereby represents and warrants severally to the
Company and the Partnership as follows, except as set forth in a disclosure
letter delivered to each other party to this Agreement on or prior to the date
of this Agreement and attached as Schedule X. Representations and warranties
with respect to Properties are made by each Contributor solely with respect to
each Property in which such Contributor, or such Contributor's Title Holding
Partnerships, has an ownership interest. Each representation by a Contributor
with respect to a "Contributor" is made only with respect to such Contributor
and not to any other Contributor, unless otherwise specifically provided herein.
4.1 Due Organization. Each Contributor or Title Holding Partnership,
other than a Contributor who is a natural person, has been duly organized and is
validly existing and in good standing under the laws of its jurisdiction of
organization, and is qualified to do business and in good standing in all other
jurisdictions where such qualification is necessary to carry on its business as
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now conducted except where the failure to so qualify would not have a material
adverse effect on the ability of such Contributor to perform its obligations
under this Agreement.
4.2 Due Authorization. Each Contributor, or such Contributor's Title
Holding Partnership, has full power and authority to own, lease, operate and
sell the Properties owned by it, and to enter into this Agreement and the other
documents to be executed by it pursuant to this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
such Contributor of this Agreement have been, and the documents to be executed
by it pursuant to this Agreement shall be, duly and validly approved by all
necessary applicable action and no other actions or proceedings on the part of
such Contributor or Title Holding Partnership are necessary to authorize this
Agreement and the transactions contemplated hereby and thereby. Each
Contributor, or such Contributor's Title Holding Partnership, has complied with
applicable law and valid agreements binding upon it in connection with its
solicitation of any necessary approvals or consents related to this transaction
and obtaining appropriate authorization. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or notice to,
any governmental instrumentality or any other Person is required to be made,
obtained or given by such Contributor or Title Holding Partnership in connection
with the execution, delivery and performance of this Agreement and the documents
executed by such Contributor or such Title Holding Partnership pursuant to this
Agreement. The joinder of no entity or Person other than such Contributor or
Title Holding Partnership will be necessary to perform its obligations
hereunder. Such Contributor has duly and validly executed and delivered this
Agreement. This Agreement constitutes, and the documents executed by such
Contributor pursuant to this Agreement when executed will constitute, legal,
valid and binding obligations of such Contributor enforceable against it in
accordance with their respective terms, subject to (a) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and transfer and
other similar laws of general application, heretofore or hereafter enacted or in
effect, affecting the rights and remedies of creditors generally, and (b) the
exercise of judicial or administrative discretion in accordance with general
equitable principles, particularly as to the availability of the remedy of
specific performance or other injunctive relief. Such Contributor represents and
warrants that the assets to be contributed by it to the Company or the
Partnership pursuant to the terms of this Agreement do not constitute "plan
assets" (within the meaning of 29 C.F.R. ss.2510.3-101) of any "employee benefit
plan" subject to Title I of ERISA or a "governmental plan" as defined in Section
3(32) of ERISA.
4.3 Conflicts. The execution and delivery of this Agreement and the
other documents to be executed by such Contributor or Title Holding Partnership
pursuant to this Agreement do not and will not conflict with or result in a
breach of (with or without the passage of time or notice or both) the terms of
any of the constituent documents of such Contributor or Title Holding
Partnership, any judgment, order or decree of any court, governmental authority
or arbitrator binding on such Contributor or Title Holding Partnership, and, to
such Contributor's knowledge, do not and will not breach or violate any
applicable law, rule or regulation of any governmental authority. Except with
respect to the terms of any Assumed Mortgage Debt and any ground leases for
which the Contributor will, or which the Contributor will cause its Title
Holding Partnership to, use commercially reasonable efforts to obtain the
consents of the other parties to allow the Contributor and Title Holding
Partnership to perform its obligations under this Agreement, the execution and
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delivery of, and performance by such Contributor or Title Holding Partnership
under, this Agreement and the documents executed by such Contributor or Title
Holding Partnership pursuant to this Agreement will not result in a breach or
violation of (with or without the passage of time or notice or both) the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which such
Contributor or Title Holding Partnership is a party or by which such Contributor
or Title Holding Partnership is bound or to which any of the Properties owned by
it are subject.
4.4 Litigation. There is no action, suit or proceeding pending or, to
such Contributor's knowledge, threatened against such Contributor, Title Holding
Partnership or the Properties owned by it which, if adversely determined, would
have a material adverse effect on the financial condition or results of
operations of such Contributor, Title Holding Partnership or the Properties
owned by it or which challenges or impairs the ability of such Contributor to
execute or deliver, or perform its obligations under, this Agreement and the
documents executed by it pursuant to this Agreement or to consummate the
transactions contemplated herein.
4.5 Contractors and Suppliers; Service, TI and Repair Contracts. Except
as otherwise provided in this Agreement with respect to Service Contracts, TI
Contracts and Repair Contracts, if any, to be assumed by the Partnership, all
contractors, subcontractors, suppliers, architects, engineers and others who
have performed services or labor or supplied material in connection with such
Contributor's, or such Contributor's Title Holding Partnership's, acquisition,
development, ownership or management of the Properties owned by it, other than
those incurred in the ordinary course of business for the accounts payable
period immediately prior to the Closing and those engaged directly by tenants,
shall, at the Closing Date, have been paid in full and all Liens arising
therefrom (or claims which with the passage of time or notice or both, could
mature into Liens) shall, at the Closing Date, have been satisfied and released.
Such Contributor or Title Holding Partnership has performed its obligations
under the Service Contracts, TI Contracts and Repair Contracts, if any, and, to
such Contributor's knowledge, no other party is in material default under the
Service Contracts, TI Contracts or Repair Contracts, if any, affecting the
Properties owned by it. Schedule 4.5 sets forth a complete and accurate list of
Service Contracts, TI Contracts and Repair Contracts with respect to each
Property owned by Contributor.
4.6 Leases and Rent Roll. The documents constituting the Leases that
are delivered to the Company pursuant to this Agreement are true, correct and
complete, in all material respects, copies of all of the Leases affecting the
Properties owned by such Contributor or such Contributor's Title Holding
Partnership including all amendments and guarantees. Except as set forth in the
Leases, there are no material leasing or other fees or commissions due, nor will
any become due, pursuant to the terms of any Lease or any renewal or extension
or expansion of any Lease, and no understanding or agreement with any party
exists as to payment of any leasing commissions or fees regarding future leases
or as to the procuring of tenants which are due and payable prior to the Closing
Date other than commissions set forth in the commission schedule contemplated in
Section 11.3 which may become due by reason of renewals of existing Leases. To
such Contributor's knowledge, except as disclosed in the Leases, no tenants have
asserted in writing that there are any defenses or offsets to rent accruing
after the Closing Date and no material default or breach exists
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on the part of any tenant. Such Contributor or Title Holding Partnership has not
received any notice of any default or breach on the part of the landlord under
any Lease, nor, to such Contributor's knowledge, does there exist any such
default or breach on the part of the landlord. Except as set forth in the Leases
and with respect to the property located in Troy, Ohio which is still under
construction, all of the landlord's obligations to construct tenant improvements
or reimburse the tenants for tenant improvements under the Leases through the
date of this Agreement have been paid and performed in full and all concessions
(other than any unexpired rent abatement set forth in the Leases) from the
landlord under the Leases have been paid and performed in full.
4.7 Operating Statements. The unaudited financial operating statements
of the Title Holding Partnership delivered to the Company and any updates
thereof requested by the Company prior to the Closing show or will show all
material items of income and expense (operating and capital) incurred by such
Title Holding Partnership in connection with the ownership, operation, and
management of the Properties owned by it for the last two full fiscal years and
any subsequent fiscal quarters (or such other period to which the Company may
have agreed) and are or will be true, correct and complete in all material
respects
4.8 Permits, Legal Compliance and Notice of Defects. Such Contributor,
or such Contributor's Title Holding Partnership, has not applied to or entered
into any agreement with any governmental official, agency or body or with any
other Person or entity with respect to any modification, variance or exception
regarding zoning, building codes and similar laws and regulations that
materially and adversely affects the value, use or operation of the Properties
owned by it. Such Contributor, or such Contributor's Title Holding Partnership,
has all licenses, permits and certificates necessary for the use and operation
of the Properties owned by it (as presently used and operated), including,
without limitation, all certificates of occupancy necessary for the occupancy of
such Properties, except where the failure to have such licenses, permits and
certificates would not materially and adversely affect the value, use or
operation of the Property affected thereby. To such Contributor's knowledge,
neither the Properties owned by it or its Title Holding Partnership nor the
current use thereof violates any governmental law or regulation (exclusive of
any Environmental Laws, which are addressed in Section 4.9) or any covenants or
restrictions encumbering such Properties, except such violations which would not
materially and adversely affect the value, use or operation of the Property
affected thereby. Either such Contributor, or such Contributor's Title Holding
Partnership or, if required by the terms of their respective Leases, the tenants
of the Properties owned by it, now have in force insurance policies relating to
such Properties covering such risks and with policy limits and deductibles in
such amounts as would be maintained by prudent operators of properties similar
in use and configuration to such Properties and located in the locality in which
such Properties are located. Such Contributor, or such Contributor's Title
Holding Partnership, has not received any written notice from any insurance
company or underwriter of any defect that would materially adversely affect the
insurability of the Properties owned by it or cause an increase in insurance
premiums over current levels. Such Contributor, or such Contributor's Title
Holding Partnership, has not received any written notice of violations or
alleged violations of any laws, rules, regulations or codes with respect to the
Properties owned by it which have not been corrected to the satisfaction of the
issuer of the notice or which, if uncorrected, would have a material adverse
effect on the value, use or operation of the Property
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affected thereby. To such Contributor's knowledge, there is no pending or
contemplated condemnation or other eminent domain proceeding affecting all or
any part of the Properties owned by it or its Title Holding Partnership.
4.9 Environmental. Such Contributor has no knowledge, without
independent investigation, of any violation of Environmental Laws related to the
Properties owned by it or its Title Holding Partnership or the presence or
release of Hazardous Materials on or from such Properties, except as reflected
in the environmental reports listed on Schedule 4.9. Schedule 4.9 is a list of
written environmental reports and results of environmental inspections and tests
in the possession of such Contributor or such Contributor's Title Holding
Partnership, which list is complete in all material respects. To such
Contributor's knowledge, without independent investigation, such Contributor or
such Contributor's Title Holding Partnership has not used the Properties owned
by it for the generation, treatment, storage, handling or disposal of any
Hazardous Materials in violation of any Environmental Laws. The term
"Environmental Laws" includes, without limitation, the Resource Conservation and
Recovery Act and the Comprehensive Environmental Response Compensation and
Liability Act and other federal laws governing the environment as in effect on
the date of this Agreement together with their implementing regulations and
guidelines as of the date of this Agreement, and all state, regional, county,
municipal and other local laws, regulations and ordinances that are equivalent
or similar to the federal laws recited above or that purport to regulate
Hazardous Materials. The term "Hazardous Materials" includes petroleum,
including crude oil or any fraction thereof, natural gas, natural gas liquids,
liquefied natural gas or synthetic gas usable for fuel (or mixtures of natural
gas or such synthetic gas), and any substance, material waste, pollutant or
contaminant listed or defined as hazardous or toxic under any Environmental Law.
4.10 [Intentionally Omitted]
4.11 Ownership of the Title Holding Partnerships and Properties.
(a) The outstanding partnership interests in each Title Holding
Partnership listed on Schedule 2.4 are owned by the Contributors thereof as
shown on Schedule 2.4, free and clear of all Liens. Each Partnership Interest
Contributor owns the partnership interest in the Title Holding Partnership shown
as owned by it on Schedule 2.4, free and clear of all Liens. Each Contributor
and Title Holding Partnership has good and marketable or indefeasible title to
each Real Property shown as owned by it on Exhibit A, free and clear of all
Liens other than Permitted Exceptions.
(b) The partnership interest owned by each Partnership Interest
Contributor in each Title Holding Partnership shown as owned by it on Schedule
2.4 were validly issued, fully paid and non-assessable, and, together with the
partnership interest of any other Partnership Interest Contributor shown on
Schedule 2.4 as owning a partnership interest in such Title Holding Partnership,
constitutes all of the issued and outstanding partnership interests of such
Title Holding Partnership; all such partnership interests were not issued in
violation of any preemptive rights. The partnership interests owned by each
Partnership Interest Contributor in such Title Holding Partnership were issued
in compliance with applicable law and the relevant organizational
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documents (as then in effect). There are no enforceable rights, subscriptions,
warrants, options, conversion rights, preemptive rights or agreements of any
kind outstanding to purchase or to otherwise acquire any of the interests in any
Title Holding Partnership or any securities or obligations of any kind
convertible into any interests in any Title Holding Partnership or other equity
interests or profit participations of any kind.
(c) Each Title Holding Partnership listed on Schedule 2.4 is, and as of
the Closing Date will be, subject to no liabilities, whether matured or
contingent, whether disclosed or undisclosed, except for (i) such liabilities
which are subject to proration under Article 9 or have been taken into account
in determining the Adjusted Contribution Amount of such Title Holding
Partnership, (ii) any Assumed Mortgage Debt or other mortgage debt to be repaid
as of the Closing Date and (iii) any other liabilities which have arisen in the
ordinary course of business (which are the responsibility of such Contributor or
Title Holding Partnership under Section 11.1).
4.12 Distributions and Payments. All material obligations and
disclosures and all distributions in connection with the contribution of the
Properties owned by such Contributor or its Title Holding Partnership that under
applicable law or any applicable, valid and binding agreements are required to
be performed, given or made with respect to any Person that directly or
indirectly holds an interest in such Contributor shall, at the Closing Date,
have been performed, given and made.
4.13 Securities.
(a) Such Contributor will acquire the LP Units and the Common Shares
exchangeable therefor (the "Underlying Shares") for its own account and not with
a view to or for sale in connection with any public distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
except that any such securities may be sold pursuant to registration or any
exemption therefrom (which may include a distribution to the equity holders of
such Contributor provided such distribution is made pursuant to an exemption
from registration under the Securities Act).
(b) Such Contributor has sufficient knowledge and experience in
financial and business matters to enable it to evaluate the merits and risks of
an investment in the LP Units (together with the Underlying Shares). Such
Contributor has the ability to bear the economic risk of acquiring the LP Units.
(c) Such Contributor has been furnished with a copy of the Private
Offering Materials and has had a full opportunity to ask questions of and
receive answers from the Company or any person or persons acting on behalf of
the Company concerning the Company, the Partnership, the Consolidation and the
terms and conditions of the acquisition of the LP Units (together with the
Underlying Shares).
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(d) Such Contributor hereby acknowledges that the LP Units and the
Underlying Shares are not registered under the Securities Act or any state
securities laws and cannot be resold without registration thereunder or an
exemption therefrom. Such Contributor agrees that it will not transfer all or
any portion of the LP Units (together with the Underlying Shares) unless such
transfer has been registered or is exempt from registration under the Securities
Act and any applicable state securities laws (which may include a distribution
to the equity holders of such Contributor provided such distribution is made
pursuant to an exemption from registration under the Securities Act). The LP
Units (together with the Underlying Shares) shall, unless registered, contain a
prominent legend with respect to the restrictions on transfer under the
Securities Act and other applicable state securities laws.
(e) Such Contributor (and, if applicable, each equity holder of such
Contributor) is an "accredited investor" as such term is defined in Regulation D
promulgated under the Securities Act.
4.14 No Brokers. Neither such Contributor nor any of its officers,
partners, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any Person or firm which will result in the
obligation of the Company or the Partnership or any of their affiliates to pay
any finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by this Agreement.
4.15 Solvency. Such Contributor or such Contributor's Title Holding
Partnership is solvent as of the date hereof and will be solvent immediately
following the Consolidation.
4.16 Certain Tax Matters.
(a) Each Partnership Interest Contributor represents and warrants that:
(i) Such Title Holding Partnership whose interest is being
contributed by such Partnership Interest Contributor has timely filed
(or has had timely filed on its behalf) or will timely file or cause to
be timely filed, all Tax Returns required by applicable law to be filed
by it prior to or as of the Closing Date. All such Tax Returns and
amendments thereto are or will be true, complete and correct in all
respects;
(ii) There has been no audit by a Tax authority with respect
to any Tax Returns filed by, or Taxes due from, such Title Holding
Partnership. No issue has been raised by any Tax authority in any audit
of such Title Holding Partnership that if raised with respect to any
other period not so audited could be expected to result in a material
proposed deficiency for any period not so audited. No deficiency or
adjustment for any Taxes has been threatened, proposed or asserted
against such Title Holding Partnership. There are no liens for Taxes
upon the assets of such Title Holding Partnership, except liens for
current Taxes not yet due;
(iii) Such Title Holding Partnership has not given or been
requested to give any waiver of statutes of limitation relating to the
payment of Taxes or has executed powers of attorney with respect to Tax
matters, which will be outstanding as of the Closing Date;
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(iv) There are no changes in the tax accounting methods
subject to Section 481(a) of the Code which have an ongoing effect to
such Title Holding Partnership;
(v) Such Partnership Interest Contributor is not a foreign
person, foreign corporation, foreign partnership, foreign trust or
foreign estate within the meaning of Section 1445 of the Code;
(vi) The general partner of each Title Holding Partnership
shall be responsible for filing the final Tax Return for 1998 for each
of the respective Title Holding Partnerships;
(vii) Attached as Exhibit N are true, correct and complete
copies of the federal Tax Returns filed by the Title Holding
Partnerships for 1995, 1996 and 1997, including any and all amendments
thereto;
(viii) Such Title Holding Partnership whose interest is
being contributed by such Partnership Interest Contributor is, and has
been since its formation, classified as a partnership and not as an
association taxable as a corporation for Federal income tax purposes
for any period up to and including the Closing. The Internal Revenue
Service has not challenged or, to the knowledge of such Partnership
Interest Contributor, threatened to challenge the status of such Title
Holding Partnership as a partnership and not as an association taxable
as a corporation for Federal income tax purposes. All Tax Returns and
other filings have been filed on a basis consistent with such position
for Federal income tax purposes.
(b) Each Contributor represents and warrants that:
(i) such Contributor is not a foreign person, foreign
corporation, foreign partnership, foreign trust or foreign estate
within the meaning of Section 1445 of the Code;
(ii) Attached hereto as Exhibit L is a statement acceptable
to the Partnership of (i) the Contributor's adjusted tax basis in the
Property, (ii) remaining depreciable life of such Property for federal
income tax purposes, and (iii) initial recovery period and depreciable
method applicable to the Property or any depreciable component thereof;
(iii) None of the Property contributed by such Contributor
constitutes tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code, and none of the
Property contributed by such Contributor is subject to a lease, safe
harbor lease or other arrangement as a result of which such Contributor
is not treated as the owner for federal income tax purposes; and
(iv) Contributor has received no notice of liens for Taxes
on the Property contributed by such Contributor, except liens for
current Taxes not yet due and payable.
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ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PARTNERSHIP
The Company and the Partnership hereby represent and warrant to the
Contributors as follows.
5.1 Due Organization. Each of the Company and the Partnership has been
duly organized and is validly existing and in good standing under the laws of
its jurisdiction of organization, and is qualified to do business in all other
jurisdictions where such qualification is necessary to carry on its business as
now conducted and as proposed to be conducted except where the failure to so
qualify would not have an adverse effect on the ability of such party to perform
its obligations under this Agreement.
5.2 Due Authorization. Each of the Company and the Partnership has full
power and authority to enter into this Agreement and the other documents to be
executed by it pursuant to this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each of the
Company and the Partnership of this Agreement have been, and the other documents
to be executed by it pursuant to this Agreement shall be, duly and validly
approved by all necessary corporate or other applicable action and no other
consent or approval on the part of the Company or the Partnership is necessary
to authorize this Agreement and the other documents to be executed by it
pursuant to this Agreement and the transactions contemplated hereby. No consent,
waiver, approval or authorization of, or filing, registration or qualification
with, or notice to, any governmental instrumentality (including, without
limitation, any filing required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended), or any other entity or Person (including
without limitation, its shareholders or partners) is required to be made,
obtained or given by the Company or the Partnership in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except for such consents as have been
obtained or will be obtained by the Closing. Each of the Company and the
Partnership has duly and validly executed and delivered this Agreement. This
Agreement constitutes, and the documents executed by the Company and the
Partnership, as the case may be, pursuant to this Agreement when executed will
constitute, legal, valid and binding obligations of the Company and the
Partnership, as the case may be, enforceable against such party in accordance
with their respective terms, subject to (a) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and transfer and other similar
laws of general application, heretofore or hereafter enacted or in effect,
affecting the rights and remedies of creditors generally, and (b) the exercise
of judicial or administrative discretion in accordance with general equitable
principles, particularly as to the availability of the remedy of specific
performance or other injunctive relief.
5.3 Conflicts. The execution and delivery of this Agreement and the
other documents to be executed by it pursuant to this Agreement, and the
performance by each of the Company and the Partnership under this Agreement and
such other documents, do not and will not conflict with or result in a breach of
(with or without the passage of time or notice or both) the terms of any of the
constituent documents of the Company or the Partnership or any judgment, order
or decree of
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any court, governmental authority or arbitrator binding on the Company or the
Partnership and, to the Company's knowledge, do not breach or violate any
applicable law, rule or regulation of any governmental authority. The execution
and delivery of, and performance by the Company and the Partnership under, this
Agreement will not result in a breach or violation of (with or without the
passage of time or notice or both) the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which either the Company or the Partnership is a
party or by which either the Company or the Partnership is bound.
5.4 Litigation. There is no action, suit or proceeding pending or, to
the Company's knowledge, threatened against the Company or the Partnership
which, if adversely determined, would have a material adverse effect on the
financial condition or results of operations of the Company or the Partnership
or which challenges or impairs the ability of the Company or the Partnership to
execute or deliver, or perform its obligations under, this Agreement and the
documents executed by it pursuant to this Agreement or to consummate the
transactions contemplated herein.
5.5 Solvency. Each of the Company and the Partnership has been solvent
at all times prior to and will be solvent immediately following the
Consolidation.
5.6 Written Materials. As of the date of this Agreement and the IPO
Filing Date, the Private Offering Materials do not contain an untrue statement
of a material fact or omit to state a material fact in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading.
5.7 No Brokers. Neither the Company nor any of its officers, directors,
trustees or employees has used any investment banker, broker, trader or similar
agent or any Person or firm which will result in the obligation of the Company
or the Partnership to pay any finder's fee, brokerage fees or commissions or
similar payment in connection with the transactions contemplated by this
Agreement.
5.8 Financial Statements. The financial statements of the Company, and
the notes related thereto, included in the Private Offering Materials present
fairly the consolidated financial position of the Company as of the dates
indicated and the results of the operations and changes in consolidated cash
flows for the periods specified; such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis.
5.9 REIT and Partnership Status. The Company has been organized in
conformity with the requirements for qualification as a "real estate investment
trust" under the Code, and its proposed method of operation is expected to
enable it to continue to satisfy the requirements for taxation as a "real estate
investment trust" under the Code. The Company will file all tax elections
necessary in order to qualify as a "real estate investment trust" under the
Code. The Partnership will be treated for Federal income tax purposes as a
partnership, and not as an association taxable as a corporation.
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ARTICLE 6: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE PARTNERSHIP
The obligation of the Company and the Partnership to consummate the
Closing is subject to the fulfillment, at or prior to the Closing, of each of
the following conditions, and failure to satisfy any such condition shall excuse
and discharge all obligations of the Company and the Partnership to carry out
the provisions of this Agreement unless such failure is waived in writing by the
Company and the Partnership. Promptly after becoming aware that any of the
following conditions has not been or cannot be satisfied at or prior to the
Closing, the Company and the Partnership shall so notify all other parties to
this Agreement.
6.1 Representations and Warranties. The representations and warranties
made by the Contributors in Article 4 of this Agreement and the statements
contained in any document furnished by the Contributors in connection with the
Closing pursuant to this Agreement shall be true, correct and complete when made
and on and as of the Closing Date as though such representations and warranties
were made on and as of such date (except to the extent any such representation
and warranty is limited to a specific date by its express terms), except for
inaccuracies which, individually or in the aggregate for all parties, would not
have a material adverse effect on the financial condition or results of
operations of the Company and the Partnership taken as a whole.
6.2 Compliance with Agreements and Covenants. All parties other than
the Company and the Partnership shall have performed and complied with all of
their covenants, obligations and agreements contained in this Agreement to be
performed and complied with by them on or prior to the Closing Date, except for
failures to perform or comply which, individually or in the aggregate for all
parties, would not have a material adverse effect on the financial condition or
results of operations of the Company and the Partnership taken as a whole.
6.3 Tenant Estoppels. With respect to each Property, the appropriate
Contributor or its Title Holding Partnership shall (a) obtain a tenant estoppel,
substantially in the form of Exhibit F, from all tenants, or, (b) with the prior
consent of the Company, which consent shall not be unreasonably withheld,
provide a certificate from an officer of such Contributor or its Title Holding
Partnership (or from a duly authorized agent or representative of such
Contributor) setting forth substantially the same factual information as is
contained in Exhibit F with respect to such leased premises. In the event that
any tenant estoppel or any certificate reflects any claims, offsets or defenses
against enforcement of the Lease against the tenant thereunder, or any other
obligations owing to the tenant by such Contributor or Title Holding Partnership
(any of the foregoing, a "Landlord Default"), such Contributor shall pay to the
Company, at the Closing, the amount, as determined by the Company in its
reasonable good faith business judgment necessary to correct or cure such
Landlord Default; provided, however, that if such Contributor contests the
existence of a Landlord Default, then such Contributor shall escrow with the
applicable Title Company (or other financial institution mutually agreed to by
such Contributor and the Company) at the Closing either (i) cash in an amount
determined by the Company in its reasonable good faith business judgment which
is required to correct the Landlord Default if it is ultimately determined to
exist or (ii) a number of Ownership Units issued to such Contributor having a
value (based on the IPO Share
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Price) equal to the amount determined by the Company as aforesaid. If such
Contributor contests the existence of a Landlord Default, and if such matter is
not resolved to the reasonable satisfaction of such Contributor and the Company,
or otherwise resolved by a final judgment from a court of competent jurisdiction
within 180 days after Closing, the funds, or the Ownership Units, as the case
may be, held in escrow shall be paid to the Company.
6.4 Other Contracts. As of the Closing Date, there shall exist no
material default under any material agreement to be assumed by the Partnership.
6.5 Legal Proceedings. As of the Closing Date, no action or proceeding
by or before any governmental authority shall have been instituted or threatened
(and not subsequently dismissed, settled or otherwise terminated) which is
reasonably expected to restrain, prohibit or invalidate the transactions
contemplated by this Agreement, other than an action or proceeding instituted or
threatened by the Company or the Partnership.
6.6 IPO Closing. The closing of the IPO of the Company shall occur
simultaneously with the Closing.
6.7 Representation Letter. The Company shall have received a
representation letter from Advance Stores Company, Incorporated substantially in
the form of Exhibit E.
6.8 Consents and Approvals. All parties to this Agreement shall have
obtained all necessary consents and approvals, required in connection with the
performance by them of this Agreement and the consummation of the transactions
contemplated hereby, including those required in connection with any Assumed
Mortgage Debt and ground leases, except for such consents and approvals the
failure of which to obtain, individually or in the aggregate for all parties,
would not have a material adverse effect on the financial condition or results
of operations of the Company and the Partnership taken as a whole. If any
Contributor or Title Holding Partnership has not obtained a necessary consent or
approval with respect to any Property at or prior to the Closing, such Property
shall not be contributed, directly or indirectly, to the Company or the
Partnership unless the Company shall agree.
6.9 Other Conditions. All other conditions to the obligations of the
Company and the Partnership set forth in this Agreement shall have been
satisfied as of the dates required.
ARTICLE 7: CONDITIONS PRECEDENT TO OBLIGATIONS OF CONTRIBUTORS
The obligation of each Contributor to consummate the Closing is subject
to the fulfillment, at or prior to the Closing, of each of the following
conditions, and failure to satisfy any such condition shall excuse and discharge
all obligations of such Contributor to carry out the provisions of this
Agreement unless such failure is waived in writing by such Contributor. Promptly
after becoming aware that any of the following conditions has not been or cannot
be satisfied at or prior to the Closing, such Contributor shall so notify all
other parties to such Agreement.
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7.1 Representations and Warranties. The representations and warranties
made by the Company and the Partnership in Article 5 of this Agreement and by
the other Contributors in Article 4 of this Agreement and the statements
contained in any document furnished by the Company or the Partnership or any
other Contributor or such Contributor's Title Holding Partnership in connection
with the Closing pursuant to this Agreement shall be true, correct and complete
when made and on and as of the Closing Date as though such representations and
warranties were made on and as of such date (except to the extent any such
representation and warranty is limited to a specific date by its express terms),
except for inaccuracies which, individually or in the aggregate for all parties,
would not have a material adverse effect on the financial condition or results
of operations of the Company and the Partnership taken as a whole.
7.2 Compliance with Agreements and Covenants. All parties hereto other
than such Contributor shall have performed and complied with all of their
covenants, obligations and agreements contained in this Agreement to be
performed and complied with by them on or prior to the Closing Date, except for
failures to perform or comply which, individually or in the aggregate for all
parties, would not have a material adverse effect on the financial condition or
results of operations of the Company and the Partnership taken as a whole.
7.3 Legal Proceedings. No action or proceeding by or before any
governmental authority shall have been instituted or threatened (and not
subsequently dismissed, settled or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement, other than an action or proceeding instituted or threatened by
such Contributor.
7.4 IPO Closing. The closing of the IPO of the Company shall occur
simultaneously with the Closing.
7.5 Minimum Asset Size. As of the Closing Date (after giving effect to
the IPO and the transactions contemplated hereby), the Company shall have
Contributed Capital of not less than $75 million.
7.6 Consents and Approvals. All parties to this Agreement shall have
obtained all necessary consents and approvals required in connection with the
performance by them of this Agreement and the consummation of the transactions
contemplated hereby except for such consents and approvals the failure of which
to obtain, individually or in the aggregate for all parties, would not have a
material adverse effect on the financial condition or results of operations of
the Company and the Partnership taken as a whole. If any Contributor or its
Title Holding Partnership has not obtained a necessary consent or approval
listed on its disclosure letter with respect to any Property at or prior to the
Closing, such Property shall not be contributed, directly or indirectly, to the
Company or the Partnership unless such Contributor and the Company shall
mutually agree.
7.7 Release of Liability. Each Contributor or any party related thereto
has been released from all personal liability in connection with all of the
Assumed Mortgage Debt to be incurred as of the Closing Date and thereafter,
including, without limitation, liability for payments of principal,
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interest and liability for any type of indemnification under customary
nonrecourse carveouts to the extent the act or omission, unless fraudulent or
committed in bad faith before the Closing Date, giving rise to any such
liability occurs on or after the Closing Date.
7.8 Tax Related Agreement. The Company, the Partnership and the
Contributors, as applicable, shall have entered into and delivered one or more
Tax-Related Agreements substantially in the form attached hereto as Exhibit M.
7.9 Other Conditions. All other conditions to the Contributors'
obligations set forth in this Agreement shall have been satisfied as of the
dates required.
ARTICLE 8: CLOSING
8.1 Closing. The consummation of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Parker, Poe, Adams &
Bernstein, which shall occur on the same date as the IPO Closing Date (the
"Closing Date"). A pre-closing conference shall commence at least three days
before the Closing Date, during which all deliveries (other than any delivery of
cash) shall be made into an escrow with the Title Company, or, at the option of
the parties, such deliveries may be made in such other manner as the parties may
determine. All deliveries made during the pre-closing period shall be deemed
deliveries made at the Closing, and the transfers described herein and all
closing deliveries, and the consummation of the IPO, shall be deemed concurrent
for all purposes. The deliveries set forth in this Article 8 shall be conditions
precedent to the Closing. Upon completion of the deliveries set forth in this
Article 8 and satisfaction of the other conditions to the Closing herein set
forth, the parties shall direct the Title Company to make such deliveries and
disbursements according to the terms of this Agreement and under an escrow
instruction letter, if any, substantially in the form of Exhibit G.
8.2 Deliveries by Contributors. At the Closing, in addition to any
other documents or agreements required under any other provision of this
Agreement, each Contributor shall make the following deliveries and performance
solely with respect to each Property in which such Contributor or such
Contributor's Title Holding Partnerships has an ownership interest:
(a) Deed. For each Property contributed, a deed containing a
special warranty of title, in statutory form or if the applicable
jurisdiction does not promulgate such a form, in such form as is
customary in the applicable jurisdiction which the Title Company shall
require in order to issue the title policies which are consistent with
the requirements of Section 2.5, executed and acknowledged by the
Contributor or such Contributor's Title Holding Partnership, conveying
to the Partnership indefeasible fee simple title to such Property
subject only to Permitted Exceptions. The deeds shall be delivered, in
escrow, to agents of the Title Company located in the appropriate
counties for recording the deeds, so that the deeds can be recorded on
the Closing Date;
(b) Assignment and Assumption of Leases, etc. For each
Property, a Bill of Sale and Assignment and Assumption of Leases,
Contracts and Intangible Property in the form
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of Exhibit H (the "Assignment"), executed and acknowledged by the
applicable Contributor or Title Holding Partnership, vesting in the
Partnership good title to the assets and property described therein
free of any Liens, except, to the extent applicable, Permitted
Exceptions;
(c) Title Searches, Surveys and Tenant Estoppels. The
requirements in Section 2.5 (Title Insurance), Section 2.6 (Survey),
and Section 6.3 (Tenant Estoppels) shall have been complied with,
provided such failure to comply with Section 2.5 or Section 2.6 is not
caused by the Company's or the Partnership's failure to use
commercially reasonable efforts to obtain a title policy or survey;
(d) Payoff Letters. A loan payoff letter in a form
reasonably satisfactory to the Title Company with respect to all
mortgage indebtedness other than Assumed Mortgage Debt;
(e) Partnership Agreement. The Partnership Agreement,
executed by such Contributor;
(f) Registration Rights Agreements. The Registration Rights
Agreement, executed by such Contributor;
(g) Assumed Mortgage Documents. The documents evidencing the
assumption of the Assumed Mortgage Debt executed by such Contributor or
Title Holding Partnership, if necessary, and all deliveries of such
Contributor or Title Holding Partnership required thereunder;
(h) Notice to Tenants. A notice to each tenant in form
reasonably satisfactory to the parties hereto, notifying tenants of
transfers of ownership and directing payment of all rents occurring
after the Closing Date to be made to the Partnership or at its
direction;
(i) State Law Disclosures. Such disclosures and reports as
are required by applicable state and local law in connection with the
conveyance of real property;
(j) FIRPTA. A Foreign Investment in Real Property Tax Act
("FIRPTA") affidavit executed by such Contributor. If such Contributor
fails to provide the necessary affidavit and/or documentation of
exemption on the Closing Date, the Company may proceed in accordance
with the withholding provisions as provided in FIRPTA;
(k) Affidavits. A gap undertaking and such owner's affidavit
or other documents as are customarily provided by transferors of real
estate in the applicable jurisdiction;
(l) Tax-Related Agreement. Executed Tax-Related Agreements
substantially in the form attached hereto as Exhibit M;
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(m) Delivery of Certificates. Delivery to the Partnership of
the indicia of ownership in each Title Holding Partnership held by the
Partnership Interest Contributors assigned or endorsed in blank;
(n) Authority. Evidence of the existence, organization and
authority of such Contributor or Title Holding Partnership and of the
authority of the persons executing documents on behalf of such
Contributor or Title Holding Partnership reasonably satisfactory to the
Title Company and the Company;
(o) Possession. Possession of the Properties, subject only
to the applicable Permitted Exceptions;
(p) Delivery of Books and Records. Delivery to the offices
of the Partnership: the original Leases or certified true copies
thereof; copies or originals of all books and records of account;
contracts; copies of correspondence with tenants and suppliers;
receipts for deposits; unpaid bills and other papers or documents which
pertain to the Properties; all advertising materials, booklets, keys
and other items, if any, used in the operation of the Properties; and,
if in the possession or control of such Contributor or Title Holding
Partnership, the original "as-built" plans and specifications and all
other available plans and specifications; each Contributor shall
cooperate with the Partnership after the Closing to provide to the
Partnership any such information stored electronically;
(q) Consents. Copies of consents or other appropriate
documentation, executed by or on behalf of all Contributors or Title
Holding Partnerships who are not natural persons approving the entering
into of this Agreement and the other documents contemplated herein by
such Contributor or Title Holding Partnership and agreeing, among other
things, to be bound by the indemnification obligations set forth in
Article 13; and
(r) Other. Such other documents and instruments as may
reasonably be required by the Company, its (or its underwriters')
counsel or the Title Company that may be necessary to consummate the
transaction and to otherwise effect the agreements of the parties under
this Agreement.
8.3 Deliveries by the Company and the Partnership. At the Closing, the
Company and the Partnership shall make the following deliveries and performance:
(a) Partnership Agreement. The Partnership Agreement,
executed by the Company, together with any filings with any
governmental authority or agency required to be made by or on behalf of
the Partnership;
(b) Partnership Ratification. The Partnership's written
ratification of this Agreement and agreement to perform the obligations
of the Partnership that are to be performed after the Closing;
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(c) Tax-Related Agreement. One or more executed Tax-Related
Agreement substantially in the form attached hereto as Exhibit M;
(d) LP Units. Issuance by the Partnership to the
Contributors of that number of LP Units equal to the Ownership Units
applicable to such party and reasonably satisfactory evidence of such
issuance;
(e) Payment of Consolidation Expenses; Reimbursement of
Costs. At or promptly after the Closing, the Partnership shall pay all
Consolidation Expenses;
(f) Registration Rights Agreement. The Registration Rights
Agreement, executed by the Company;
(g) Authority. Evidence of existence, organization and
authority of the Company and the Partnership and the authority of the
person executing documents on behalf of each of the Company and the
Partnership;
(h) Assignment and Assumption of Leases. The Assignment,
executed by the Partnership;
(i) State Law Disclosures. Such disclosures and reports as
are required by applicable state and local law in connection with the
conveyance of real property;
(j) Assumed Mortgage Debt. The documents evidencing the
assumption of the Assumed Mortgage Debt and any other liabilities to be
assumed by the Partnership (all of which such other liabilities are
subject to proration under Article 13), executed by the Partnership,
and all deliveries of the Partnership required thereunder;
(k) Legal Opinions. Usual and customary legal opinions from
counsel to the Company and the Partnership, which opinions may be
relied on by the Contributors, which shall be substantially the same in
scope as the opinions delivered to the underwriters at the Closing of
the IPO, including with respect to the matters addressed in Section
5.9;
(l) Title Insurance and Survey. The requirements of Section
2.5 (Title Insurance), Section 2.6 (Survey), and Section 6.3 (Tenant
Estoppels) shall have been complied with, provided such failure to
comply with Section 2.5 or Section 2.6 is not caused by the Company's
or the Partnership's failure to use commercially reasonable efforts to
obtain a title policy or survey; and
.
(m) Other. Such other documents and instruments as may
reasonably be required by the Contributors, or their respective counsel
that may be necessary to consummate the transaction and to otherwise
effect the agreement of the parties under this Agreement.
ARTICLE 9: COOPERATION ON TAX MATTERS
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(a) Contributor and Partnership agree to furnish or cause to
be furnished to the other, upon request, as promptly as practicable,
such information (including access to books and records) and assistance
relating to the Property contributed by such Contributor as is
reasonably necessary for (i) the filing of any Tax Return, the
preparation for any Tax audit, and the prosecution or defense of any
claim, suit and proceeding relating to any proposed Tax adjustment
which may affect the prorations under this Agreement and (ii) the
performance by Contributor and Partnership of their respective
obligations under this Agreement. Contributor and Partnership shall
keep all such information and documents received by them confidential
unless otherwise required to be disclosed by law or by the order of a
court.
(b) Contributor and Partnership agree to give the other
reasonable notice prior to transferring, discarding or destroying any
such books and records relating to Tax matters of the Property
contributed by such Contributor and, if so requested, Contributor and
Partnership shall allow the requesting party to take possession of such
books and records.
(c) Contributor and Partnership shall cooperate with each
other in the conduct of any audit or other proceedings with respect to
the Property contributed by such Contributor for any Tax purposes.
ARTICLE 10: POST-CLOSING COVENANTS OF CONTRIBUTOR
Contributor covenants and agrees that from and after the Closing:
(a) Contributor does not, and shall not at any time own,
directly or indirectly (actually or by applying constructive ownership
rules set forth in Section 856(d)(5) of the Code) ten percent (10%) or
more in value of the shares of the Company.
(b) Contributor is not and will not be a "tax-exempt entity"
(within the meaning of Section 168(h)(2) of the Code), and no person
holding an interest in Contributor is or will be a person that causes
all or any portion of the Property to be treated as "tax-exempt use
property" (within the meaning of Section 168(h)(l) of the Code).
(c) For a period of one year following the Closing Date,
Primax Properties, LLC will, at its sole expense, perform those
maintenance, repair and replacement obligations with respect to the
properties set forth on Schedule 10.1 attached hereto to the extent
such repairs are required under Leases or consistent with the
respective landlord's historic actions.
ARTICLE 11: PRORATIONS AND ADJUSTMENTS
11.1 Prorations. Before the Closing, the Contributors shall provide to
the Company such information and verification reasonably necessary to support
the prorations and adjustments under this Article 11. Subject to paragraph (a)
below, the items in paragraphs (a) through (f) of this Section 11.1, as well as
any amount of damage to be credited to the Partnership to the extent provided in
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Section 3.10, shall be prorated as between the Partnership and each Contributor
as of the close of the day immediately preceding the Closing Date, the Closing
Date being a day of income and expense to the Partnership. Except as provided in
clauses "second" through "fifth" of clause (a) of the definition of "Adjusted
Contribution Amount," all prorations shall be in cash and shall not affect the
number of Ownership Units to be delivered to the Contributors; provided, however
that any Contributor may elect to make its proration payments to the Company in
cash or in Ownership Units valued at their Fair Market Value at the time of
payment.
(a) Taxes and Assessments. Except as provided in the last
sentence of this Section 11.1(a) or as covered by Section 11.1(c), the
Partnership shall receive a credit for any unpaid real estate taxes
(and any assessments imposed by private covenant), whether or not then
due or payable, imposed in respect of the Properties and applicable for
the portion of the current year or other applicable tax period which
has elapsed before the Closing Date (and to the extent unpaid, for
prior years or tax periods) and the Contributors shall receive a credit
for any real estate taxes (and any assessments imposed by private
covenant) previously paid by them or their Title Holding Partnership in
respect of the Properties and relating to periods after the Closing
Date. If the amount of any such taxes have not been determined as of
the Closing, such credit shall be based on the most recent
ascertainable taxes which proration shall be final and shall not be
reprorated upon issuance of the final tax bill. The Partnership shall
receive a credit for the total amount of any special assessments or
similar charges which are levied or charged against the Properties
before the Closing, whether or not then due and payable, except to the
extent such assessments were deducted in determining the Contribution
Amount. Notwithstanding the foregoing provisions of this Section
11.1(a), no credit shall be given to the Partnership for any accrued
and unpaid real estate taxes, private covenant assessments, special
assessments or similar charges, to the extent that (i) any tenant is
responsible for the direct or indirect payment of such amounts or (ii)
such amounts are, or will be, collectible from Operating Expense
Pass-Throughs.
(b) Collected Rent. The Partnership shall receive a credit
for any rent and other income (and any applicable state or local tax on
rent) under Leases, collected by the Contributors or their Title
Holding Partnership before the Closing and applicable to any period of
time after the Closing. After the Closing, the Partnership shall apply
all rent and income collected by the Partnership from a tenant, unless
the tenant properly identifies the payment as being for a specific
item, first to such tenant's monthly rental for the month in which the
Closing occurred and then to arrearages in the reverse order in which
they were due, remitting to the Contributors, after deducting
collection costs, any rent properly allocable to the Contributor's or
its Title Holding Partnership's period of ownership. The Partnership
shall bill and attempt to collect such rent arrearages in the ordinary
course of business, but shall not be obligated to engage a collection
agency or take legal action to collect any rent arrearages. Any rent or
other income received by the Contributors after Closing which are owed
to the Partnership shall be held in trust and remitted to the
Partnership within 30 days after receipt. Any rent or other income
received by the Partnership after Closing (including, without
limitation, percentage rents), which are owed,
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in whole or in part, to a Contributor or a Title Holding Partnership
shall be held in trust and remitted to the Contributor within 30 days
after receipt.
(c) Operating Expense Pass-Throughs. In certain
circumstances, the Contributors or the Title Holding Partnerships, as
landlords under the Leases, may collect from tenants under the Leases
additional rent to cover all or portions of taxes, insurance,
utilities, maintenance and other operating costs and expenses
(collectively, "Operating Expense Pass-Throughs") incurred by the
Contributors or Title Holding Partnerships in connection with the
ownership, operation, maintenance and management of the Properties. If
the Contributors or Title Holding Partnerships collected estimated
prepayments of Operating Expense Pass-Throughs in excess of any
tenant's share of such expenses and had not previously repaid those
amounts to the appropriate tenants, then if the excess can be
determined by the Closing, the Partnership shall receive a credit for
the excess or, if the excess cannot be determined at Closing, the
Partnership shall receive a credit based upon an estimate, and the
parties shall make an adjustment payment between them when the correct
amount can be determined. In either event, the Partnership shall be
responsible for crediting or repaying those amounts to the appropriate
tenants. If the Contributors or Title Holding Partnerships collected
estimated prepayments of Operating Expense Pass-Throughs attributable
to any period after the Closing, the Contributors shall pay or credit
any such amounts to the Partnership at the Closing. At the Closing, the
Partnership shall receive a credit equal to the amount, if any, by
which payments made by tenants in respect of Operating Expense
Pass-Throughs for the period prior to the Closing exceed the amount
paid or accrued during this same period of time for Operating Expense
Pass-Throughs. To the extent that any tenant is obligated to pay taxes
or assessments at year end, then no proration of such amounts shall be
made and the Partnership shall have the sole right to collect such
amounts from the applicable tenant. To the extent that the Contributors
or the Title Holding Partnerships have paid any taxes, insurance,
utilities, maintenance or other operating costs and expenses prior to
the receipt from a tenant of Operating Expense Pass-Throughs due or to
be due from the tenant or in excess of any amount paid by tenant
(provided such tenant is obligated to reimburse the Company such
deficit amount upon periodic reconciliation or otherwise), the
Contributors shall receive a credit for any amount so paid.
(d) Service Contracts. The Contributors or the Partnership,
as the case may be, shall receive a credit for regular charges under
Service Contracts, if any, assumed by the Partnership pursuant to this
Agreement paid and applicable to the Partnership's period of ownership
or payable and applicable to the Contributors' or Title Holding
Partnerships' period of ownership. Notwithstanding the foregoing, no
payment or credit shall be due from the Contributors to the extent that
such amounts, if any, are, or will be, due from tenants as Operating
Expense Pass-Throughs but have not yet been collected from tenants.
(e) Utilities. The Contributors shall cause the meters, if
any, for utilities to be read on the Closing Date and shall pay the
bills rendered on the basis of such readings, except for utilities paid
directly by tenants. If any such meter reading for any utility is not
available, then adjustment therefor shall be made on the basis of the
most recently issued
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bills therefor which are based on meter readings no earlier than 30
days before the Closing Date. Notwithstanding the foregoing, no payment
or credit shall be due from the Contributors to the extent that such
amounts are, or will be, due from tenants as Operating Expense
Pass-Throughs but have not yet been collected from tenants.
(f) Accrued Interest on Assumed Mortgage Debt. The
Partnership shall receive a credit for any interest accrued on Assumed
Mortgage Debt, whether or not then due and payable, for the portion of
the applicable interest period which has elapsed before the Closing
Date (and to the extent unpaid, for prior periods).
11.2 Tenant Reconciliations and Post-Closing Adjustments. After
year-end (or other applicable period) adjustments with tenants under Leases for
Operating Expense Pass-Throughs and receipt of final tax, other bills and lease
payments, the Partnership shall prepare and present to the Contributors a
calculation of the reproration of such Operating Expense Pass-Throughs, taxes
(to the extent provided herein) and other items including lease payments, based
upon the actual amount of such items charged to or received by the parties for
the year or other applicable fiscal period. The parties shall make the
appropriate adjusting payment between them within 30 days after presentment to
the Contributors of the Partnership's calculation. The Contributors may inspect
the Partnership's books and records related to the Properties to confirm the
calculation. Appropriate post-Closing reconciliations and adjustments shall be
made for any incorrect proration or adjustment. All post-Closing reconciliations
and adjustments between the parties shall be paid in cash. No expense related to
the ownership or operation of the Property shall be charged to or paid or
assumed by the Partnership, whether allocable to any period before or after
Closing, other than those obligations expressly assumed by the Partnership.
11.3 Leasing Commissions. The Partnership shall receive a credit at the
Closing equal to all leasing commissions, if any, due to leasing or other agents
for the current remaining term of each Lease (determined without regard to any
unexercised termination or cancellation right), discounted to present value
using a discount rate of 11 percent per year. The Partnership shall assume in
writing the obligation to pay any such leasing commissions due thereunder after
the Closing Date up to the amount of said credit, but only to the extent such
leasing commissions are identified in Schedule 11.3 hereto. At the Closing, the
Partnership shall assume leasing commissions expressly identified in the
commission schedule delivered to the Company and the Partnership on or prior to
the date hereof which may become due as a result of the renewal, extension or
expansion of any Lease which renewal or extension term or expansion commences
after the date of this Agreement.
11.4 TI Contracts, Tenant Allowances and Capital Improvements. Tenant
improvement expenses (including all hard and soft construction costs, whether
payable to the contractor or the tenant), tenant allowances, rent abatement,
moving expenses and other out-of-pocket costs, if any, which are the obligation
of the landlord under Leases shall be allocated between the parties according to
whether such obligations arise in connection with (a) Leases in place (the rent
commencement date falls before the date of execution of this Agreement)
("Existing TI Obligations") other than with respect to renewal or expansion
rights under Leases executed before
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the date of execution of this Agreement and properly exercised after the date of
this Agreement, or (b) Leases for which the rent commencement date falls after
the date of this Agreement or (c) Leases or amendments entered into during the
pendency of this Agreement and approved by the Partnership or otherwise
permitted pursuant to Section 3.7 or renewals or expansion rights existing under
Leases executed before the date of execution of this Agreement and properly
exercised after the date of this Agreement ("New TI Obligations"):
(i) Existing TI Obligations. Except to the extent that the
Contribution Amount has been determined by deducting the amount of any
Existing TI Obligations, if any, as of the date of determination of
such amount, if, by the Closing, the Contributors or the Title Holding
Partnerships have not completed and paid in full Existing TI
Obligations, if any, then such costs as are reasonably agreed by the
Partnership and the Contributors shall be charged against the
Contributors and credited to the Partnership, and the Partnership shall
be responsible for completing such Existing TI Obligations, if any. If
the amount charged against the Contributors and credited to the
Partnership exceeds the Partnership's cost to complete such Existing TI
Obligations, such excess shall be paid in cash to the Contributors; but
if the credit is insufficient for such purpose, the Contributors shall
reimburse the Partnership in cash for such deficiency within 10 days
after the Partnership's presentment of a final written reconciliation
supported by evidence reasonably satisfactory to the Contributors.
(ii) New TI Obligations. At the Closing, the Partnership
shall credit the Contributors for the cost of New TI Obligations, if
any, properly performed and paid for by the Contributors or the Title
Holding Partnerships to the extent such obligations were expressly
approved in writing by the Partnership or otherwise permitted under
Section 3.7, or if not performed and paid and relating to Leases which
are permitted under the terms of this Agreement, the Partnership shall
assume the obligation to perform and pay for such New TI Obligations,
if any. If the rent commencement date under any Lease amendment,
renewal, extension or expansion of a Lease subject to New TI
Obligations, if any, falls before the Closing Date, then the cost of
the New TI Obligation under such Lease, amendment, renewal or expansion
shall be apportioned between the parties in the proportion that the
length of the portion of the noncancellable primary term after such
rent commencement date to the Closing Date bears to the length of the
portion of the noncancellable primary term falling after the Closing
Date.
(iii) Change Orders. The Contributors and the Title Holding
Partnerships shall not agree to any change orders or additions to
tenant improvements or changes in the scope of work or specifications
with respect to Existing TI Obligations, if any, or New TI Obligations,
if any, which exceed 10% of the approved costs without the Company's
prior written approval, which shall not be unreasonably withheld or
delayed.
(iv) Evidence of Payment. At the Closing, the Contributors
shall provide lien waivers, payment affidavits, certificates of
completion, Tenant Estoppels and other evidence reasonably necessary to
confirm the Contributors' and the Title Holding Partnerships'
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compliance with their obligations pursuant to this Section 11.4, if
any, and, to the extent such coverage is available, shall provide such
indemnity or other assurance to enable the Title Company to insure
against any claims against the Properties arising from work performed
before the Closing.
11.5 Repair Contracts. At the Closing, the Contributors shall pay or
provide for payment in a manner reasonably satisfactory to the Company for all
work under Repair Contracts, if any, that has been performed through the Closing
Date, and, subject to the Partnership's reasonable requirements with respect to
the selection of contractor, mechanic's lien protection and insurance, the
Contributors and the Title Holding Partnerships shall at their sole cost and
expense complete the remaining work to be performed under such Repair Contracts,
if any, after the Closing Date. Any insurance proceeds covering work under the
Repair Contracts, if any, shall be paid to the Contributors for the cost of the
work covered by such insurance. Warranties related to work under TI Contracts
and Repair Contracts, if any, shall be included in the warranties described as
Intangible Property related to the applicable Properties. The Contributors and
their Title Holding Partnerships shall provide assurance to the Title Company to
enable it, to the extent permitted by applicable title insurance regulations, to
issue the Title Policy without exception for mechanics' and materialmens' liens
related to work performed by the Contributors and the Title Holding Partnership
under Repair Contracts, if any. Notwithstanding the foregoing, the Contributors
shall not be responsible for costs payable pursuant to Repair Contracts, if any,
to the extent such costs are, or will be, due from tenants as Operating Expense
Pass-Throughs, if any.
11.6 Tenant Deposits. All unapplied tenant security deposits (and
interest thereon if required by law or contract to be earned thereon) shall be
transferred or credited to the Partnership at the Closing.
11.7 Wages. The Partnership shall not be liable for any wages, fringe
benefits, payroll taxes, unemployment insurance contributions, accrued vacation
pay, accrued pay for unused sick leave, accrued severance pay and other
compensation accruing prior to the Closing for employees of the Properties.
11.8 Utility Deposits. The Contributors shall receive a credit for the
amount of deposits, if any, with utility companies that are transferable and
that are properly assigned to the Partnership at the Closing.
11.9 Sales Commissions. In the event of any claim for broker's or
finder's fees or commissions in connection with the negotiation, execution or
consummation of this Agreement or the transactions contemplated hereby, each
party hereto shall indemnify and hold harmless each other party hereto from and
against any such claim based upon any statement, representation or agreement of
such party.
11.10 [Intentionally Omitted]
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ARTICLE 12: TERMINATION AND REMEDIES
12.1 Termination. This Agreement may be terminated:
(a) As to the Company, the Partnership and any particular
Contributor, at any time prior to the Closing Date, between the Company
and a Contributor, with the joint written consent of the Company and
such Contributor; or
(b) By the Company or any Contributor, if the IPO has not
occurred by December 31, 1998 or if the Form S-11 registration
statement of the Company for the IPO has not been filed with the
Securities and Exchange Commission by July 31, 1998.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 12.1, all obligations of the parties hereunder (or of the terminated
Contributor, in the case of terminations pursuant to Section 12.1(a)) shall
terminate, except for the obligations that expressly survive the termination of
this Agreement. If this Agreement is terminated pursuant to Section 12.1, no
party (or no terminated Contributor, in the case of terminations pursuant to
Section 12.1(a)) shall have any continuing liability for any inaccuracy in or
breach of any representation or warranty or covenant under this Agreement, and
if any Property is excluded from the Consolidation in accordance with the
election of the Company pursuant to Section 2.8 or Section 12.3, any Contributor
having an ownership interest in such Property shall not have any continuing
liability for any inaccuracy in or breach of any representation or warranty or
covenant with respect to such Property under this Agreement.
12.3 Termination as to Specific Properties. At any time prior to the
Closing Date, if there shall have been a material breach of any covenant,
representation or warranty of any Contributor hereunder with respect to any
Property or Properties, or failure of any condition to the Company's obligation
to close with respect to one or more Properties which is not or cannot be cured
prior to five Business Days before the Closing Date or there shall have occurred
a material adverse change or development affecting the condition, value or
utility of any Property which is not or cannot be cured prior to five Business
Days before the Closing Date, the Company may elect by written notice to such
Contributor to exclude such Property or Properties from the Consolidation, which
notice shall be given by the Company within 30 days after becoming aware of such
material breach, failure or material adverse change or development or such
longer period to which such Contributor may agree, in which event the
Contribution Amount of such Contributor shall be adjusted accordingly. For
purposes of this Section 12.3, a material adverse change or development
respecting the condition, value or utility of a Property (A) shall have occurred
if (i) any as-built survey which Contributor obtained shows a building setback
violation, shows the building sitting on top of an underground utility easement
or indicates a boundary dispute; (ii) the holder of any mortgage which is to be
assumed does not consent; (iii) the holder of any ground lease does not consent;
(iv) Advance Stores Company, Incorporated gives an estoppel which indicates that
a lease is in material default, or cure period has lapsed, or that Advance
Stores Company, Incorporated intends to terminate a lease or otherwise pursue
remedies against the landlord; or (v) an act of God occurs which would render
the Property unsuitable for its intended use; and (B) shall have occurred if
such
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breach of a covenant, representation or condition or failure of condition would
be likely to result in a diminution in the condition, value or utility of the
Property in an amount equal to at least 10% of the Contribution Amount of such
Property, determined without taking into account any change in local economic
conditions. In the event that the Company and the applicable Contributor cannot
agree on the dollar amount of such diminution, such parties shall select a
mutually agreeable third party (at the Company's expense) to determine such
amount. The decision of such third party shall be final.
ARTICLE 13: INDEMNIFICATION
13.1 Contributors' Indemnity. Each Contributor agrees, severally but
not jointly, to indemnify, defend and hold the Company and the Partnership
harmless from any liability, claim, demand, loss or damage (for the survival
period provided in Section 14.1) (a) asserted by any person or entity against
any such indemnitee arising from any act or omission of such Contributor, its
agents, employees or contractors occurring on or before the Closing except for
matters covered by the representations and warranties in Article 4 or relating
to the Properties owned by it, which shall be governed, if at all, by clause (b)
or (e) below; (b) arising from any breach by such Contributor of any contractual
obligation related to the Properties owned by it other than those obligations
which by this Agreement, or any closing delivery, specifically become the
obligations of the Partnership; (c) for proration payments under Article 11; (d)
liabilities arising prior to the Closing with respect to the Properties, whether
or not asserted or due, except for (i) liabilities subject to proration under
Article 11, (ii) Assumed Mortgage Debt or (iii) matters covered by the
representations and warranties in Article 4 or relating to the Properties owned
by it, which shall be governed, if at all, by clause (b) above or clause (e)
below; or (e) arising from any breach by such Contributor of its representations
and warranties in Article 4, except to the extent previously adjusted in
calculating the Adjusted Contribution Amount for such Contributor. In the event
the Company or the Partnership is entitled to receive any amount from a
Contributor pursuant to this Section 13.1 as an indemnification payment, in lieu
of receiving a cash payment from such Contributor, such Contributor may elect to
satisfy such indemnification amount by delivery to the Company or the
Partnership, as the case may be, of Ownership Units that it holds, free and
clear of all liens, with each such Ownership Unit having a value equal to the
Fair Market Value of the Common Shares as of the first date that payment of such
indemnification amount is due to the Company or the Partnership, as the case may
be. Notwithstanding the foregoing, no Contributor shall have any liability
hereunder for the first $25,000 in costs, damages and expenses for which they
would otherwise be liable under this Section 13.1 but for this provision.
13.2 Partnership's Indemnity. The Partnership agrees to indemnify,
defend and hold the Contributors harmless from and against any liability, claim,
demand, loss or damage (for the survival period provided in Section 14.1, except
with respect to clauses (a) and (d) below, which shall not be so limited) (a)
asserted by any person or entity against any of them with respect to the
Properties or otherwise arising from any act or omission of the Partnership, its
agents, employees or contractors occurring on or after the Closing; (b) arising
from any breach by the Partnership of any obligation of the Partnership under
this Agreement; (c) for proration payments under Article 11; (d) arising from
events occurring after the Closing with respect to the Properties, except for
liabilities subject
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to proration under Article 11; or (e) arising from any breach by the Partnership
of its representations and warranties in Article 5.
13.3 Company's Indemnity. The Company agrees to indemnify, defend and
hold the Contributors harmless from any liability, claim, demand, loss or damage
suffered by any of them (for the survival period provided in Section 14.1) (a)
asserted by any person or entity against any such indemnitee arising from any
act or omission of the Company, its agents, employees or contractors occurring
on or before the Closing, except for any such items which are subject to
proration under Article 11; or (b) arising from any breach by the Company of its
representations and warranties in Article 5.
13.4 Environmental Excluded. The indemnities set forth in this Article
13 do not cover indemnification relating to environmental conditions or claims
including, without limitation, asbestosis, with the exception of a breach by the
Contributors of their representation and warranty in Section 4.9. Each party
explicitly reserves all rights with respect to such claims under any other
provision of this Agreement and under applicable law.
13.5 Procedure. The following provisions govern all actions for
indemnity under this Article 13 and any other provision of this Agreement.
Promptly after receipt by an indemnitee of notice of any claim, such indemnitee
shall, if a claim in respect thereof is to be made against the indemnitor,
deliver to the indemnitor written notice thereof and the indemnitor shall have
the right to participate in and, if the indemnitor agrees in writing that it
shall be responsible for any costs, expenses, judgments, damages and losses
incurred by the indemnitee with respect to such claim, to assume the defense
thereof, with counsel mutually satisfactory to the parties; provided, however,
that an indemnitee shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnitor, if the indemnitee reasonably believes
that representation of such indemnitee by the counsel retained by the indemnitor
would be inappropriate due to actual or potential differing interests between
such indemnitee and any other party represented by such counsel in such
proceeding. The failure of an indemnitee to deliver written notice to the
indemnitor within a reasonable time after the indemnitee receives notice of any
such claim shall relieve such indemnitor of any liability to the indemnitee
under this indemnity only if and to the extent that such failure is prejudicial
to the indemnitor's ability to defend such action. If an indemnitee settles a
claim without the prior written consent of the indemnitor, then the indemnitor
shall be released from liability with respect to such claim unless the
indemnitor has unreasonably withheld such consent.
13.6 Limitation on Liability. Notwithstanding any other provision in
this Article 13, (a) the aggregate liability of each Contributor, respectively,
with respect to any and all liabilities, claims, demands, losses or damages
effected under Section 13.1 shall not exceed its IPO Proceeds and (b) the
liability of any Contributor, respectively, with respect to any and all
liabilities, claims, demands, losses or damages effected under Section 13.1 with
respect to any particular Property (including any breach of Section 4.7 with
respect to any particular Property) shall not exceed its Contribution Amount
with respect to such Property, as adjusted for any adjustments provided in the
definition of "Adjusted Contribution Amount" which specifically relate to such
Property with a pro rata adjustment for any such other adjustments in the
definition of "Adjusted Contribution Amount"
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which relate to such Contributor, in general, based on its Contribution Amount
with respect to each of its Properties; provided, however, that if any such
Contributor has elected pursuant to Section 13.1 to deliver Ownership Units to
satisfy its indemnification amount and has previously delivered all Ownership
Units received by it in the Consolidation to the Company or the Partnership
pursuant to Section 13.1, then such Contributor shall have no further liability
under this Article 13.
13.7 Exclusivity. The parties hereto agree that, from and after the
Closing Date, with respect to any breach or violation of any representation or
warranty or any covenant, obligation or other term set forth in this Agreement
or the other documents delivered in connection herewith, the only relief and
remedy available to a party in respect of such breach shall be (a) damages, but
only to the extent properly claimable hereunder pursuant to this Article 13 as
may be limited pursuant to Section 13.1 or Section 13.6, (b) specific
performance, if a court of competent jurisdiction in its discretion grants the
same, or (c) injunctive or declaratory relief, if a court of competent
jurisdiction in its discretion grants the same.
ARTICLE 14: MISCELLANEOUS
14.1 Survival. The representations and warranties contained in this
Agreement and the indemnification obligations and other provisions of this
Agreement that contemplate performance after the Closing shall survive the
Closing for a period of one year from the Closing Date and shall not be deemed
to be merged into or waived by the instruments of the Closing; provided,
however, that the representations in Section 4.16 shall survive the closing
until 30 days after the applicable statute of limitations period has expired.
Notice of a good faith claim for indemnification under Article 13 must be given
in writing by an indemnitee pursuant to Section 13.5 within one year after the
date of this Agreement if a claim in respect thereof is to be made against the
indemnitor (other than claims arising out of a breach of the representations and
warranties in Section 4.16, for which claims for indemnification shall be given
during the applicable survival period).
14.2 Expenses. Except as otherwise expressly provided herein, each
party hereto shall pay its own expenses incident to this Agreement and the
transactions contemplated hereby, including all legal and accounting fees and
disbursements.
14.3 Additional Actions and Documents. Each of the parties hereto
hereby agrees to use its commercially reasonable efforts to take or cause to be
taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement. The
obligations of the parties set forth in this Section 14.3 shall survive the
Closing and shall not be deemed to be merged into or waived by any instrument of
conveyance delivered at Closing.
14.4 Remedies Cumulative. The remedies provided in this Agreement shall
be cumulative and, except as otherwise expressly provided, shall not preclude
the assertion or exercise of any other rights or remedies available by law, in
equity or otherwise.
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14.5 Entire Agreement; Amendment. This Agreement, including the
exhibits, schedules and other documents referred to herein or therein or
furnished pursuant hereto or thereto, constitutes the entire agreement among the
parties hereto with respect to the transactions contemplated herein, and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein. No amendment, modification or
discharge of this Agreement shall be valid or binding unless set forth in
writing and duly executed and delivered by the party against whom enforcement of
the amendment, modification or discharge is sought.
14.6 Notices. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
facsimile, telegram, telecopy or telex, addressed as set forth on the signature
pages hereto. Each party may designate by notice in writing a new address or
additional addresses to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand, request or
communication which shall be hand delivered, sent, mailed, faxed, telecopied or
telexed in the manner described above, or which shall be delivered to a
telegraph company, shall be deemed sufficiently given, served, sent, received or
delivered for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, the confirmation receipt (with
respect to a facsimile) or the answer-back (with respect to a telecopy or telex)
being deemed conclusive, but not exclusive, evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
14.7 Waivers. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
documents furnished in connection with or pursuant to this Agreement shall
impair any such right, power or privilege or be construed as a waiver of any
default or any acquiescence therein. No single or partial exercise of any such
right, power or privilege shall preclude the further exercise of such right,
power or privilege, or the exercise of any other right, power or privilege. No
waiver shall be valid against any party hereto unless made in writing and signed
by the party against whom enforcement of such waiver is sought and then only to
the extent expressly specified therein.
14.8 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14.9 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claim or disputes relating thereto, shall be governed by
and construed in accordance with the laws of the State of Delaware (excluding
the choice of law rules thereof) except for actions affecting title to real
property, in which case the laws of the state in which the real property is
located shall apply.
14.10 Assignment. No party hereto shall assign its rights and/or
obligations under this Agreement, in whole or in part, whether by operation of
law or otherwise, without the prior written consent of the other parties hereto;
provided, that the Company, the Partnership or a Partnership
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Interest Contributor may assign their rights and/or obligations under this
Agreement to any Affiliate; provided, further, that a Contributor who is a
natural person may assign his rights and/or obligations under this Agreement, in
whole or in part, whether by operation of law or otherwise, without the prior
written consent of the other parties hereto, to his or her spouse, siblings,
parents or any natural or adopted children or other descendants or to any
personal trust in which such family members or such Contributor retains the
entire beneficial interest, provided, however, that in the case of any such
assignment, the transfers shall each be effected pursuant to a bona fide
exemption under the Securities Act; provided, further, that no Contributor shall
be obligated to receive any securities except LP Units of the Partnership which
are convertible into Common Shares of the Company. For the purposes of this
paragraph, the term "Affiliate" means (a) an entity that directly or indirectly
controls, is controlled by or is under common control with the Company or (b) an
entity at least a majority of whose economic interest is owned by the Company;
and the term "control" means the power to direct the management of such entity
through voting rights, ownership or contractual obligations.
14.11 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto, and no provision of this Agreement shall be
deemed to confer any benefit on any third party.
14.12 Confidentiality.
(a) Before the Closing Date, no Contributor, directly or indirectly,
shall make any public announcement or disclosure of this Agreement or any
information related to this Agreement to third parties, other than their
respective auditors and accountants, legal counsel, tenants and lenders without
the prior written consent of the Company. The Company and the Partnership shall
not make any public disclosure of the name of any Contributor or Title Holding
Partnership, except as required by law , as ordered by a court of competent
jurisdiction or as provided in paragraph (d) below.
(b) As used herein, "Confidential Material" means, with respect to each
party hereto (the "Providing Party"), all information, whether oral, written or
otherwise, furnished to any other party hereto (the "Receiving Party") or such
Receiving Party's directors, officers, partners, affiliates, employees, agents
or representatives (collectively, "Representatives"), by the Providing Party and
all reports, analyses, compilations, studies and other material prepared by the
Receiving Party or its Representatives (in whatever form maintained, whether
documentary, computer storage or otherwise) containing, reflecting or based
upon, in whole or in part, any such information. The term "Confidential
Material" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the Receiving
Party, its Representatives or anyone to whom the Receiving Party or any of its
Representatives transmit any Confidential Material in violation of this
Agreement, (ii) is or becomes known or available to the Receiving Party on a
non-confidential basis from a source (other than the Providing Party or another
Receiving Party or one of their Representatives) who is not, to the knowledge of
the Receiving Party after reasonable inquiry, prohibited from transmitting the
information to the Receiving Party or its Representatives by a contractual,
legal, fiduciary or other obligation or (iii) is subsequently disclosed in the
Form
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S-11 registration statement relating to the IPO or other public disclosure
permitted under this Section 14.12.
(c) Subject to paragraph (d) below or except as required by law or as
ordered by a court of competent jurisdiction, the Confidential Material will be
kept confidential and will not, without the prior written consent of the
Providing Party, be disclosed by the Receiving Party or its Representatives, in
whole or in part, and will not be used by the Receiving Party or its
Representatives, directly or indirectly, for any purpose other than in
connection with this Agreement, the Consolidation or the conducting, negotiating
or advising with respect to a transaction contemplated herein. Moreover, each
Receiving Party agrees to transmit Confidential Material to its Representatives
only if and to the extent that such Representatives need to know the
Confidential Material for purposes of such transaction and are informed by such
Receiving Party of the confidential nature of the Confidential Material and of
the terms of this Section 14.12. In any event, each Receiving Party will be
responsible for any actions by its Representatives which are not in accordance
with the provisions hereof.
(d) In the event that any Receiving Party, its Representatives or
anyone to whom such Receiving Party or its Representatives supply the
Confidential Material, are requested (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand, any
informal or formal investigation by any government or governmental agency or
authority or otherwise in connection with legal process) to disclose any
Confidential Material, such Receiving Party agrees (i) to immediately notify the
Providing Party of the existence, terms and circumstances surrounding such a
request, (ii) to consult with the Providing Party on the advisability of taking
available legal steps to resist or narrow such request and (iii) if disclosure
of such information is required, to furnish only that portion of the
Confidential Material which, in the opinion of such Receiving Party's counsel,
such Receiving Party is legally compelled to disclose and to cooperate with any
action by the Providing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Material (it being agreed that the Providing Party shall reimburse the Receiving
Party for all reasonable out-of-pocket expenses incurred by the Receiving Party
in connection with such cooperation). Notwithstanding anything to the contrary
contained herein, the Company and the Partnership may disclose Confidential
Material received from any Providing Party in the Form S-11 registration
statement and otherwise in connection with the IPO as they believe necessary or
appropriate to comply with federal and state securities laws, requests by the
Securities and Exchange Commission or state securities commissions for
additional information or as otherwise deemed necessary by them, the
underwriters and their respective counsel in connection with the IPO.
(e) The provisions of this Section 14.12 shall terminate upon the
Closing. In the event of the termination of this Agreement in accordance with
its terms, promptly upon request from a Providing Party, each Receiving Party
shall, except to the extent prevented by law, redeliver to such Providing Party
or destroy all tangible Confidential Material and will not retain any copies,
extracts or other reproductions thereof in whole or in part. Any such
destruction shall be certified in writing to such Providing Party by an
authorized officer of the Receiving Party supervising the same. Notwithstanding
the foregoing, each Receiving Party and one Representative designated by each
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Receiving Party shall be permitted to retain one permanent file copy of each
document constituting Confidential Material.
14.13 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
14.14 Company Access to Information. Upon the Company's reasonable
request, at any time before or after the Closing Date, each Contributor shall
provide the Company and the Partnership reasonable access to the books and
records of the Properties and all related information in order for the Company
and the Partnership to verify any payments or receipts from tenants, suppliers,
service providers and any other party.
14.15 Information and Audit Cooperation. At the Company's request, at
any time before or after the Closing Date, the Contributors shall provide to the
Company's designated independent auditor access to the books and records of the
Properties and all related information regarding the period for which the
Company or its affiliates is required to have the Properties audited under the
regulations of the Securities and Exchange Commission, and a representation
letter regarding the books and records of the Properties substantially in the
form of Exhibit K in connection with the normal course of auditing the
Properties in accordance with generally accepted auditing standards.
14.16 Binding Effect. This Agreement shall insure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
14.17 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.18 Limitation of Liability. Any obligation or liability whatsoever
of the Company which may arise at any time under this Agreement or any
obligation or liability which may be incurred by it pursuant to any other
instrument, transaction or undertaking contemplated hereby shall be satisfied,
if at all, out of the Company's assets only. No such obligation or liability
shall be personally binding upon, nor shall resort for the enforcement thereof
be had to, the property of any of its shareholders, trustees, officers,
employees or agents, regardless of whether such obligation or liability is in
the nature of contract, tort or otherwise.
14.19 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE CONTRIBUTION
AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PROVISIONS
OF THIS SECTION 14.19 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Contribution
Agreement to be duly executed on their behalf as of the date first above
written.
MAR MAR REALTY TRUST
By: /s/Benjamin F. Bracy
-------------------------------------------
Name: Benjamin F. Bracy
Title: President
MAR MAR REALTY L.P.
By: MAR MAR REALTY TRUST, its general partner
By: /s/Benjamin F. Bracy
----------------------------------
Name: Benjamin F. Bracy
Title: President
<PAGE>
CONTRIBUTORS:
SONIC FINANCIAL CORPORATION
address:
Attention:
Facsimile No.:
By: /s/ William R. Brooks, Vice President
----------------------------------------------
Name:
Title:
TOWN AND COUNTRY FORD, INC.
address:
Attention:
Facsimile No.:
By: /s/ O. Bruton Smith
---------------------------------------------
Name:
Title:
O. BRUTON SMITH
address:
Facsimile No.:
/s/ O. Bruton Smith
----------------------------------------------
PRIMAX PROPERTIES, LLC
address:
Attention:
Facsimile No.:
By: /s/ William Seymour
---------------------------------------------
Name:
Title: Manager
<PAGE>
WILLIAM G. SEYMOUR
address:
Facsimile No.:
/s/ William Seymour
---------------------------------------------
EMMA C. SEYMOUR
address:
Facsimile No.:
/s/ Emma Seymour
---------------------------------------------
EXHIBIT 10.9
CONTRACT TO PURCHASE AND SELL PROPERTY
THIS CONTRACT TO PURCHASE AND SELL PROPERTY is made as of the
Effective Date between Seller and Buyer.
RECITALS
A. Seller is the owner of the Real Property which is described and/or
shown on Exhibit A attached, and the owner of the Personalty, if any, described
on Exhibit C attached.
B. Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Property in accordance with the terms and conditions set forth
in this Contract.
TERMS
NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree
as follows:
1. Definitions. In addition to the terms defined elsewhere in this
Contract, each of the following terms, when used in this Contract with an
initial capital letter, shall have the meaning ascribed to it as follows, unless
such meanings are expressly modified elsewhere in this Contract.
a. "Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its Property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree
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approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 consecutive days.
b. "Assignment of Leases" shall have the meaning ascribed
to such term in Paragraph 4 of this Contract.
c. "Bill of Sale" shall mean the duly executed and
acknowledged bill of sale conveying title to the Personalty from Seller to
Buyer, with full covenants of warranty under laws of the state in which the
Personalty is located, in form acceptable to Buyer.
d. "Closing" shall mean the closing and consummation of the
purchase and sale of the Property pursuant to this Contract.
e. "Closing Date" shall mean the later of (i) the
termination of the Inspection Period; or (ii) the termination of the
Environmental Review Period; or (iii) the 120th day after the Effective Date;
provided, however, that Buyer, at its election, may move the Closing to any
earlier date upon not less than ten (10) days prior notice to Seller.
f. "Commission" shall have the meaning ascribed to such
term in Paragraph 17(b) of this Contract.
g. "Company" shall have the meaning ascribed to such term
in Paragraph 12(a)(x) of this Contract.
h. "Deed" shall mean the duly executed and acknowledged
general warranty deed conveying title to the Real Property from Seller to Buyer,
with full covenants of warranty under the laws of the state in which the Real
Property is located, in form acceptable to Buyer.
i. "Defect" or "Defects" shall mean a lien, claim, charge,
security interest, encumbrance, easement, restriction or other such matter
affecting title to the Property other than the Permitted Exceptions.
j. "Earnest Money" shall mean the amount set forth on the
Term Sheet which shall be delivered by Buyer to Title Company with the execution
of this Contract, to be held in escrow subject to the terms and conditions of
this Contract.
k. "Effective Date" shall mean the later of the date of
this Contract between Buyer and Seller as set forth on the Term Sheet or the
date upon which both parties have executed and delivered this Contract to each
other.
l. "Environmental Review Period" shall mean a period of
thirty (30) business days after Buyer's receipt of all of the Evaluations,
subject to extension for up to an additional sixty (60) days if Buyer determines
that such additional time is needed for additional testing. In no case shall the
Environmental Review Period expire prior to the end of the
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Inspection Period.
m. "Environmental Laws" shall mean all present and future
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all judgments, decrees, orders, agreements or permits, issued,
promulgated, approved or entered thereunder by any governmental authority
relating to pollution or Hazardous Materials or protection of human health or
the environment, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), as amended.
n. "Evaluations" shall mean a "Phase I" environmental
evaluation, a "Phase II" environmental evaluation, and/or any other sampling,
testing, analysis, assessment, review, investigation or evaluation of the
environmental condition or compliance status of the Property, performed by Buyer
or consultant(s) selected by Buyer in Buyer's discretion.
o. "Hazardous Material" shall mean any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, asbestos, radioactive materials,
polychlorinated biphenyls, petroleum or petroleum-derived substance or waste
(regardless of specific gravity), or any constituent or decomposition product of
any such pollutant, material, substance or waste, including, but not limited to,
any hazardous substance or constituent contained within any waste and any other
pollutant, material, substance or waste regulated under or as defined by any
Environmental Law.
p. "IPO" shall mean the initial public offering of the
common shares of beneficial interest, par value $0.01 per share of the Company.
q. "Improvements" shall mean all buildings and improvements
constructed upon the Land together with any fixtures or improvements related
thereto.
r. "Inspection Period" shall mean the period commencing on
the day following the receipt by Buyer of all of the items described in
Paragraph 7(a) and continuing for the period set forth under "Inspection Period"
on the Term Sheet attached hereto.
s. "Land" shall mean the parcel of land owned by Seller and
more particularly described on Exhibit A hereto, together with all rights and
appurtenances thereto, including any right, title and interest of Seller in and
to adjacent streets, easements or rights-of-way.
t. "Lease" shall have the meaning ascribed to such term in
Paragraph 12(a)(ix) of this Contract.
u. "Owner's Title Policy" shall mean a standard ALTA form
owner's policy of title insurance for the Real Property issued at standard rates
as compared to comparable real property in the county and state in which the
Real Property is located.
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v. "Permitted Exceptions" shall mean all matters described
on Exhibit B hereto.
w. "Personally" shall mean the personal property (if any)
to be conveyed by Seller to Buyer, as described on Exhibit C hereto.
x. "Property" shall mean the Real Property and the Personal
Property.
y. "Purchase Price" shall mean the Purchase Price amount
set forth on the Term Sheet.
z. "Real Property" shall mean the Land, the Improvements
and appurtenances thereto.
aa. "Survey" shall mean a current "as-built" physical
survey of the Real Property addressed to Buyer, Title Company and Buyer's lender
(if any) prepared by a Registered Land Surveyor of the state in which the Real
Property is located containing such certificates as may be required by Buyer or
Buyer's lender (if any) and showing all locatable easements.
bb. "Tax" shall mean any federal, state or local franchise,
sales, use, gross receipts, storage, real estate, property ad valorem and any
and all other similar taxes (including any penalties or interest attributable
thereto) and any governmental assessments for additional contribution to
workers' compensation or similar funds attributable to the business or
operations of the Property.
cc. "Tax Return" shall mean all federal, state and local
tax returns, reports, information returns and reports, statements, renditions
and other similar filings required to be filed in connection with any Taxes
arising from the business or operations of the Property.
dd. "Tenant" shall have the meaning ascribed to such term
in Paragraph 12(a)(ix) of this Contract.
ee. "Title Commitment" shall mean a current title binder or
commitment as to the Real Property issued by the Title Company for Buyer as the
proposed owner.
ff. "Title Company" shall mean the title insurer of Buyer's
choice.
2. Agreement to Purchase and Sell. Seller shall sell and convey to
Buyer, and Buyer shall purchase from Seller, the Property pursuant to the terms
and conditions of this Contract.
3. Purchase Price; Delivery of Possession.
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a. The Earnest Money, including all accrued interest
thereon, shall be credited to Buyer at Closing as a credit against the Purchase
Price, subject to the terms and conditions of this Contract.
b. The balance of the Purchase Price shall be paid to
Seller in immediately available funds at Closing, subject to the terms and
conditions of this Contract.
c. Seller shall deliver sole possession of the Property to
Buyer at Closing, subject only to the Permitted Exceptions.
d. Seller and Buyer shall file all federal income tax
returns and other reports required by the Internal Revenue Code of 1986, as
amended (the "Code") in a manner consistent with the allocation set forth in the
Term Sheet.
4. Conveyance of Title. At Closing, Seller shall by the Deed and Bill
of Sale convey to Buyer marketable fee simple title to all of the Property, free
and clear of any and all Defects, except for the Permitted Exceptions. If Buyer
has accepted in a separate writing the existing lease of the Real Property to
the tenant located thereon, then Seller shall assign to Buyer all of Seller's
right, title and interest thereunder to Buyer by Assignment of Leases in the
form attached hereto as Exhibit D (the "Assignment of Leases").
5. Survey. Seller shall, as soon as possible, but not later than
fifteen (15) days following the Effective Date, at Seller's sole cost and
expense, obtain and provide to Buyer the Survey from which a legal description
of the Real Property will be prepared and inserted in the Deed.
6. Title and Title Insurance for the Real Property. Not later than
fifteen (15) days following the Effective Date, Seller shall, at its sole cost
and expense, obtain an owner's Title Commitment issued by the Title Company
providing for the issuance at Closing to Buyer of an Owner's Title Policy for
the Real Property. The Title Commitment shall set forth the state of title of
the Real Property and all exceptions, including but not limited to, easements,
restrictions, road rights-of-way, floodways, covenants, reservations and other
conditions, if any, affecting the Real Property which would appear in an Owner's
Title Policy if issued. Additionally, Seller shall also provide Buyer with
legible copies of all exceptions appearing in the Title Commitment (including
any plats or surveys).
7. Inspections.
a. On or prior to the Effective Date or within five (5)
days thereafter, Seller shall provide to Buyer true and complete copies of the
following items:
i. Seller's existing owner's and lender's title
insurance policies for the Real Property (if any) together with
legible copies of any exceptions set forth therein.
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ii. The most recently dated existing surveys of
the Real Property and any other survey(s) of the Real Property in
Seller's possession or available to Seller.
iii. Any and all engineering reports, soil
reports, zoning letters or information and environmental reports or
audits with respect to the Property, if any, prepared by or for
Seller or in possession of Seller or which Seller can obtain with
reasonable effort.
iv. All warranties, if any, related to the
Improvements.
v. Attorneys' opinions on title to the Property
and legible copies of deeds, mortgages, easements or restrictions
affecting the Property which Seller may possess, if any.
vi. Copies of all existing Property insurance
policies.
b. Buyer, its agents and contractors shall be entitled to
go upon the Real Property during the Inspection Period to inspect, perform
investigations, determine the status of utilities and access, conduct title
examinations, zoning investigations, feasibility studies, Evaluations, and other
studies or tests necessary to determine whether the Property is suitable for
Buyer's intended use of the Property. If Buyer determines, in Buyer's sole and
absolute discretion, that the Property is not suitable for Buyer's intended use,
then Buyer may terminate this Contract and shall be relieved of all obligations
hereunder by giving written notice to Seller prior to the end of the Inspection
Period, and all of the Earnest Money shall be refunded to Buyer except $100.00
(the "Test Fee") which shall be paid to Seller.
c. Buyer may, at its sole expense, commission the
Evaluations. The Evaluations shall be conducted in accordance with standards and
procedures selected by Buyer and Buyer's consultant, and may include, without
limitation, drilling and installation of groundwater monitoring wells and soil
borings at the Property at locations specified by Buyer's consultant, collecting
and analyzing samples of the soil, groundwater, surface water, sediment or other
media at, on, under or around the Property, and sampling for the presence of any
asbestos materials on the Property. If the Evaluations are in any way
unacceptable to Buyer, in Buyer's sole discretion, then Buyer may terminate this
Contract by notice in writing given to Seller prior to the expiration of the
Environmental Review Period and the parties shall have no further rights or
obligations under this Contract and all of the Earnest Money shall be refunded
to Buyer except the Test Fee, which shall be paid to Seller. If Buyer chooses to
terminate this Contract as a result of its review of the Evaluations, Buyer
shall provide to Seller copies of all environmental reports relating to the
Property which have been obtained by Buyer.
d. In addition to Buyer's rights set forth in Paragraph
7(c) above, if any Hazardous Materials are determined to be present at, on,
under or around the Property (including, without limitation, the soil,
groundwater, surface water, sediment or other media), then Seller, at its sole
expense, upon Buyer's request, shall remove and remediate such
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Hazardous Materials in accordance with all applicable Environmental Laws and to
the satisfaction of Buyer prior to the Closing Date. Notwithstanding the
termination of the Inspection Period or the Environmental Review Period, if
Buyer reasonably determines that Seller has failed to meet its obligations
described in this Paragraph 7(d), then Buyer may either:
i. Terminate this Contract; or
ii. Remove and remediate any such Hazardous
Materials to the satisfaction of Buyer and deduct the cost of any
such remediation from the Purchase Price. If such removal or
remediation shall extend beyond the then established Closing Date,
then Buyer shall have the right to extend the Closing Date to such
time as may be necessary to complete any such removal or remediation.
8. Costs and Prorations. Seller shall pay for the Survey, the title
exam and Title Commitment, any and all documentary stamp taxes, deed taxes or
transfer taxes applicable to this transaction and the cost to cancel any
mortgage, deed of trust or other lien or Defect of record. Buyer shall pay for
any and all title insurance premiums, testing or inspections of the Property and
recording costs for the Deed or any other documents to be recorded relating to
the transfer of the Property. Each party shall pay its own attorney's fees.
Seller shall pay any "roll-back" taxes or similar taxes based upon any change in
use of the Property, whether such taxes are assessed before or after Closing.
Seller's obligation to pay such taxes (and any other costs herein or by law
provided to be paid by Seller), if any, shall survive Closing. All prorations
for real estate taxes, utilities and other such costs shall be prorated between
Buyer and Seller as of the Closing Date on the basis of a 365-day year. If any
of the aforesaid prorations cannot be calculated accurately on the Closing Date
(or as soon as information sufficient to complete such prorations is available),
then the same shall be calculated within thirty (30) days after the information
necessary to make such prorations becomes available and either party owing the
other party a sum of money based on such subsequent proration(s) shall promptly
pay said sum to the other party. If the transaction contemplated by this
Contract results in a revaluation of the Property, the parties shall reprorate
taxes after receipt of the tax bill(s).
9. Risk of Loss; Eminent Domain.
a. If, after the Effective Date and prior to the Closing
Date, the Property or any portion thereof is damaged or destroyed, Seller shall
immediately notify Buyer in writing and Buyer shall elect, within ten (10) days
from and after such notice, by written notice to Seller, either:
i. to not close the transaction contemplated
hereby, in which event the Earnest Money shall be returned to Buyer
and this Contract shall be void and of no further force and effect;
or
ii. to close the transaction contemplated hereby
in accordance with the terms and conditions contained herein, in
which event the Purchase Price shall be
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reduced by (a) the amount of any insurance proceeds received by
Seller prior to Closing and (b) the amount of any deductible, and
Seller shall sell and assign to Buyer at Closing all rights, title
and interest to any insurance proceeds payable after Closing in
connection with such damage or destruction. If Buyer elects to
purchase the Property after receipt of such notice from Seller, all
actions taken by Seller with regard to the repair or replacement of
any such damaged or destroyed portion of the Property, including but
not limited to, negotiations, litigation, settlement, appraisals and
appeals, shall be subject to the approval of Buyer.
b. If, after the Effective Date and prior to the Closing
Date, Seller shall receive notice of the commencement or threatened commencement
of eminent domain or other like proceedings against the Property or any portion
thereof, Seller shall immediately notify Buyer in writing, and Buyer shall
elect, within ten (10) days from and after such notice of such threatened or
pending proceedings, by written notice to Seller, either:
i. to not close the transaction contemplated
hereby, in which event the Earnest Money shall be returned to Buyer
and this Contract shall be void and of no further force and effect;
or
ii. to close the transaction contemplated hereby
in accordance with the terms and conditions contained herein, but
subject to such proceedings, in which event the Purchase Price shall
be reduced by the amount of any condemnation proceeds received by
Seller prior to Closing and Seller shall sell and assign to Buyer at
Closing all rights, title and interests to the proceeds of such
eminent domain proceedings to be paid after Closing. If Buyer elects
to purchase the Property after receipt of such notice, all actions
taken by Seller with regard to such eminent domain or like
proceedings, including but not limited to, negotiations, litigation,
settlement, appraisals and appeals, shall be subject to the approval
of Buyer.
10. Notice. Each notice required or permitted to be given hereunder
shall be in writing and shall comply with the requirements of this paragraph.
Any notice by Buyer to Seller shall be deemed to be duly given if: (a) either
(i) hand delivered to the person(s) listed below for Seller, or (ii) delivered
or sent by telephone facsimile transmittal to the facsimile telephone number of
Seller listed on the Term Sheet, in which event proof of delivery shall be by
telephone records, and (b) a duplicate of such notice shall be sent by
registered or certified mail to Seller at the address set forth on the Term
Sheet (or at such other address as may hereafter be designated by Seller). Any
notice by Seller to Buyer shall be deemed to be duly given if: (a) either (i)
hand delivered to the person(s) listed on the Term Sheet, or (ii) delivered or
sent by telephone facsimile transmittal to the facsimile telephone number of
Buyer listed on the Term Sheet, in which event proof of delivery shall be by
telephone records, and (b) a duplicate of such notice shall be sent by
registered or certified mail to Buyer at the address set forth on the Term Sheet
(or at such other address as may hereafter be designated by Buyer). Notice shall
be deemed effective at the later to occur of (i) the time of hand delivery or
transmission of the telephone facsimile and (ii) the time a duplicate of the
notice is deposited in the United States Mail for
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registered or certified delivery. The parties hereto reserve the right to change
the addresses or telephone numbers to which notices are to be sent by giving
notice to the other as herein provided.
The addresses and facsimile telephone numbers of the parties to which
notices are to be sent are set forth on the Term Sheet.
Any party shall have the right from time to time to change the
address to which notices to it shall be sent by giving to the other party or
parties at least five (5) days prior notice of the changed address.
11. Closing. Unless Buyer or Seller have otherwise elected hereunder
to terminate this Contract, and subject to the satisfaction or written waiver of
each of the conditions precedent to Closing set forth in Paragraph 12 hereof,
the Closing of the purchase and sale of the Property shall be held at a time set
by Buyer on the Closing Date, at a location chosen by Buyer.
12. Conditions Precedent to Closing.
a. Buyer's Conditions. Buyer's obligation to close the
purchase of the Property is subject to the satisfactory performance, occurrence
or written waiver by Buyer, in Buyer's sole discretion, of each of the following
conditions:
i. Seller shall have delivered to Buyer all of
the documents, properly executed, as required by Paragraph 13(a)
hereof;
ii. No adverse change in the status of the title
to the Property as set forth in the Title Commitment shall have
occurred prior to the Closing Date;
iii. No adverse change in the status of the title
to the Personal Property shall have occurred prior to the Closing
Date.
iv. No adverse change in the condition of the
Improvements or Personal Property shall have occurred prior to the
Closing Date, reasonable wear and tear excepted.
v. No default by Seller shall exist under this
Contract, this Contract shall not have terminated and Seller shall be
ready, willing and able to close under the terms hereof;
vi. The representations of Seller contained in
this Contract shall be true, complete and correct in all material
respects as of the Closing Date, without the necessity of any
material amendment or modification, with the same force and effect as
if made as of the Closing Date;
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vii. Seller's obligations pursuant to Paragraph
7(d) shall have been met;
viii. Buyer shall have entered into and executed
a new lease (the "Lease") of the Property acceptable to Buyer in
Buyer's sole discretion with Marcus David Corporation as tenant for
the Property acceptable to Buyer in Buyer's sole discretion
("Tenant");
ix. The IPO shall have been consummated and the
proceeds thereof received by Mar Mar Realty Trust (the "Company");
and
x. Buyer shall have obtained the written consent
and/or approval of any franchisor, manufacturer, lender or other
third party deemed necessary by Buyer to complete the transactions
contemplated by this Contract.
If any of the foregoing conditions have not been satisfied or waived
within the times and in the manner required by this Contract, then Buyer may
terminate this Contract, receive a refund of the Earnest Money and seek any
remedies available at law or equity, including without limitation, specific
performance.
b. Seller's Conditions. Seller's obligation to close the
sale of the Property is subject to the satisfactory performance, occurrence or
written waiver by Seller of each of the following conditions:
i. Buyer shall pay the Purchase Price to Seller
and shall have delivered to Seller all of the documents, properly
executed, as required by Paragraph 13(b) hereof;
ii. No material default by Buyer shall exist
under this Contract, this Contract shall not have been terminated,
and Buyer shall be ready, willing and able to close under the terms
hereof; and
iii. The representations of Buyer contained in
this Contract shall be true, complete and correct in all material
respects as of the Closing Date, without the necessity of any
material amendment or modification, with the same force and effect as
if made as of the Closing Date.
If any of the foregoing conditions have not been satisfied or waived within the
times and in the manner required by this Contract, then Seller may terminate
this Contract and receive the Earnest Money as liquidated damages and as
Seller's sole remedy. If Seller does not elect to terminate this Contract, then
upon Closing it shall be conclusively deemed that all the conditions listed in
this paragraph have been satisfied or waived.
13. Documents at Closing.
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a. Seller's Documents. Seller shall execute and/or deliver
the following to Buyer at Closing:
i. The Deed and the Bill of Sale, duly executed
by Seller (and such other parties as may be required by law to
transfer title) and acknowledged.
ii. The Assignment of Lease (if applicable under
Paragraph 4 above).
iii. A lien and possession affidavit, duly
executed by Seller, acceptable to the Title Company.
iv. Affidavits, duly executed by Seller, to
satisfy federal and state tax reporting requirements.
v. An affidavit, duly executed by Seller, that
Seller is not a "foreign person" within the meaning of the Foreign
Investment in Real Property Tax Act.
vi. A certificate, duly executed by Seller and
notarized, that the representations of Seller contained in this
Contract remain true, complete and correct in all material respects
as of the Closing Date.
vii. A settlement statement, duly executed by
Seller, setting forth the amounts paid by or on behalf of and/or
credited to each of Buyer and Seller pursuant to this Contract.
viii. A resolution executed by all of the
directors, general partners, members and/or managers, as applicable,
of Seller (and any entities constituting Seller) authorizing the
performance of the terms of this Contract by Seller.
ix. Such other customary documents and assurances
as shall be reasonably required by Buyer's counsel.
b. Buyer's Documents. Buyer shall execute and/or deliver
the following to Seller at Closing:
i. A certificate, duly executed by Buyer and
notarized, that the representations of Buyer contained in this
Contract remain true, complete and correct in all material respects
as of the Closing Date.
ii. The Assignment of Lease (if applicable under
Paragraph 4 above).
iii. A settlement statement, duly executed by
Buyer, setting forth the
11
<PAGE>
amounts paid by or on behalf of and/or credited to each of Buyer and
Seller pursuant to this Contract.
iv. Such other customary documents as shall be
reasonably required by Seller's counsel.
14. Representations and Warranties.
a. Representations and Warranties by Seller. Seller hereby
represents and warrants to Buyer that:
i. Seller has no notice of any pending or
threatened condemnation or similar proceeding or assessment affecting
the Property, or any part thereof, nor to the best of its knowledge,
is any such proceeding or assessment contemplated by any governmental
authority.
ii. There are no and have not been any Hazardous
Materials or underground storage tanks at, on, under or around the
Property; the Property is and has been in compliance with all
applicable Environmental Laws; there are no actions, suits, claims,
proceedings, investigations or enforcement actions pending or
threatened under any Environmental Law with respect to the Property;
and Seller has not received any notice, claim or demand from any
governmental entity or other person regarding the presence of
Hazardous Materials at, on, under or around the Property or alleging
that the Property is in violation of any Environmental Laws.
iii. Seller has complied with all applicable
laws, ordinances, regulations and statutes relating to the Property
or any part thereof and is not in violation of any such laws as they
relate to the Property.
iv. There are no restrictions or applicable
regulations which prevent the use of the Property for the uses
intended by Tenant.\
v. The restrictive covenants encumbering the Real
Property (if any) have not been violated and will not be violated by
the operation of the uses intended by the Tenant and there are no
assessments owed pursuant to such restrictions.
vi. Other than ad valorem property taxes which
are not yet due and payable, there are no other taxes or assessments
pending or periodically charged to Seller with respect to the
Property.
vii. Seller is not a "foreign person" as defined
in Section 1445(f)(3) of the Code.
viii. None of the Property constitutes tax-exempt
bond financed
12
<PAGE>
property or tax-exempt use property within the meaning of Section 168
of the Code, and none of the Property is subject to a lease, safe
harbor lease or other arrangement as a result of which Seller is not
treated as the owner for federal income tax purposes.
ix. There are no Tax liens on the Property,
except liens for Taxes not yet due and payable. Purchaser will not be
liable for any unpaid Taxes of Seller, except current's year's Taxes
prorated pursuant to this Contract.
x. Seller has been duly organized and is validly
existing and in good standing under the laws of its jurisdiction of
organization, and is qualified to do business and in good standing in
all other jurisdictions where such qualification is necessary to
carry on its business as now conducted except where the failure to so
qualify would not have a material adverse effect on the ability of
such Seller to perform its obligations under this Contract.
xi. Seller has full power and authority to own,
lease, operate and sell the Property owned by it, and to enter into
this Contract and the other documents to be executed by it pursuant
to this Contract and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Seller of this
Contract have been, and the documents to be executed by it pursuant
to this Contract shall be, duly and validly approved by all necessary
partnership, corporate or other applicable action and no other
actions or proceedings on the part of Seller are necessary to
authorize this Contract and the transactions contemplated hereby and
thereby, Seller has complied with applicable law and valid agreements
binding upon it in connection with its solicitation of any necessary
approvals or consents related to this transaction and obtaining
appropriate authorization. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or
notice to, any governmental instrumentality or any other Person is
required to be made, obtained or given by Seller in connection with
the execution, delivery and performance of this Contract and the
documents executed by Seller pursuant to this Contract. The joinder
of no entity or Person other than Seller will be necessary to perform
its obligations hereunder. Seller has duly and validly executed and
delivered this Contract. This Contract constitutes, and the documents
executed by such Seller pursuant to this Contract when executed will
constitute, legal, valid and binding obligations of Seller
enforceable against it in accordance with their respective terms,
subject to (a) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and transfer and other similar laws
of general application, heretofore or hereafter enacted or in effect,
affecting the rights and remedies of creditors generally, and (b) the
exercise of judicial or administrative discretion in accordance with
general equitable principles, particularly as to the availability of
the remedy of specific performance or other injunctive relief.
xii. The execution and delivery of, and the
performance by Seller of its obligations under, this Contract do not
and will not contravene, or constitute a default under, any provision
of applicable law or regulation, Seller's organizational documents or
13
<PAGE>
any agreement, judgment, injunction, order, decree or other
instrument binding upon the Seller, or result in the creation of any
lien or other encumbrance on any asset of Seller. There are no
outstanding agreements (written or oral) pursuant to which Seller (or
any predecessor to or representative of Seller) has agreed to sell or
has granted an option or right of first refusal to purchase the
Property or any part thereof.
xiii. Seller has not applied to or entered into
any agreement with any governmental official, agency or body or with
any other Person or entity with respect to any modification, variance
or exception regarding zoning, building codes and similar laws and
regulations that affects the Property. Seller has all licenses,
permits and certificates necessary for the use and operation of the
Property owned by it (as presently used and operated), including,
without limitation, all certificates of occupancy necessary for the
occupancy of such Property, except where the failure to have such
licenses, permits and certificates would not materially and adversely
affect the value, use or operation of the Property affected thereby.
To Seller's knowledge, neither the Property owned by it nor the
current use thereof violates any governmental law or regulation
(exclusive of any environmental laws) or any covenants or
restrictions encumbering such Property, except such violations which
would not materially and adversely affect the value, use or operation
of the Property affected thereby. Either Seller, or, if required by
the terms of their respective Leases, the tenants of the Property
owned by it, now have in force insurance policies relating to such
Property covering such risks and with policy limits and deductibles
in such amounts as would be maintained by prudent operators of
properties similar in use and configuration to such Property and
located in the locality in which such Property are located. Seller
has not received any written notice from any insurance company or
underwriter of any defect that would materially adversely affect the
insurability of the Property owned by it or cause an increase in
insurance premiums over current levels. Seller has not received any
written notice of violations or alleged violations of any laws,
rules, regulations or codes with respect to the Property owned by it
which have not been corrected to the satisfaction of the issuer of
the notice or which, if uncorrected, would have a material adverse
effect on the value, use or operation of the Property affected
thereby. To Seller's knowledge, there is no pending or contemplated
condemnation or other eminent domain proceeding affecting all or any
part of the Property owned by it.
xiv. There is no action, suit or proceeding
pending or, to Seller's knowledge, threatened against Seller or the
Property owned by it which, if adversely determined, would have a
material adverse effect on the financial condition or results of
operations of Seller or the Property owned by it or which challenges
or impairs the ability of Seller to execute or deliver, or perform
its obligations under, this Contract and the documents executed by it
pursuant to this Contract or to consummate the transactions
contemplated herein.
xv. Each Seller has good and marketable or
indefeasible title to each Property owned by it, free and clear of
all liens other than Permitted Exceptions.
14
<PAGE>
xvi. Seller has been solvent at all times prior
to and will be solvent immediately following the Closing.
xvii. To Seller's knowledge, all water, sewer,
gas, electric, telephone and drainage facilities, and other utilities
required for the normal and proper operation of the Property owned by
it, are installed and connected to the Improvements with valid
permits, and are adequate to serve the Improvements for their current
use and to permit full compliance with all requirements of law and
the Leases. To Seller's knowledge, all permits and connection fees
are fully paid. To Seller's knowledge, all utilities serving the
Improvements enter it through currently effective public or private
easements. To Seller's knowledge, no fact or condition exists which
would result in the termination of such utilities services to the
Improvements.
b. Representations and Warranties by Buyer. Buyer hereby
represents and warrants to Seller that as of the Effective Date:
i. Buyer is a duly organized and validly existing
Delaware limited partnership and is authorized to purchase property
in the state in which the Property is located, and Buyer has the
power and authority to enter into this Contract.
ii. This Contract and all documents executed by
Buyer which are to be delivered to Seller at Closing are or at the
time of delivery will be duly authorized, executed and delivered by
Buyer, and are or at the time of Closing, will be legal, valid,
binding obligations of Buyer, and do not and at Closing will not
violate any provisions of any agreement or any applicable
governmental law or regulation to which Buyer is a party or to which
it is subject.
c. Indemnities.
i. Buyer and Seller hereby agree that they have
each relied upon the representations and warranties given by the
respective parties in Paragraph 14(a) and 14(b). Buyer shall
indemnify and hold Seller harmless from and against any and all
liabilities, losses, costs, damages, expenses, including reasonable
attorneys' fees and costs of litigation, arising or resulting from
the untruth of any of Buyer's representations and warranties set
forth in Paragraph 14(b). Seller shall indemnify and hold Buyer
harmless from and against any and all liabilities, losses, costs,
damages and expenses, including reasonable attorneys' fees and costs
of litigation, which Buyer shall suffer or incur because of the
untruth of any of Seller's representations and warranties set forth
in Paragraph 14(a).
ii. Seller shall immediately remove and remediate
any Hazardous Materials present in, on, under or around the Property
(including, without limitation, the soil, groundwater, surface water,
sediment or other media) as of the Closing Date, along
15
<PAGE>
with any migration, alteration or worsening of any such Environmental
Condition prior to or after the Closing Date, in accordance with all
applicable Environmental Laws and to the satisfaction of Buyer.
iii. Seller, its successors and assigns, shall
indemnify, release and hold Buyer, its successors, assigns, tenants,
subtenants, agents, partners, lenders and employees, harmless from
and against all Liabilities (defined below) arising directly or
indirectly out of or related to (i) the presence, disturbance,
discharge, release, removal, remediation or cleanup of Hazardous
Materials in, on, under or around the Property (including, without
limitation, the soil, groundwater, surface water, sediment or other
media) as of the Closing Date and any migration, alteration or
worsening of any such Environmental Condition prior to or after the
Closing Date, and (ii) any failure of the Property to comply with
Environmental Laws as of the Closing Date. The term "Liabilities" as
used in this paragraph shall mean any and all liabilities, liens,
expenses, obligations, demands, damages (including, but not limited
to, personal injury and property damages, punitive damages, multiple
damages and consequential and incidental damages), costs, cleanup
costs, response costs, remediation costs, losses, causes of action,
claims for relief, attorneys and other legal fees, consultants' and
other professional fees, penalties, fines, assessments and charges.
15. Default; Remedies.
a. Buyer Default. If the purchase and sale of the Property
is not consummated in accordance with the terms and conditions of this Contract
due to circumstances or conditions which constitute a default by Buyer under
this Contract, then the Earnest Money shall be delivered to Seller as full
liquidated damages and Seller's sole remedy for such default. Seller and Buyer
acknowledge that Seller's actual damages in the event of a default by Buyer
under this Contract will be difficult to ascertain, that such liquidated damages
represent the Seller's and Buyer's best estimate of such damages and that the
Seller and Buyer believe such liquidated damages are a reasonable estimate of
such damages. The foregoing liquidated damages are intended not as a penalty,
but as full liquidated damages, in the event of Buyer's default and as
compensation for Seller's taking the Property off the market during the term of
this Contract. Such delivery of the Earnest Money shall be the sole and
exclusive remedy of Seller by reason of a default by Buyer under this Contract,
and Seller hereby waives and releases any right to sue Buyer, and hereby
covenants not to sue Buyer, for specific performance of this Contract or to
prove that Seller's actual damages exceed the Earnest Money which is herein
provided Seller as full liquidated damages.
b. Seller Default. If (i) any representation or warranty of
Seller set forth in this Contract shall prove to be untrue or incorrect in any
respect, or (ii) Seller shall fail to keep, observe, perform, satisfy or comply
with, fully and completely, any of the terms, covenants, conditions, agreements,
requirements, restrictions or provisions required by this Contract to be kept,
observed, performed, satisfied or complied with by Seller, or (iii) the purchase
and sale of the Property is otherwise not consummated in accordance with the
terms and provisions of this
16
<PAGE>
Contract due to circumstances or conditions which constitute a default by Seller
under this Contract (the matters described in the foregoing clauses (i), (ii)
and (iii) are hereinafter sometimes collectively called "Seller Defaults"), then
the Earnest Money shall be refunded to Buyer immediately upon request, and Buyer
may exercise such rights and remedies as may be provided for in this Contract or
as may be provided for or allowed by law or in equity. Buyer's remedies in the
event of the occurrence of any of the Seller Defaults shall specifically
include, without limitation, (x) the right to enforce specific performance of
this Contract and (y) the right to seek, prove and recover (to the extent
proven) monetary damages from Seller in an amount equal to all actual
out-of-pocket costs and expenses paid or incurred by Buyer in connection with
its execution of and entry into this Contract and its proposed purchase of the
Property, including, without limitation, (i) attorney's fees and disbursements
in connection with the negotiation and execution of this Contract, the
examination of title to the Property, and any other legal matter undertaken by
Buyer pertaining to the Property, and (ii) any examinations, investigations,
tests and inspections, undertaken by Buyer with respect to the Property.
16. Post-Closing Covenants of Seller. Seller covenants and agrees
that from and after the Closing: (a) Seller does not, and shall not at any time
own, directly or indirectly (actually or by applying constructive ownership
rules set forth in Section 856(d)(5) of the Internal Revenue Code of 1986, as
amended (the "Code")) ten percent (10%) or more in value of the shares of the
Company or unless expressly waived by the Board of Directors of the Company, a
ten percent (10%) or greater interest in Buyer; and (b) Seller is not and will
not be a "tax-exempt entity" (within the meaning of Section 168(h)(2) of the
Code), and no person holding an interest in Seller is or will be a person that
causes all or any portion of the Property to be treated as "tax-exempt use
property" (within the meaning of Section 168(h)(1) of the Code).
17. Pre-Closing Covenants of Seller. Seller covenants and agrees that
from and after the Effective Date until the Closing:
a. Access. Seller shall afford to Buyer, its attorneys,
accountants, and such other representatives of Buyer as Buyer shall designate to
Seller in writing, free and full access at all reasonable times, and upon
reasonable prior notice, to the Property and the books and records of Seller, in
order that Buyer may have full opportunity to make such investigation as it
shall reasonably desire of the Property (including, without limitation, any
appraisals or inspections thereof).
b. Cooperation in IPO Preparation. Seller shall cooperate
in the preparation by an affiliate of Buyer of a Form S-11 under the Securities
Act of 1933, as amended, to be filed with the Securities and Exchange Commission
(the "Commission") and the closing of the offering registered thereby. Seller
shall provide access by Buyer's representatives, to all financial and other
information relating to the Property which would be sufficient to enable them to
prepare audited financial statements in conformity with Regulation S-X of the
Commission and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Seller shall also provide
to Buyer's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an
17
<PAGE>
independent public accountant to render an opinion on the financial statements
related to the Property.
c. Cooperation in Obtaining Buyer's Consents. Seller shall
use its reasonable best efforts in cooperating with Buyer in the preparation of
and delivery to any automobile manufacturer(s) or other third party as soon as
practicable after the Effective Date of an application and/or other information
necessary to obtain such automobile manufacturer(s)' or other third party's
consent to and/or the approval of the transactions contemplated by this Contract
in satisfaction of the conditions expressed in Paragraph 12(a)(x).
18. Broker's Commission. Buyer and Seller represent and warrant to
the other that neither of them have engaged or contracted with any person, firm
or entity to serve or act as a broker, agent or finder for the purpose of the
sale and purchase of the Property, and that no broker's or real estate or other
similar commissions or fees are or shall be due in respect of the transaction
contemplated by this Contract. The Buyer and Seller each agree to indemnify,
defend and save harmless the other from and against any cost and expense,
including reasonable attorney's fees, incurred by the other as a result of the
untruth of any of the foregoing representations made by it.
19. Entire Agreement. This Contract constitutes the entire agreement
between Buyer and Seller with respect to the Property and may not be amended
except by written instrument executed by Buyer and Seller. Any other agreements,
written or oral, between Buyer and Seller with respect to the Property are
hereby superseded in their entirety by this Contract.
20. Headings. The paragraph headings are inserted for convenience
only and are in no way intended to describe, interpret, define or limit the
scope or content of this Contract or any provision hereof.
21. Construction. Words of any gender used in this Contract shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. Any disputes regarding the interpretation of any portion of this
Contract shall not be presumptively construed against the drafting party.
22. Remedies Cumulative. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative and in addition to those
other rights, powers and remedies hereunder and those available at law or in
equity. All such rights, powers and remedies may be exercised separately or at
once, and no exercise of any right, power or remedy shall be construed to be an
election of remedies or shall preclude the future exercise of any or all other
rights, powers and remedies granted hereunder or available at law or in equity,
except as expressly provided herein.
23. No Waiver. Neither the failure of either party to exercise any
power given such party hereunder nor to insist upon strict compliance with its
obligations hereunder, nor any
18
<PAGE>
custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of either party's right to demand exact compliance with the
terms hereof.
24. Applicable Law. This Contract shall be construed and interpreted
in accordance with the laws of the state in which the Property is located.
25. Successors and Assigns. This Contract shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
26. Counterparts. This Contract may be executed in two (2) or more
counterparts.
27. Survival. Seller's and Buyer's representations, warranties and
indemnities set forth in Paragraphs 14 and 15 shall survive closing forever.
28. Escrow. The Earnest Money shall be held in escrow with Title
Company upon the following terms and conditions:
a. The Earnest Money shall be deposited in an interest
bearing money market account. Interest on the Earnest Money shall belong to
Buyer, unless this Contract is terminated by Seller pursuant to Paragraph 15(a).
b. Buyer and Seller agree that Title Company, as escrow
agent hereunder, shall not be liable in connection herewith for any reason
except gross negligence or intentional misconduct.
c. Buyer and Seller hereby indemnify Title Company, as
escrow agent, for all loss, costs, damages and expenses, including reasonable
attorneys' fees and expenses, associated with acting as escrow agent hereunder.
If a dispute arises as to the funds held by Title Company as escrow agent, then
Title Company may file an interpleader action in the appropriate court in the
county in which the Real Property is located and be relieved of all obligations
hereunder.
d. The escrow shall terminate upon the earlier of the
termination of this Contract or the Closing.
29. Tax Deferred Exchange. At its option, Seller may assign its
rights to sell the Property pursuant to this Contract to a Qualified
Intermediary Trustee or Escrow Agent as those terms are defined in Treasury
Regulations ss.1.1031(k)-1 or successor provisions (collectively, the "Qualified
Intermediary") for the purpose of conveying the Property pursuant to a
transaction which qualifies as an Exchange of Property pursuant to the
provisions of Section 1031 of the Internal Revenue Code of 1986, as amended (the
"Code"). If Seller assigns its rights to sell the Property pursuant to this
Contract to the Qualified Intermediary and Seller provides written notice of
such assignment to Buyer on or prior to the date of the Closing, Buyer agrees to
fully cooperate with Seller and with the Qualified Intermediary and to take all
reasonable actions
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requested by the Qualified Intermediary or by Seller to assist Seller and the
Qualified Intermediary in satisfying the requirements of Section 1031 of the
Code, including satisfying any of Buyer's obligations under this Contract
directly to the Qualified Intermediary. If Seller assigns its right to sell the
Property pursuant to this Contract to the Qualified Intermediary, the Qualified
Intermediary will direct Seller to convey the Property to Buyer on the date of
Closing in accordance with the terms of this Contract. Simultaneously with the
conveyance of the Property to the Buyer, Buyer shall pay the Purchase Price to
the Qualified Intermediary. Buyer understands and acknowledges that a material
inducement to Seller's entry into this Contract is Seller's right to structure
this transaction so as to qualify the same as an Exchange of Property in
compliance with the provisions of Section 1031 of the Code, and agrees that this
Contract shall be interpreted, construed and applied in such a manner as to
qualify the transactions contemplated herein as an Exchange of Property in
compliance with the provisions of Section 1031 of the Code. Buyer makes no
representations and gives no warranties with respect to the tax effects of the
proposed exchange transactions. Seller shall reimburse Buyer for any closing
costs incurred by Buyer as a result of any exchange transaction arranged by
Seller which Buyer would have otherwise not incurred but for the Seller's
structuring of the transaction as an exchange. Additionally, notwithstanding
Seller's assignment of this Contract to a Qualified Intermediary, Seller shall
remain fully liable to Buyer for the performance of all indemnities and other
obligations hereunder and under no circumstances shall Buyer take title to any
replacement property for Seller and Seller shall not contractually obligate
itself or Buyer to do so.
30. Cooperation on Tax Matters.
a. Seller and Buyer shall each furnish to the other, upon
request and as promptly as practicable, such information (including access to
books and records) and assistance relating to the Property as is reasonably
necessary for (i) the filing of any Tax Return, the preparation for any Tax
audit, and the prosecution or defense of any claim, suit or proceeding relating
to any proposed Tax adjustment which may affect the prorations under this
Agreement and (ii) for the performance by Seller and Buyer of their respective
obligations under this Agreement. Seller and Buyer shall keep all such
information and documents received by them confidential unless otherwise
required to be disclosed by law.
b. Seller and Buyer agree to give the other reasonable
notice prior to transferring, discarding or destroying any such books and
records relating to Tax matters of the Property and, if so requested, Seller and
Buyer shall allow the requesting party to take possession of such books and
records.
c. Seller and Buyer shall cooperate with each other in the
conduct of any audit or other proceedings with respect to the Property for any
Tax purposes.
IN WITNESS WHEREOF, Buyer and Seller have executed the foregoing
instrument under seal as of the Effective Date.
[SIGNATURE LINES ARE CONTAINED ON THE TERM SHEET]
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<TABLE>
<CAPTION>
<S> <C>
TERM SHEET TO
CONTRACT TO PURCHASE AND SELL PROPERTY
- ---------------------------------------------------------------------------------------------------------------------
This Term Sheet (Consisting of two (2) pages) and the terms and provisions
hereof (the "Term Sheet") is attached to and made a part of the Contract to
Purchase and Transfer Property (which, collectively with this Term Sheet, is
called the "Contract") between the following parties:
- ---------------------------------------------------------------------------------------------------------------------
Seller: Sonic Automotive, Inc.
("Seller"), a Corporation organized and existing under the laws of
the State of Delaware whose address for notices is:
- ---------------------------------------------------------------------------------------------------------------------
5401 E. Independence Blvd. With a Copy to:
P.O. Box 18747
Charlotte, North Carolina 28218
- ---------------------------------------------------------------------------------------------------------------------
Attention: Theodore M. Wright Attention:
- ---------------------------------------------------------------------------------------------------------------------
Telefax No.: (704) 536-5116 Telefax No.:
- ---------------------------------------------------------------------------------------------------------------------
Telephone No.: (704) 532-3347 Telephone No.:
- ---------------------------------------------------------------------------------------------------------------------
Buyer: Mar Mar Realty Limited Partnership ("Buyer"), a Delaware limited partnership whose address
for notices is:
- ---------------------------------------------------------------------------------------------------------------------
Independence Office Park With a Copy to:
6407 Idlewild Road Alan G. Dexter
Suite 106 Parker, Poe, Adams & Bernstein, LLP
Charlotte, North Carolina 28212 2500 Charlotte Plaza
Charlotte, North Carolina 28244
- ---------------------------------------------------------------------------------------------------------------------
Attention: Jim Mezzanotte Telefax No.: (704) 334-4706
- ---------------------------------------------------------------------------------------------------------------------
Telefax No.: (704) 566-6031 Telephone No.: (704) 335-9042
- ---------------------------------------------------------------------------------------------------------------------
Telephone No.: (704) 566-4081
- ---------------------------------------------------------------------------------------------------------------------
The following are the principal terms of the transaction and shall govern the
remainder of the Contract if inconsistent therewith:
- ---------------------------------------------------------------------------------------------------------------------
Effective Date June 26 1998, subject to Definitions Paragraph 1(I).
- ---------------------------------------------------------------------------------------------------------------------
Real Property The Land described on Exhibit A hereto and all Improvements thereon and
appurtenances thereto located in Mecklenburg County, State of North
Carolina.
- ---------------------------------------------------------------------------------------------------------------------
Personalty The personal property (if any) to be conveyed by Seller to Buyer, as described
on Exhibit C hereto.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
Purchase Price: Five Million Seven Hundred Fourteen Thousand Two Hundred Eighty-six
Dollars ($5,714,286.00)
The Purchase Price shall be allocated as follows:
Land $
Real Property Improvements $
Personal Property $
- ---------------------------------------------------------------------------------------------------------------------
Earnest Money: One Thousand Dollars ($1,000.00)
- ---------------------------------------------------------------------------------------------------------------------
Inspection Period: Forty-five (45) days after Buyer receives all of the items set forth in Paragraph
7(a).
- ---------------------------------------------------------------------------------------------------------------------
Closing Date: Set forth in Definitions Paragraph 1(e).
- ---------------------------------------------------------------------------------------------------------------------
BUYER: SELLER:
Mar Mar Realty Limited Partnership (SEAL) Sonic Automotive, Inc. (SEAL)
By: Mar Mar Realty Trust, General Partner By: /s/ B. Scott Smith
Its: President
By: /s/ James Mezzanotte
Its: Executive Vice President
Exhibit A The Land
Exhibit B Permitted Exceptions
Exhibit C Personalty
Exhibit D Assignment and Assumption of Lease
</TABLE>
22
EXHIBIT 10.10
CONTRACT TO PURCHASE AND SELL PROPERTY
THIS CONTRACT TO PURCHASE AND SELL PROPERTY is made as of the
Effective Date between Seller and Buyer.
RECITALS
A. Seller is the owner of the Real Property which is described and/or
shown on Exhibit A attached, and the owner of the Personalty, if any, described
on Exhibit C attached.
B. Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Property in accordance with the terms and conditions set forth
in this Contract.
TERMS
NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein end other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree
as follows:
1. Definitions. In addition to the terms defined elsewhere in this Contract,
each of the following terms, when used in this Contract with an initial capital
letter, shall have the meaning ascribed to it as follows, unless such meanings
are expressly modified elsewhere in this Contract.
a. "Act of Bankruptcy" shall mean if a party hereto or any general
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its Property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
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b. "Assignment of Leases" shall have the meaning ascribed to such
term in Paragraph 4 of this Contract.
c. "Bill of Sale" shall mean the duly executed and acknowledged bill
of sale conveying title to the Personalty from Seller to Buyer, with full
covenants of warranty under laws of the state in which the Personalty is
located, in form acceptable to Buyer.
d. "Closing" shall mean the closing and consummation of the purchase
and sale of the Property pursuant to this Contract.
e. "Closing Date" shall mean the later of (i) the termination of the
Inspection Period; or (ii) the termination of the Environmental Review Period;
or (iii) the 120th day after the Effective Date; provided, however, that Buyer,
at its election, may move the Closing to any earlier date upon not less than ten
( 10) days prior notice to Seller.
f. "Commission" shall have the meaning ascribed to such term in
Paragraph 17(b) of this Contract.
g. "Company" shall have the meaning ascribed to such term in
Paragraph 12(a)(x) of this Contract.
h. "Deed" shall mean the duly executed and acknowledged general
warranty deed conveying title to the Real Property from Seller to Buyer, with
full covenants of warranty under the laws of the state in which the Real
Property is located, in form acceptable to Buyer.
i. "Defect" or "Defects" shall mean a lien, claim, charge, security
interest, encumbrance, easement, restriction or other such matter affecting
title to the Property other than the Permitted Exceptions.
j. "Earnest Money" shall mean the amount set forth on the Term Sheet
which shall be delivered by Buyer to Title Company with the execution of this
Contract, to be held in escrow subject to the terms and conditions of this
Contract.
k. "Effective Date" shall mean the later of the date of this Contract
between Buyer and Seller as set forth on the Term Sheet or the date upon which
both parties have executed and delivered this Contract to each other.
l. "Environmental Review Period" shall mean a period of thirty (30)
business days after Buyer's receipt of all of the Evaluations, subject to
extension for up to an additional sixty (60) days if Buyer determines that such
additional time is needed for additional testing. In no case shall the
Environmental Review Period expire prior to the end of the Inspection Period.
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m. "Environmental Laws" shall mean all present and future federal,
state and local laws, statutes, regulations, rules, ordinances and common law,
and all judgments, decrees, orders, agreements or permits, issued, promulgated,
approved or entered thereunder by any governmental authority relating to
pollution or Hazardous Materials or protection of human health or the
environment, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), as amended.
n. "Evaluations" shall mean a "Phase I" environmental evaluation, a
"Phase II" environmental evaluation, and/or any other sampling, testing,
analysis, assessment, review, investigation or evaluation of the environmental
condition or compliance status of the Property, performed by Buyer or
consultant(s) selected by Buyer in Buyer's discretion.
o. "Hazardous Material" shall mean any waste, pollutant, chemical,
hazardous material, hazardous substance, toxic substance, hazardous waste,
special waste, solid waste, asbestos, radioactive materials, polychlorinated
biphenyls, petroleum or petroleum-derived substance or waste (regardless of
specific gravity), or any constituent or decomposition product of any such
pollutant, material, substance or waste, including, but not limited to, any
hazardous substance or constituent contained within any waste and any other
pollutant, material, substance or waste regulated under or as defined by any
Environmental Law.
p. "IPO" shall mean the initial public offering of the common shares
of beneficial interest, par value $0.01 per share of the Company.
q. "Improvements" shall mean all buildings and improvements
constructed upon the Land together with any fixtures or improvements related
thereto.
r. "Inspection Period" shall mean the period commencing on the day
following the receipt by Buyer of all of the items described in Paragraph 7(a)
and continuing for the period set forth under "Inspection Period" on the Term
Sheet attached hereto.
s. "Land" shall mean the parcel of land owned by Seller and more
particularly described on Exhibit A hereto, together with all rights and
appurtenances thereto, including any right, title and interest of Seller in and
to adjacent streets, easements or rights-of-way.
t. "Lease" shall have the meaning ascribed to such term in Paragraph
12(a)(ix) of this Contract.
u. "Owner's Title Policy" shall mean a standard ALTA form owner's
policy of title insurance for the Real Property issued at standard rates as
compared to comparable real property in the county and state in which the Real
Property is located.
v. "Permitted Exceptions" shall mean all matters described on Exhibit
B hereto.
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w. "Personally" shall mean the personal property (if any) to be
conveyed by Seller to Buyer, as described on Exhibit C hereto.
x. "Property" shall mean the Real Property and the Personal Property.
y. "Purchase Price" shall mean the Purchase Price amount set forth on
the Term Sheet.
z. "Real Property" shall mean the Land, the Improvements and
appurtenances thereto.
aa. "Survey" shall mean a current "as-built" physical survey of the
Real Property addressed to Buyer, Title Company and Buyer's lender (if any)
prepared by a Registered Land Surveyor of the state in which the Real Property
is located containing such certificates as may be required by Buyer or Buyer's
lender (if any) and showing all locatable easements.
bb. "Tax" shall mean any federal, state or local franchise, sales,
use, gross receipts, storage, real estate, property ad valorem and any and all
other similar taxes (including any penalties or interest attributable thereto)
and any governmental assessments for additional contribution to workers'
compensation or similar funds attributable to the business or operations of the
Property.
cc. "Tax Return" shall mean all federal, state and local tax returns,
reports, information returns and reports, statements' renditions and other
similar filings required to be filed in connection with any Taxes arising from
the business or operations of the Property.
dd. "Tenant" shall have the meaning ascribed to such term in
Paragraph 12(a)(ix) of this Contract.
ee. "Title Commitment" shall mean a current title binder or
commitment as to the Real Property issued by the Title Company for Buyer as the
proposed owner.
ff. "Title Company" shall mean the title insurer of Buyer's choice.
2. Agreement to Purchase and Sell. Seller shall sell and convey to Buyer, and
Buyer shall purchase from Seller, the Property pursuant to the terms and
conditions of this Contract.
3. Purchase Price; Delivery of Possession.
a. The Earnest Money, including all accrued interest thereon, shall
be credited to Buyer at Closing as a credit against the Purchase Price, subject
to the terms and conditions of this Contract.
b. The balance of the Purchase Price shall be paid to Seller in
immediately available funds at Closing, subject to the terms and conditions of
this Contract.
c. Seller shall deliver sole possession of the Property to Buyer at
Closing, subject only to the Permitted Exceptions.
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d. Seller and Buyer shall file all federal income tax returns and
other reports required by the Internal Revenue Code of 1986, as amended (the
"Code") in a manner consistent with the allocation set forth in the Term Sheet.
4. Conveyance of Title. At Closing, Seller shall by the Deed and Bill of Sale
convey to Buyer marketable fee simple title to all of the Property, free and
clear of any and all Defects, except for the Permitted Exceptions. If Buyer has
accepted in a separate writing the existing lease of the Real Property to the
tenant located thereon, then Seller shall assign to Buyer all of Seller's right,
title and interest thereunder to Buyer by Assignment of Leases in the form
attached hereto as Exhibit D (the "Assignment of Leases").
5. Survey. Seller shall, as soon as possible, but not later than fifteen (15)
days following the Effective Date, at Seller's sole cost and expense, obtain and
provide to Buyer the Survey from which a legal description of the Real Property
will be prepared and inserted in the Deed.
6. Title and Title Insurance for the Real Property. Not later than fifteen (15)
days following the Effective Date, Seller shall, at its sole cost and expense,
obtain an owner's Title Commitment issued by the Title Company providing for the
issuance at Closing to Buyer of an Owner's Title Policy for the Real Property.
The Title Commitment shall set forth the state of title of the Real Property and
all exceptions, including but not limited to, easements, restrictions, road
rights-of-way, floodways, covenants, reservations and other conditions, if any,
affecting the Real Property which would appear in an Owner's Title Policy if
issued. Additionally, Seller shall also provide Buyer with legible copies of all
exceptions appearing in the Title Commitment (including any plats or surveys).
7. Inspections.
a. On or prior to the Effective Date or within five (5) days
thereafter, Seller shall provide to Buyer true and complete copies of the
following items:
i. Seller's existing owner's and lender's title insurance
policies for the Real Property (if any) together with legible copies
of any exceptions set forth therein.
ii. The most recently dated existing surveys of the Real
Property and any other survey(s) of the Real Property in Seller's
possession or available to Seller.
iii. Any and all engineering reports, soil reports, zoning
letters or information and environmental reports or audits with
respect to the Property, if any, prepared by or for Seller or in
possession of Seller or which Seller can obtain with reasonable
effort.
iv. All warranties, if any, related to the Improvements.
v. Attorneys' opinions on title to the Property and legible
copies of deeds, mortgages, easements or restrictions affecting the
Property which Seller may possess, if any.
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vi. Copies of all existing Property insurance policies.
b. Buyer, its agents and contractors shall be entitled to go upon the
Real Property during the Inspection Period to inspect, perform investigations,
determine the status of utilities and access, conduct title examinations, zoning
investigations, feasibility studies, Evaluations, and other studies or tests
necessary to determine whether the Property is suitable for Buyer's intended use
of the Property. If Buyer determines, in Buyer's sole and absolute discretion,
that the Property is not suitable for Buyer's intended use, then Buyer may
terminate this Contract and shall be relieved of all obligations hereunder by
giving written notice to Seller prior to the end of the Inspection Period, and
all of the Earnest Money shall be refunded to Buyer except $100.00 (the "Test
Fee") which shall be paid to Seller.
c. Buyer may, at its sole expense, commission the Evaluations. The
Evaluations shall be conducted in accordance with standards and procedures
selected by Buyer and Buyer's consultant, and may include, without limitation,
drilling and installation of groundwater monitoring wells and soil borings at
the Property at locations specif~ed by Buyer's consultant, collecting and
analyzing samples of the soil, groundwater, surface water, sediment or other
media at, on, under or around the Property, and sampling for the presence of any
asbestos materials on the Property. If the Evaluations are in any way
unacceptable to Buyer, in Buyer's sole discretion, then Buyer may terminate this
Contract by notice in writing given to Seller prior to the expiration of the
Environmental Review Period and the parties shall have no further rights or
obligations under this Contract and all of the Earnest Money shall be refunded
to Buyer except the Test Fee, which shall be paid to Seller. If Buyer chooses to
terminate this Contract as a result of its review of the Evaluations, Buyer
shall provide to Seller copies of all environmental reports relating to the
Property which have been obtained by Buyer.
d. In addition to Buyer's rights set forth in Paragraph 7(c) above,
if any Hazardous Materials are determined to be present at, on, under or around
the Property (including, without limitation, the soil, groundwater, surface
water, sediment or other media), then Seller, at its sole expense, upon Buyer's
request, shall remove and remediate such Hazardous Materials in accordance with
all applicable Environmental Laws and to the satisfaction of Buyer prior to the
Closing Date. Notwithstanding the termination of the Inspection Period or the
Environmental Review Period, if Buyer reasonably determines that Seller has
failed to meet its obligations described in this Paragraph 7(d), then Buyer may
either:
i. Terminate this Contract; or
ii. Remove and remediate any such Hazardous Materials to
the satisfaction of Buyer and deduct the cost of any such remediation
from the Purchase Price. If such removal or remediation shall extend
beyond the then established Closing Date, then Buyer shall have the
right to extend the Closing Date to such time as may be necessary to
complete any such removal or remediation.
8. Costs and Prorations. Seller shall pay for the Survey, the title exam and
Title Commitment, any and all documentary stamp taxes, deed taxes or transfer
taxes applicable to this transaction and
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the cost to cancel any mortgage, deed of trust or other lien or Defect of
record. Buyer shall pay for any and all title insurance premiums, testing or
inspections of the Property and recording costs for the Deed or any other
documents to be recorded relating to the transfer of the Property. Each party
shall pay its own attorney's fees. Seller shall pay any "roll-back" taxes or
similar taxes based upon any change in use of the Property, whether such taxes
are assessed before or after Closing. Seller's obligation to pay such taxes (and
any other costs herein or by law provided to be paid by Seller), if any, shall
survive Closing. All prorations for real estate taxes, utilities and other such
costs shall be prorated between Buyer and Seller as of the Closing Date on the
basis of a 365-day year. If any of the aforesaid prorations cannot be calculated
accurately on the Closing Date (or as soon as information sufficient to complete
such prorations is available), then the same shall be calculated within thirty
(30) days after the information necessary to make such prorations becomes
available and either party owing the other party a sum of money based on such
subsequent proration(s) shall promptly pay said sum to the other party. If the
transaction contemplated by this Contract results in a revaluation of the
Property, the parties shall reprorate taxes after receipt of the tax bill(s).
9. Risk of Loss; Eminent Domain.
a. If, after the Effective Date and prior to the Closing Date, the
Property or any portion thereof is damaged or destroyed, Seller shall
immediately notify Buyer in writing and Buyer shall elect, within ten (10) days
from and after such notice, by written notice to Seller, either:
i. to not close the transaction contemplated hereby, in
which event the Earnest Money shall be returned to Buyer and this
Contract shall be void and of no further force and effect; or
ii. to close the transaction contemplated hereby in
accordance with the terms and conditions contained herein, in which
event the Purchase Price shall be reduced by (a) the amount of any
insurance proceeds received by Seller prior to Closing and (b) the
amount of any deductible, and Seller shall sell and assign to Buyer
at Closing all rights, title and interest to any insurance proceeds
payable after Closing in connection with such damage or destruction.
If Buyer elects to purchase the Property after receipt of such notice
from Seller, all actions taken by Seller with regard to the repair or
replacement of any such damaged or destroyed portion of the Property,
including but not limited to, negotiations, litigation, settlement,
appraisals and appeals, shall be subject to the approval of Buyer.
b. If, after the Effective Date and prior to the Closing Date, Seller
shall receive notice of the commencement or threatened commencement of eminent
domain or other like proceedings against the Property or any portion thereof,
Seller shall immediately notify Buyer in writing, and Buyer shall elect, within
ten (10) days from and after such notice of such threatened or pending
proceedings, by written notice to Seller, either:
i. to not close the transaction contemplated hereby, in
which event the Earnest Money shall be returned to Buyer and this
Contract shall be void and of no further force and effect; or
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<PAGE>
ii. to close the transaction contemplated hereby in
accordance with the terms and conditions contained herein, but
subject to such proceedings, in which event the Purchase Price shall
be reduced by the amount of any condemnation proceeds received by
Seller prior to Closing and Seller shall sell and assign to Buyer at
Closing all rights, title and interests to the proceeds of such
eminent domain proceedings to be paid after Closing. If Buyer elects
to purchase the Property after receipt of such notice, all actions
taken by Seller with regard to such eminent domain or like
proceedings, including but not limited to, negotiations, litigation,
settlement, appraisals and appeals, shall be subject to the approval
of Buyer.
10. Notice. Each notice required or permitted to be given hereunder shall be in
writing and shall comply with the requirements of this paragraph. Any notice by
Buyer to Seller shall be deemed to be duly given if: (a) either (i) hand
delivered to the person(s) listed below for Seller, or (ii) delivered or sent by
telephone facsimile transmittal to the facsimile telephone number of Seller
listed on the Term Sheet, in which event proof of delivery shall be by telephone
records, and (b) a duplicate of such notice shall be sent by registered or
certified mail to Seller at the address set forth on the Term Sheet (or at such
other address as may hereafter be designated by Seller). Any notice by Seller to
Buyer shall be deemed to be duly given if: (a) either (i) hand delivered to the
person(s) listed on the Term Sheet, or (ii) delivered or sent by telephone
facsimile transmittal to the facsimile telephone number of Buyer listed on the
Term Sheet, in which event proof of delivery shall be by telephone records, and
(b) a duplicate of such notice shall be sent by registered or certified mail to
Buyer at the address set forth on the Term Sheet (or at such other address as
may hereafter be designated by Buyer). Notice shall be deemed effective at the
later to occur of (i) the time of hand delivery or transmission of the telephone
facsimile and (ii) the time a duplicate of the notice is deposited in the United
States Mail for registered or certified delivery. The parties hereto reserve the
right to change the addresses or telephone numbers to which notices are to be
sent by giving notice to the other as herein provided.
The addresses and facsimile telephone numbers of the parties to which
notices are to be sent are set forth on the Term Sheet.
Any party shall have the right from time to time to change the
address to which notices to it shall be sent by giving to the other party or
parties at least five (5) days prior notice of the changed address.
11. Closing. Unless Buyer or Seller have otherwise elected hereunder to
terminate this Contract, and subject to the satisfaction or written waiver of
each of the conditions precedent to Closing set forth in Paragraph 12 hereof,
the Closing of the purchase and sale of the Property shall be held at a time set
by Buyer on the Closing Date, at a location chosen by Buyer.
12. Conditions Precedent to Closing.
a. Buyer's Conditions. Buyer's obligation to close the purchase of
the Property is subject to the satisfactory performance, occurrence or written
waiver by Buyer, in Buyer's sole discretion, of each of the following
conditions:
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i. Seller shall have delivered to Buyer all of the
documents, properly executed, as required by Paragraph 13(a) hereof;
ii. No adverse change in the status of the title to the
Property as set forth in the Title Commitment shall have occurred
prior to the Closing Date;
iii. No adverse change in the status of the title to the
Personal Property shall have occurred prior to the Closing Date.
iv. No adverse change in the condition of the Improvements
or Personal Property shall have occurred prior to the Closing Date,
reasonable wear and tear excepted.
v. No default by Seller shall exist under this Contract,
this Contract shall not have terminated and Seller shall be ready,
willing and able to close under the terms hereof;
vi. The representations of Seller contained in this
Contract shall be true, complete and correct in all material respects
as of the Closing Date, without the necessity of any material
amendment or modification, with the same force and effect as if made
as of the Closing Date;
vii. Seller's obligations pursuant to Paragraph 7(d) shall
have been met;
viii. Buyer shall have entered into and executed a new
lease (the "Lease") or an assignment of Lease of the Property
acceptable to Buyer in Buyer's sole discretion with Fort Mill ford.
Inc. as tenant for the Property ("Tenant");
ix. The IPO shall have been consummated and the proceeds
thereof received by Mar Mar Realty Trust (the "Company"); and
x. Buyer shall have obtained the written consent and/or
approval of any franchisor, manufacturer, lender or other third party
deemed necessary by Buyer to complete the transactions contemplated
by this Contract.
If any of the foregoing conditions have not been satisfied or waived
within the times and in the manner required by this Contract, then Buyer may
terminate this Contract, receive a refund of the Earnest Money and seek any
remedies available at law or equity, including without limitation, specific
performance.
b. Seller's Conditions. Seller's obligation to close the sale of the
Property is subject to the satisfactory performance, occurrence or written
waiver by Seller of each of the following conditions:
i. Buyer shall pay the Purchase Price to Seller and shall
have delivered to Seller all of the documents, properly executed, as
required by Paragraph 13(b) hereof;
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ii. No material default by Buyer shall exist under this
Contract, this Contract shall not have been terminated, and Buyer
shall be ready, willing and able to close under the terms hereof; and
iii. The representations of Buyer contained in this
Contract shall be true, complete and correct in all material respects
as of the Closing Date, without the necessity of any material
amendment or modification, with the same force and effect as if made
as of the Closing Date.
If any of the foregoing conditions have not been satisfied or waived
within the times and in the manner required by this Contract, then Seller may
terminate this Contract and receive the Earnest Money as liquidated damages and
as Seller's sole remedy. If Seller does not elect to terminate this Contract,
then upon Closing it shall be conclusively deemed that all the conditions listed
in this paragraph have been satisfied or waived.
13. Documents at Closing.
a. Seller's Documents. Seller shall execute and/or deliver the
following to Buyer at Closing:
i. The Deed and the Bill of Sale, duly executed by Seller
(and such other parties as may be required by law to transfer title)
and acknowledged and/or an executed assignment of the transferred
interest in [name of entity] in form satisfactory to Buyer's counsel,
as the case may be.
ii. The Assignment of Lease (if applicable under Paragraph
4 above).
iii. A lien and possession affidavit, duly executed by
Seller, acceptable to the Title Company.
iv. Affidavits, duly executed by Seller, to satisfy federal
and state tax reporting requirements.
v. An affidavit, duly executed by Seller, that Seller is
not a "foreign person" within the meaning of the Foreign Investment
in Real Property Tax Act.
vi. A certificate, duly executed by Seller and notarized,
that the representations of Seller contained in this Contract remain
true, complete and correct in al] material respects as of the Closing
Date.
vii. A settlement statement, duly executed by Seller,
setting forth the amounts paid by or on behalf of and/or credited to
each of Buyer and Seller pursuant to this Contract.
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viii. A resolution executed by all of the directors,
general partners, members and/or managers, as applicable, of Seller
(and any entities constituting Seller) authorizing the performance of
the terms of this Contract by Seller.
ix. Such other customary documents and assurances as shall
be reasonably required by Buyer's counsel.
b. Buyer's Documents. Buyer shall execute and/or deliver the
following to Seller at Closing:
i. A certificate, duly executed by Buyer and notarized,
that the representations of Buyer contained in this Contract remain
true, complete and correct in all material respects as of the Closing
Date.
ii. The Assignment of Lease (if applicable under Paragraph
4 above).
iii. A settlement statement, duly executed by Buyer,
setting forth the amounts paid by or on behalf of and/or credited to
each of Buyer and Seller pursuant to this Contract.
iv. Such other customary documents as shall be reasonably
required by Seller's counsel.
14. Representations and Warranties.
a. Representations and Warranties by Seller. Seller hereby represents
and warrants to Buyer that:
i. Seller has no notice of any pending or threatened
condemnation or similar proceeding or assessment affecting the
Property, or any part thereof, nor to the best of its knowledge, is
any such proceeding or assessment contemplated by any governmental
authority.
ii. There are no and have not been any Hazardous Materials
or underground storage tanks at, on, under or around the Property;
the Property is and has been in compliance with all applicable
Environmental Laws; there are no actions, suits, claims, proceedings,
investigations or enforcement actions pending or threatened under any
Environmental Law with respect to the Property; and Seller has not
received any notice, claim or demand from any governmental entity or
other person regarding the presence of Hazardous Materials at, on,
under or around the Property or alleging that the Property is in
violation of any Environmental Laws.
iii. Seller has complied with all applicable laws,
ordinances, regulations and statutes relating to the Property or any
part thereof and is not in violation of any such laws as they relate
to the Property.
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iv. There are no restrictions or applicable regulations
which prevent the use of the Property for the uses intended by
Tenant.
v. The restrictive covenants encumbering the Real Property
(if any) have not been violated and will not be violated by the
operation of the uses intended by the Tenant and there are no
assessments owed pursuant to such restrictions.
vi. Other than ad valorem property taxes which are not yet
due and payable, there are no other taxes or assessments pending or
periodically charged to Seller with respect to the Property.
vii. Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Code.
viii. None of the Property constitutes tax-exempt bond
financed property or tax-exempt use property within the meaning of
Section 168 of the Code, and none of the Property is subject to a
lease, safe harbor lease or other arrangement as a result of which
Seller is not treated as the owner for federal income tax purposes.
ix. There are no Tax liens on the Property, except liens
for Taxes not yet due and payable. Purchaser will not be liable for
any unpaid Taxes of Seller, except current's year's Taxes prorated
pursuant to this Contract.
x. Seller has been duly organized and is validly existing
and in good standing under the laws of its jurisdiction of
organization, and is qualified to do business and in good standing in
all other jurisdictions where such qualification is necessary to
carry on its business as now conducted except where the failure to so
qualify would not have a material adverse effect on the ability of
such Seller to perform its obligations under this Contract.
xi. Seller has full power and authority to own, lease,
operate and sell the Property owned by it, and to enter into this
Contract and the other documents to be executed by it pursuant to
this Contract and to consummate the transactions contemplated hereby.
The execution, delivery and performance by Seller of this Contract
have been, and the documents to be executed by it pursuant to this
Contract shall be, duly and validly approved by all necessary
partnership, corporate or other applicable action and no other
actions or proceedings on the part of Seller are necessary to
authorize this Contract and the transactions contemplated hereby and
thereby, Seller has complied with applicable law and valid agreements
binding upon it in connection with its solicitation of any necessary
approvals or consents related to this transaction and obtaining
appropriate authorization. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or
notice to, any governmental instrumentality or any other Person is
required to be made, obtained or given by Seller in connection with
the execution, delivery end performance of this Contract and the
documents executed by Seller pursuant to this Contract. The joinder
of no entity or Person other than Seller will be necessary to perform
its obligations hereunder. Seller has duly and validly executed and
delivered this Contract. This Contract constitutes, and the documents
executed by such Seller pursuant to this Contract when executed will
constitute,
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legal, valid and binding obligations of Seller enforceable against it
in accordance with their respective terms, subject to (a) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and transfer and other similar laws of general
application, heretofore or hereafter enacted or in effect, affecting
the rights and remedies of creditors generally, and (b) the exercise
of judicial or administrative discretion in accordance with general
equitable principles, particularly as to the availability of the
remedy of specific performance or other injunctive relief.
xii. The execution and delivery of, and the performance by
Seller of its obligations under, this Contract do not and will not
contravene, or constitute a default under, any provision of
applicable law or regulation, Seller's organizational documents or
any agreement, judgment, injunction, order, decree or other
instrument binding upon the Seller, or result in the creation of any
lien or other encumbrance on any asset of Seller. There are no
outstanding agreements (written or oral) pursuant to which Seller (or
any predecessor to or representative of Seller) has agreed to sell or
has granted an option or right of first refusal to purchase the
Property or any part thereof.
xiii. Seller has not applied to or entered into any
agreement with any governmental official, agency or body or with any
other Person or entity with respect to any modification, variance or
exception regarding zoning, building codes and similar laws and
regulations that affects the Property. Seller has all licenses,
permits and certificates necessary for the use and operation of the
Property owned by it (as presently used and operated), including,
without limitation, all certificates of occupancy necessary for the
occupancy of such Property, except where the failure to have such
licenses, permits and certificates would not materially and adversely
affect the value, use or operation of the Property affected thereby.
To Seller's knowledge, neither the Property owned by it nor the
current use thereof violates any governmental law or regulation
(exclusive of any environmental laws) or any covenants or
restrictions encumbering such Property, except such violations which
would not materially and adversely affect the value, use or operation
of the Property affected thereby. Either Seller, or, if required by
the terms of their respective Leases, the tenants of the Property
owned by it, now have in force insurance policies relating to such
Property covering such risks and with policy limits and deductibles
in such amounts as would be maintained by prudent operators of
properties similar in use and configuration to such Property and
located in the locality in which such Property are located. Seller
has not received any written notice from any insurance company or
underwriter of any defect that would materially adversely affect the
insurability of the Property owned by it or cause an increase in
insurance premiums over current levels. Seller has not received any
written notice of violations or alleged violations of any laws,
rules, regulations or codes with respect to the Property owned by it
which have not been corrected to the satisfaction of the issuer of
the notice or which, if uncorrected, would have a material adverse
effect on the value, use or operation of the Property affected
thereby. To Seller's knowledge, there is no pending or contemplated
condemnation or other eminent domain proceeding affecting all or any
part of the Property owned by it.
13
<PAGE>
xiv. There is no action, suit or proceeding pending or, to
Seller's knowledge, threatened against Seller or the Property owned
by it which, if adversely determined, would have a material adverse
effect on the financial condition or results of operations of Seller
or the Property owned by it or which challenges or impairs the
ability of Seller to execute or deliver, or perform its obligations
under, this Contract and the documents executed by it pursuant to
this Contract or to consummate the transactions contemplated herein.
xv. Each Seller has good and marketable or indefeasible
title to each Property owned by it, free and clear of all liens other
than Permitted Exceptions.
xvi. Seller has been solvent at all times prior to and will
be solvent immediately following the Closing.
xvii. To Seller's knowledge, all water, sewer, gas,
electric, telephone and drainage facilities, and other utilities
required for the normal and proper operation of the Property owned by
it, are installed and connected to the Improvements with valid
permits, and are adequate to serve the Improvements for their current
use and to permit full compliance with all requirements of law and
the Leases. To Seller's knowledge, all permits and connection fees
are fully paid. To Seller's knowledge, all utilities serving the
Improvements enter it through currently effective public or private
easements. To Seller's knowledge, no fact or condition exists which
would result in the termination of such utilities services to the
Improvements.
b. Representations and Warranties by Buyer. Buyer hereby represents
and warrants to Seller that as of the Effective Date:
i. Buyer is a duly organized and validly existing Delaware
limited partnership and is authorized to purchase property in the
state in which the Property is located, and Buyer has the power and
authority to enter into this Contract.
ii. This Contract and all documents executed by Buyer which
are to be delivered to Seller at Closing are or at the time of
delivery will be duly authorized, executed and delivered by Buyer,
and are or at the time of Closing, will be legal, valid, binding
obligations of Buyer, and do not and at Closing will not violate any
provisions of any agreement or any applicable governmental law or
regulation to which Buyer is a party or to which it is subject.
c. Indemnities.
i. Buyer and Seller hereby agree that they have each relied
upon the representations and warranties given by the respective
parties in Paragraph 1 4(a) and 14(b). Buyer shall indemnify and hold
Seller harmless from and against any and all liabilities, losses,
costs, damages, expenses, including reasonable attorneys' fees and
costs of litigation, arising or resulting from the untruth of any of
Buyer's representations and warranties set forth in Paragraph 14(b).
Seller shall indemnify and hold Buyer harmless from and against any
and all liabilities, losses, costs, damages and expenses, including
reasonable
14
<PAGE>
attorneys' fees and costs of litigation, which Buyer shall suffer or
incur because of the untruth of any of Seller's representations and
warranties set forth in Paragraph 14(a).
ii. Seller shall immediately remove and remediate any
Hazardous Materials present in, on, under or around the Property
(including, without limitation, the soil, groundwater, surface water,
sediment or other media) as of the Closing Date, along with any
migration, alteration or worsening of any such Environmental
Condition prior to or after the Closing Date, in accordance with all
applicable Environmental Laws and to the satisfaction of Buyer.
iii. Seller, its successors and assigns, shall indemnify,
release and hold Buyer, its successors, assigns, tenants, subtenants,
agents, partners, lenders and employees, harmless from and against
all Liabilities (defined below) arising directly or indirectly out of
or related to (i) the presence, disturbance, discharge, release,
removal, remediation or cleanup of Hazardous Materials in, on, under
or around the Property (including, without limitation, the soil,
groundwater, surface water, sediment or other media) as of the
Closing Date and any migration, alteration or worsening of any such
Environmental Condition prior to or after the Closing Date, and (ii)
any failure of the Property to comply with Environmental Laws as of
the Closing Date. The term "Liabilities" as used in this paragraph
shall mean any and all liabilities, liens, expenses, obligations,
demands, damages (including, but not limited to, personal injury and
property damages, punitive damages, multiple damages and
consequential and incidental damages), costs, cleanup costs, response
costs, remediation costs, losses, causes of action, claims for
relief, attorneys and other legal fees, consultants' and other
professional fees, penalties, fines, assessments and charges.
15. Default; Remedies.
a. Buyer Default. If the purchase and sale of the Property is not
consummated in accordance with the terms and conditions of this Contract due to
circumstances or conditions which constitute a default by Buyer under this
Contract, then the Earnest Money shall be delivered to Seller as full liquidated
damages and Seller's sole remedy for such default. Seller and Buyer acknowledge
that Seller's actual damages in the event of a default by Buyer under this
Contract will be diff~cult to ascertain, that such liquidated damages represent
the Seller's and Buyer's best estimate of such damages and that the Seller and
Buyer believe such liquidated damages are a reasonable estimate of such damages.
The foregoing liquidated damages are intended not as a penalty, but as full
liquidated damages, in the event of Buyer's default and as compensation for
Seller's taking the Property off the market during the term of this Contract.
Such delivery of the Earnest Money shall be the sole and exclusive remedy of
Seller by reason of a default by Buyer under this Contract, and Seller hereby
waives and releases any right to sue Buyer, and hereby covenants not to sue
Buyer, for specific performance of this Contract or to prove that Seller's
actual damages exceed the Earnest Money which is herein provided Seller as full
liquidated damages.
b. Seller Default. If (i) any representation or warranty of Seller
set forth in this Contract shall prove to be untrue or incorrect in any respect,
or (ii) Seller shall fail to keep, observe, perform, satisfy or comply with,
fully and completely, any of the terms, covenants, conditions, agreements,
15
<PAGE>
requirements, restrictions or provisions required by this Contract to be kept,
observed, performed, satisfied or complied with by Seller, or (iii) the purchase
and sale of the Property is otherwise not consummated in accordance with the
terms and provisions of this Contract due to circumstances or conditions which
constitute a default by Seller under this Contract (the matters described in the
foregoing clauses (i), (ii) and (iii) are hereinafter sometimes collectively
called "Seller Defaults"), then the Earnest Money shall be refunded to Buyer
immediately upon request, and Buyer may exercise such rights and remedies as may
be provided for in this Contract or as may be provided for or allowed by law or
in equity. Buyer's remedies in the event of the occurrence of any of the Seller
Defaults shall specifically include, without limitation, (x) the right to
enforce specific performance of this Contract and (y) the right to seek, prove
and recover (to the extent proven) monetary damages from Seller in an amount
equal to all actual out-of-pocket costs and expenses paid or incurred by Buyer
in connection with its execution of and entry into this Contract and its
proposed purchase of the Property, including, without limitation, (i) attorney's
fees and disbursements in connection with the negotiation and execution of this
Contract, the examination of title to the Property, and any other legal matter
undertaken by Buyer pertaining to the Property, and (ii) any examinations,
investigations, tests and inspections, undertaken by Buyer with respect to the
Property.
16. Post-Closing Covenants of Seller. Seller covenants and agrees that from and
after the Closing: (a) Seller does not, and shall not at any time own, directly
or indirectly (actually or by applying constructive ownership rules set forth in
Section 856(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"))
ten percent (10%) or more in value of the shares of the Company or unless
expressly waived by the Board of Directors of the Company, a ten percent (10%)
or greater interest in Buyer; and (b) Seller is not and will not be a
"tax-exempt entity" (within the meaning of Section 1 68(h)(2) of the Code), and
no person holding an interest in Seller is or will be a person that causes all
or any portion of the Property to be treated as "tax-exempt use property"
(within the meaning of Section 1 68(h)( l ) of the Code).
17. Pre-Closing Covenants of Seller. Seller covenants and agrees that from and
after the Effective Date until the Closing:
a. Access. Seller shall afford to Buyer, its attorneys, accountants,
and such other representatives of Buyer as Buyer shall designate to Seller in
writing, free and full access at all reasonable times, and upon reasonable prior
notice, to the Property and the books and records of Seller, in order that Buyer
may have full opportunity to make such investigation as it shall reasonably
desire of the Property (including, without limitation, any appraisals or
inspections thereof).
b. Cooperation in IPO Preparation. Seller shall cooperate in the
preparation by an affiliate of Buyer of a Form S- 1 1 under the Securities Act
of 1933, as amended, to be filed with the Securities and Exchange Commission
(the "Commission") and the closing of the offering registered thereby. Seller
shall provide access by Buyer's representatives, to all financial and other
information relating to the Property which would be sufficient to enable them to
prepare audited financial statements in conformity with Regulation S-X of the
Commission and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Seller shall also provide
to Buyer's representatives a signed representative letter and a hold harmless
letter which
16
<PAGE>
would be sufficient to enable an independent public accountant to render an
opinion on the financial statements related to the Property.
c. Cooperation in Obtaining Buyer's Consents. Seller shall use its
reasonable best efforts in cooperating with Buyer in the preparation of and
delivery to any automobile manufacturer(s) or other third party as soon as
practicable after the Effective Date of an application and/or other information
necessary to obtain such automobile manufacturer(s)' or other third party's
consent to and/or the approval of the transactions contemplated by this Contract
in satisfaction of the conditions expressed in Paragraph 12(a)(x).
18. Broker's Commission. Buyer and Seller represent and warrant to the other
that neither of them have engaged or contracted with any person, firm or entity
to serve or act as a broker, agent or finder for the purpose of the sale and
purchase of the Property, and that no broker's or real estate or other similar
commissions or fees are or shall be due in respect of the transaction
contemplated by this Contract. The Buyer and Seller each agree to indemnify,
defend and save harmless the other from and against any cost and expense,
including reasonable attorney's fees, incurred by the other as a result of the
untruth of any of the foregoing representations made by it.
19. Entire Agreement. This Contract constitutes the entire agreement between
Buyer and Seller with respect to the Property and may not be amended except by
written instrument executed by Buyer and Seller. Any other agreements, written
or oral, between Buyer and Seller with respect to the Property are hereby
superseded in their entirety by this Contract.
20. Headings. The paragraph headings are inserted for convenience only and are
in no way intended to describe, interpret, define or limit the scope or content
of this Contract or any provision hereof.
21. Construction. Words of any gender used in this Contract shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, and vice versa, unless the context requires
otherwise. Any disputes regarding the interpretation of any portion of this
Contract shall not be presumptively construed against the drafting party.
22. Remedies Cumulative. All rights, powers and privileges conferred hereunder
upon the parties hereto shall be cumulative and in addition to those other
rights, powers and remedies hereunder and those available at law or in equity.
All such rights, powers and remedies may be exercised separately or at once, and
no exercise of any right, power or remedy shall be construed to be an election
of remedies or shall preclude the future exercise of any or all other rights,
powers and remedies granted hereunder or available at law or in equity, except
as expressly provided herein.
23. No Waiver. Neither the failure of either party to exercise any power given
such party hereunder nor to insist upon strict compliance with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof shall constitute a waiver of either party's right to demand exact
compliance with the terms hereof.
17
<PAGE>
24. Applicable Law. This Contract shall be construed and interpreted in
accordance with the laws of the state in which the Property is located.
25. Successors and Assigns. This Contract shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
26. Counterparts. This Contract may be executed in two (2) or more counterparts.
27. Survival. Seller's and Buyer's representations, warranties and indemnities
set forth in Paragraphs 14 and 15 shall survive closing forever.
28. Escrow. The Earnest Money shall be held in escrow with Title Company upon
the following terms and conditions:
a. The Earnest Money shall be deposited in an interest bearing money
market account. Interest on the Earnest Money shall belong to Buyer, unless this
Contract is terminated by Seller pursuant to Paragraph 15(a).
b. Buyer and Seller agree that Title Company, as escrow agent
hereunder, shall not be liable in connection herewith for any reason except
gross negligence or intentional misconduct.
c. Buyer and Seller hereby indemnify Title Company, as escrow agent,
for all loss, costs, damages and expenses, including reasonable attorneys' fees
and expenses, associated with acting as escrow agent hereunder. If a dispute
arises as to the funds held by Title Company as escrow agent, then Title Company
may file an interpleader action in the appropriate court in the county in which
the Real Property is located and be relieved of all obligations hereunder.
d. The escrow shall terminate upon the earlier of the termination of
this Contract or the Closing.
29. Tax Deferred Exchange. At its option, Seller may assign its rights to sell
the Property pursuant to this Contract to a Qualified Intermediary Trustee or
Escrow Agent as those terms are defined in Treasury Regulations ss.1 .1031 (k)-
l or successor provisions (collectively, the "Qualified Intermediary") for the
purpose of conveying the Property pursuant to a transaction which qualifies as
an Exchange of Property pursuant to the provisions of Section 1031 of the
Internal Revenue Code of 1986, as amended (the "Code"). If Seller assigns its
rights to sell the Property pursuant to this Contract to the Qualified
Intermediary and Seller provides written notice of such assignment to Buyer on
or prior to the date of the Closing, Buyer agrees to fully cooperate with Seller
and with the Qualified Intermediary and to take all reasonable actions requested
by the Qualified Intermediary or by Seller to assist Seller and the Qualified
Intermediary in satisfying the requirements of Section 1031 of the Code,
including satisfying any of Buyer's obligations under this Contract directly to
the Qualified Intermediary. If Seller assigns its right to sell the Property
pursuant to this Contract to the Qualified Intermediary, the Qualified
Intermediary will direct Seller to convey the Property to Buyer on the date of
Closing in accordance with the terms of this Contract. Simultaneously with the
18
<PAGE>
conveyance of the Property to the Buyer, Buyer shall pay the Purchase Price to
the Qualified Intermediary. Buyer understands and acknowledges that a material
inducement to Seller's entry into this Contract is Seller's right to structure
this transaction so as to qualify the same as an Exchange of Property in
compliance with the provisions of Section 1031 of the Code, and agrees that this
Contract shall be interpreted, construed and applied in such a manner as to
qualify the transactions contemplated herein as an Exchange of Property in
compliance with the provisions of Section 1031 of the Code. Buyer makes no
representations and gives no warranties with respect to the tax effects of the
proposed exchange transactions. Seller shall reimburse Buyer for any closing
costs incurred by Buyer as a result of any exchange transaction arranged by
Seller which Buyer would have otherwise not incurred but for the Seller's
structuring of the transaction as an exchange. Additionally, notwithstanding
Seller's assignment of this Contract to a Qualified Intermediary, Seller shall
remain fully liable to Buyer for the performance of all indemnities and other
obligations hereunder and under no circumstances shall Buyer take title to any
replacement property for Seller and Seller shall not contractually obligate
itself or Buyer to do so.
30. Cooperation on Tax Matters.
a. Seller and Buyer shall each furnish to the other, upon request and
as promptly as practicable, such information (including access to books and
records) and assistance relating to the Property as is reasonably necessary for
(i) the filing of any Tax Return, the preparation for any Tax audit, and the
prosecution or defense of any claim, suit or proceeding relating to any proposed
Tax adjustment which may affect the prorations under this Agreement and (ii) for
the performance by Seller and Buyer of their respective obligations under this
Agreement. Seller and Buyer shall keep all such information and documents
received by them confidential unless otherwise required to be disclosed by law.
b. Seller and Buyer agree to give the other reasonable notice prior
to transferring, discarding or destroying any such books and records relating to
Tax matters of the Property and, if so requested, Seller and Buyer shall allow
the requesting party to take possession of such books and records.
c. Seller and Buyer shall cooperate with each other in the conduct of
any audit or other proceedings with respect to the Property for any Tax
purposes.
IN WITNESS WHEREOF, Buyer and Seller have executed the foregoing
instrument under seal as of the Effective Date.
[SIGNATURE LINES ARE CONTAINED ON THE TERM SHEET]
19
<PAGE>
<TABLE>
<S> <C>
TERM SHEET TO
CONTRACT TO PURCHASE AND SELL PROPERTY
This Term Sheet (Consisting of two (2) pages) and the terms and provisions
hereof (the "Term Sheet") is attached to and made a part of the Contract to
Purchase and Transfer Property (which, collectively with this Term Sheet, is
called the "Contract") between the following parties:
- ---------------------------------------------------------------------------------------------------------------------
Seller: Sonic Automotive, Inc.
("Seller"), a Corporation organized and existing under the laws of
the State of Delaware whose address for notices is:
- ---------------------------------------------------------------------------------------------------------------------
5401 E. Independence Blvd. With a Copy to:
P.O. Box 18747
Charlotte, North Carolina 28218
- ---------------------------------------------------------------------------------------------------------------------
Attention: Theodore M. Wright Attention:
- ---------------------------------------------------------------------------------------------------------------------
Telefax No.: (704) 536-5116 Telefax No.:
- ---------------------------------------------------------------------------------------------------------------------
Telephone No.: (704) 532-3347 Telephone No.:
- ---------------------------------------------------------------------------------------------------------------------
Buyer: Mar Mar Realty Limited Partnership ("Buyer"), a Delaware limited partnership whose address
for notices is:
- ---------------------------------------------------------------------------------------------------------------------
Independence Office Park With a Copy to:
6407 Idlewild Road Alan G. Dexter
Suite 106 Parker, Poe, Adams & Bernstein, LLP
Charlotte, North Carolina 28212 2500 Charlotte Plaza
Charlotte, North Carolina 28244
- ---------------------------------------------------------------------------------------------------------------------
Attention: Jim Mezzanotte Telefax No.: (704) 334-4706
- ---------------------------------------------------------------------------------------------------------------------
Telefax No.: (704) 566-6031 Telephone No.: (704) 335-9042
- ---------------------------------------------------------------------------------------------------------------------
Telephone No.: (704) 566-4081
- ---------------------------------------------------------------------------------------------------------------------
The following are the principal terms of the transaction and shall govern the
remainder of the Contract if inconsistent therewith:
Effective Date June 26 1998, subject to Definitions Paragraph 1(I).
- ---------------------------------------------------------------------------------------------------------------------
Real Property The Land described on Exhibit A hereto and all Improvements thereon and
appurtenances thereto located in York County, State of South Carolina.
- ---------------------------------------------------------------------------------------------------------------------
Personalty The personal property (if any) to be conveyed by Seller to Buyer, as described
on Exhibit C hereto.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Purchase Price: Four Million Five Hundred Seventy-one Thousand Four Hundred Twenty-nine
Dollars ($4,571,429.00)
The Purchase Price shall be allocated as follows:
Land $
Real Property Improvements $
Personal Property $
- ---------------------------------------------------------------------------------------------------------------------
Earnest Money: One Thousand Dollars ($1,000.00)
- ---------------------------------------------------------------------------------------------------------------------
Inspection Period: Forty-five (45) days after Buyer receives all of the items set forth in Paragraph
7(a).
- ---------------------------------------------------------------------------------------------------------------------
Closing Date: Set forth in Definitions Paragraph 1(e).
- ---------------------------------------------------------------------------------------------------------------------
BUYER: SELLER:
Mar Mar Realty Limited Partnership (SEAL) Sonic Automotive, Inc. (SEAL)
By: Mar Mar Realty Trust, General Partner By: /s/ B. Scott Smith
Its: President
By: /s/ James Mezzanotte
Its: Executive Vice President
Exhibit A The Land
Exhibit B Permitted Exceptions
Exhibit C Personalty
Exhibit D Assignment and Assumption of Lease
</TABLE>
21
Exhibit 10.11
AGREEMENT REGARDING THE SALE OF REAL PROPERTY
This AGREEMENT REGARDING THE SALE OF REAL PROPERTY (the
"Agreement") dated as of June ____, 1998, is made and entered into by and
between Mar Mar Realty Limited Partnership, a Maryland limited partnership ("Mar
Mar") and Chartown, a North Carolina general partnership ("Chartown").
WHEREAS, the sole general partner of Mar Mar is Mar Mar Realty Trust,
a Maryland trust (the "Trust"), which intends to become a publicly-traded entity
on the New York Stock Exchange via a stock offering which Mar Mar expects to be
completed by in or around September of 1998 (the "Offering");
WHEREAS, the Trust intends to cause Mar Mar to acquire a portfolio of
real property (the "Real Property") in conjunction with the Offering;
WHEREAS, Chartown has agreed to purchase certain Real Property for
the benefit of Mar Mar until such time as the Offering takes place and has
agreed to convey the Real Property to Mar Mar as soon as practicable following
the Offering;
WHEREAS, Mar Mar and Chartown desire to enter into this Agreement to
memorialize their agreement regarding the purchase and transfer of the Real
Property;
NOW THEREFORE, Mar Mar and Chartown agree as follows:
1. Recitals. The recitals above are incorporated herein by reference.
2. Purchase of Property by Chartown. Chartown has purchased the Real
Property and certain personal property used in conjunction therewith, if any,
described on Exhibit A hereto for the benefit of Mar Mar. Chartown agrees that
it will purchase, if requested by Mar Mar, the Property described on Exhibit B
hereto for the benefit of Mar Mar on terms and conditions which are negotiated
by Mar Mar, subject to the approval of Chartown, which approval shall not be
unreasonably withheld. All real or personal property described herein and on
Exhibits A & B hereto shall collectively be referred to hereafter as the
"Property."
3. Transfer of Property to Mar Mar. As soon as practicable following
the Offering, Chartown agrees to transfer title to all of the Property described
on Exhibit A hereto and all of the Property described on Exhibit B hereto that
it purchases prior to the Offering via general warranty deed. At Closing,
Chartown shall also assign all of its rights and obligations under any lease on
the Property and all of its rights and obligations with respect to any Property
which Chartown has not yet purchased at such time. In exchange for the
foregoing, Mar Mar agrees to pay Chartown, upon the closing of the transfer to
Mar Mar, all costs Chartown has actually incurred in conjunction with the
purchase of the Property, less any rents actually received by
<PAGE>
Chartown pursuant to any lease of any of the properties described in Exhibits A
and B hereto. For purposes hereof, "costs incurred by Chartown" shall include
but shall not be limited to the following: the purchase price of the Property,
any transfer taxes or similar charges incurred by Chartown in conjunction with
its purchase of the Property or the subsequent transfer to Mar Mar, all costs
incurred by Chartown for due diligence performed prior to the purchase, any
interest or other finance charges reasonably incurred by Chartown with respect
to any loan or other borrowing made for the purpose of acquiring the Property
and all costs associated with maintaining the Property from the time of purchase
through and including such time as the Property is purchased by Mar Mar. It is
agreed that Chartown's acquisition of the Property or pending acquisition of the
Property is an accommodation to Mar Mar and the Trust and Chartown is to be made
whole by Mar Mar to the same effect as though Mar Mar had purchased the
Property, as and when purchased, and continuously owned the Property from the
date of acquisition.
4. Indemnification of Chartown. Mar Mar shall defend, indemnify and
save and hold Chartown harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and expenses and court costs and actual or
consequential damages, incurred by, imposed upon or asserted against Chartown,
its officers, trustees, employees, shareholders or agents, arising directly or
indirectly from or out of Chartown's acquisition of the Property of factions or
omissions in anticipation of the acquisition of the Property.
5. Amendments. Mar Mar and Chartown acknowledge that schedules of
Property contained in Exhibits A and B hereto may be amended. In the event that
the parties hereto seek to amend either or both exhibits, an amendment to this
agreement to incorporate the revised Exhibits A and B shall be effective so long
as Exhibits A and B, as amended, are signed by the same individuals who have
executed this document below.
6. Entire Agreement. This Agreement constitutes the entire agreement
between Mar Mar and Chartown with respect to the Property and may not be amended
except by written instrument executed by Mar Mar and Chartown. Any other
agreements, written or oral, between Mar Mar and Chartown with respect to the
Property are hereby superseded in their entirety by this Agreement.
7. Headings. The paragraph headings are inserted for convenience only
and are in no way intended to describe, interpret, define or limit the scope or
content of this Agreement or any provision hereof.
8. Construction. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. Any disputes regarding the interpretation of any portion of this
Agreement shall not be presumptively construed against the drafting party.
2
<PAGE>
9. Remedies. Both parties hereto may enforce the rights and
obligations hereunder via any remedy available to them at law or equity,
including, without limitation, the remedy of injunctive relief compelling
specific performance of this Agreement. All rights, powers and privileges
conferred hereunder upon the parties hereto shall be cumulative. All such
rights, powers and remedies may be exercised separately or at once, and no
exercise of any right, power or remedy shall be construed to be an election of
remedies or shall preclude the future exercise of any or all other rights,
powers and remedies granted hereunder or available at law or in equity, except
as expressly provided herein.
10. No Waiver. Neither the failure of either party to exercise any
power given such party hereunder nor to insist upon strict compliance with its
obligations hereunder, nor any custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of either party's right to
demand exact compliance with the terms hereof.
11. Applicable Law. With respect to any given Property, this
Agreement shall be construed and interpreted in accordance with the laws of the
state in which the Property is located, notwithstanding conflicts of laws or
choice of laws principles to the contrary, and otherwise, the Agreement shall be
governed by the laws of the State of North Carolina, notwithstanding conflicts
of laws or choice of laws principles to the contrary.
12. Invalidity. If any provision of this Agreement shall be declared
invalid or unenforceable, the remainder of this Agreement shall continue in full
force and effect.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
14. No Partnership or Agency Created. This Agreement creates and
evidences a purchase agreement between Mar Mar and Chartown, and not a
partnership, joint venture, or other type of ownership inconsistent with a
purchase agreement, and neither Mar Mar not Chartown shall make any
representation to the contrary.
15. Counterparts.. This Agreement may be executed in two (2) or more
counterparts.
3
<PAGE>
IN WITNESS WHEREOF, Mar Mar and Chartown have entered into this
Agreement as of the date first written above.
MAR MAR REALTY LIMITED PARTNERSHIP,
A Delaware limited partnership
By: MAR MAR REALTY TRUST,
A Maryland trust, its general partner
By: ______________________________
James A. Mezzanotte,
Executive Vice President
CHARTOWN,
A North Carolina general partnership
By: _____________________________________
Name: _________________________________________
Its general partner
4
EXHIBIT 10.12
Mar Mar Letterhead
August 14, 1998
Mr. Mark J. Iuppenlatz
485 Clavey Lane
Highland Park, IL 60035
Dear Mark,
On behalf of Mar Mar Realty Trust, I am pleased to extend to you an offer of
employment. I have outlined below the structure of salary, incentive compen-
sation, and title, which we discussed.
- - Your title shall be Executive Vice president, Chief Operating Officer,
Director of Acquisitions.
- - Compensation Structure:
Base Salary (per annum) $ 250,000
Incentive compensation:
---------------------------------------------------------
Production Cash OR Cash + Stock
---------------------------------------------------------
1998 $ 75,000,000 $ 50,000 -- + --
1999 $200,000,000 $120,000 $ 96,000 + $24,000*
$250,000,000 $187,500 $150,000 + $37,500*
$300,000,000 $300,000 $240,000 + $60,000*
---------------------------------------------------------
* Stock would be distributed at market price at time of
bonus award. it will vest over a 3-year period. First
payment would be at time of award with subsequent pay-
ments on each anniversary in equal installments.
- - The election between an all cash bonus and a mix of cash and stock will be
your decision.
- - For bonus purposes, the pro rata share of the minimum bonus associated with
Sonic properties shall be reduced by 50%. by way of example, if the minimum
production threshold is met and 10% of the acquisitions are Sonic properties,
then the minimum bonus amount will be reduced by 5%.
- - All acquisitions shall be subject to the approval of a committee consisting of
at least Bruton Smith, you and myself.
<PAGE>
Mr. Mark J. Iuppenlatz August 12, 1998
Offer of Employment Page 2
- - Your start date will be as soon as possible, but not later than September 21,
1998. You have agreed to devote as much time as possible to Mar Mar business
prior to your actual start date in order to get a "running start".
- - Ward of 140,000 options upon completion of the IPO. Options will vest in 25%
increments over a three year period with the first increment vesting
immediately upon the date of the grant and the remaining 75% vesting in three
equal installments on the first, second and third anniversary of the date of
grant.
- - You will be entitled to a standard executive benefits package which shall be
substantially similar to the package currently provided to senior executives
at Sonic Automotive, Inc. The package shall include, but not be limited to,
the following types of benefits: health insurance, vacation policy, travel and
expense policy, life insurance, etc.
- - We will negotiate a reimbursement package for reasonable and customary
expenses associated with the sale of your existing home and relocation of your
household possessions to Charlotte, North Carolina.
As I told you previously mark, we are all pleased and excited about you becoming
a vital part of our company. There is a tremendous amount of work to be done,
for which I believe you are well qualified and able to accomplish, but with that
responsibility also comes tremendous opportunity. I'm looking forward to working
with you to accomplish these goals and to maximize those opportunities for you
personally, our company and our stockholders.
Sincerely,
Mar Mar Realty Trust
B.F. (Biff) Bracy
President
ACCEPTED AND AGREED:
Enclosures
/S/ Mark J. Iuppenlatz
----------------------
Mark J. Iuppenlatz
----------------------
8-18-98
----------------------
Date
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
Mar Mar Realty Limited Partnership, a Delaware limited partnership
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees
Mar Mar Realty Trust
Charlotte, North Carolina
We consent to the use in this Registration Statement on Form S-11 relating
to 11,500,000 Common Shares of Beneficial Interest of Mar Mar Realty Trust of
our report dated September 17, 1998, appearing in the Prospectus, which is a
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
September 17, 1998
