<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FORTRESS INVESTMENT CORP.
(Exact name of Registrant as specified in its charter)
1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
(212) 798-6100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
RANDAL A. NARDONE
CHIEF OPERATING OFFICER AND SECRETARY
FORTRESS INVESTMENT CORP.
1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
(212) 798-6110
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
DAVID J. GOLDSCHMIDT
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) FEE
--------------------------- ---------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share................ 20,916,739 shares $20 $418,334,780 $123,409
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
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, DATED SEPTEMBER 8, 1998
PROSPECTUS
20,916,739 SHARES
FORTRESS INVESTMENT CORP.
COMMON STOCK
This Prospectus relates to shares of common stock, par value $.01 per
share (the "Common Stock"), of Fortress Investment Corp., a Maryland corporation
("Fortress"). Certain shares of the Common Stock were issued and sold (the
"Original Offering") on June 10, 1998 (the "First Closing Date") and July 1,
1998 (the "Second Closing Date") to the Initial Purchaser (as defined herein)
and subsequently sold by the Initial Purchaser in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), to persons reasonably believed by the Initial Purchaser to be
qualified institutional buyers as defined in Rule 144A under the Securities Act,
to a limited number of institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and to certain individual
"accredited investors" (as defined in Rule 501(a)(4), (5) or (6) under the
Securities Act). In addition, certain shares of the Common Stock were sold
directly by Fortress to the Manager (as defined below) or to an affiliate of the
Manager and to certain employees of the Manager (the "Private Placement").
The Common Stock offered hereby (the "Offered Securities") may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees or their successors (collectively, the "Selling
Stockholders") pursuant to this Prospectus. All of the Offered Securities are
being offered by the Selling Stockholders. The Offered Securities may be sold by
the Selling Stockholders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Selling Stockholders" and "Plan of
Distribution." The Selling Stockholders will receive all of the net proceeds
from the sale of the Offered Securities and will pay all underwriting discounts,
selling commissions and transfer taxes, if any, applicable to any such sale. The
Company is responsible for payment of all other expenses incident to the
registration of the Offered Securities. See "Plan of Distribution."
Fortress is a newly-formed Maryland corporation established to continue
the opportunistic real estate-related investment activities of Messrs. Wesley R.
Edens, Robert I. Kauffman, Randal A. Nardone and Erik P. Nygaard (each, a
"Principal, collectively, the "Principals"). Fortress Investment Group LLC (the
"Manager") will manage the day-to-day operations of Fortress and the Operating
Partnership (as defined below), under the direction of Fortress' Board of
Directors. Fortress will be the sole general partner of Fortress Partners, L.P.
(the "Operating Partnership" and, collectively with Fortress and their
subsidiaries, the "Company"), through which the investments of the Company will
be made. The Manager (or an affiliate) currently owns approximately 12.8% of the
equity interests in the Company (on a fully diluted basis) and has options to
purchase an additional 10% of the outstanding equity. See "Management -- Stock
Options."
Fortress expects to qualify as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998. The charter of
Fortress, as may be amended or restated from time to time (the "Charter"),
contains various restrictions on the ownership and transfer of the Common Stock
in order to preserve Fortress' status as a REIT. See "Description of Securities
- -- Transfer Restrictions."
SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK, INCLUDING, AMONG OTHERS:
- The Company relies on the Manager for advisory and management
services pursuant to the Management Agreement, and on key
personnel of the Manager, including the Principals, whose
continued service is not guaranteed.
<PAGE> 3
- Certain of the Company's real estate-related assets will
require significant management resources, will be illiquid,
and may decrease in value due to factors and conditions beyond
the Company's control.
- The Company has a limited operating history and competes with
respect to its acquisition of investments with other
investors, including other REITs and private real estate
opportunity funds.
- Conflicts of interest may arise among Fortress, the Operating
Partnership, the Manager and the Principals, which may result
in decisions that do not fully reflect the best interests of
all of the stockholders of Fortress.
- The Company has broad discretion in the types and percentages
of any types of real estate-related assets included in its
portfolio and may change its investment and operating policies
and strategies at any time without the consent of the
stockholders of Fortress.
- The Company invests in commercial real properties, including
net leased properties, which are subject to risk of
non-payment by the applicable tenant, particularly in the
event of an economic downturn, and various types of commercial
mortgage loans, which may be subject to significant credit
risk, resulting in possible losses.
- The Management Agreement provides for base management fees
payable to the Manager without consideration of the
performance of the Company's portfolio. The Manager or an
affiliate also will receive incentive fees based on certain
performance criteria, which could result in the Manager
recommending investments which are riskier or more speculative
investments.
- If it fails to qualify as a REIT, Fortress will be subject to
income tax at regular corporate rates, which may have the
effect of reducing cash available for distribution to
stockholders of Fortress.
- There is no established market for the Common Stock, which may
affect the liquidity of an investment in the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
3
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TABLE OF CONTENTS
<TABLE>
<S> <C>
OFFERING SUMMARY................................................................................................... 2
The Company.................................................................................................... 2
INVESTMENT STRATEGY............................................................................................ 3
The Sister Co. and Preferred Stock Affiliates.................................................................. 5
Summary Risk Factors........................................................................................... 6
The Manager.................................................................................................... 7
Management Agreement and Management Incentives................................................................. 8
Exclusivity.................................................................................................... 9
Conflicts of Interest.......................................................................................... 10
Restrictions on Ownership of Stock............................................................................. 10
Use of Proceeds................................................................................................ 10
Distribution Policy............................................................................................ 10
Tax Status of the Company...................................................................................... 11
Organization and Relationships................................................................................. 12
RISK FACTORS....................................................................................................... 13
INVESTMENT ACTIVITY RISKS...................................................................................... 14
Conflicts of Interest in Relationship with the Manager.................................................... 14
External Management of the Company........................................................................ 14
Manager May Advise Others................................................................................. 14
Structure of Management Compensation Could Jeopardize the Invested Portfolio.............................. 14
Management Agreement May Not be Most Favorable to the Company............................................. 14
Dependence on Key Personnel............................................................................... 14
Conflicts Relating to the Operating Partnership........................................................... 14
Geographic Concentration of the Properties:
Significant Concentration of Credit Risk.................................................................. 15
Appropriate Investments May Not Be Available; Broad Discretion on Investments............................. 15
No Limitation on Coverages Leverage Can Reduce Income Available for Distribution.......................... 15
Real Estate is Illiquid and Value is Dependent on Conditions Beyond Company's Control..................... 16
Real Estate Investment Risks.............................................................................. 16
Risks Related to Investments in Mortgage Loans............................................................ 16
Conflicts Relating to the Sister Co....................................................................... 17
International Investments are Subject to Currency Conversion Risks and Uncertainty of Foreign Laws........ 17
ECONOMIC AND BUSINESS RISKS.................................................................................... 18
Newly-Organized Corporation............................................................................... 18
Availability of Capital................................................................................... 18
Adverse Changes in General Economic Conditions Can Adversely Affect the Company's Business................ 18
Risks Associated with Hedging Investments................................................................. 18
Financing Risks........................................................................................... 18
Multi-Sector and Multi-Jurisdiction Investment Strategy................................................... 18
The Company's Insurance May Not Cover All Losses.......................................................... 19
Property Taxes Decrease Returns on Real Estate............................................................ 19
Compliance with Americans with Disabilities Act and Other Changes
in Governmental Rules and Regulations May Be Costly..................................................... 19
Risk of Adverse Effect on Results of Operations Due to Possible Environmental Liabilities................. 19
LEGAL AND TAX RISKS............................................................................................ 20
Tax Risks................................................................................................. 20
Stock Ownership Limit May Restrict Business Combination Opportunities..................................... 20
Maryland Takeover Statutes May Restrict Certain Opportunities............................................. 21
</TABLE>
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<TABLE>
<S> <C>
Preferred Stock May Prevent Change in Control............................................................. 21
Stockholder Rights Plan Could Inhibit Change of Control................................................... 21
Board of Directors May Change Certain Policies Without Stockholder Consent................................ 21
Plans Should Consider ERISA Risks of Investing in Common Stock............................................ 22
Loss of Investment Company Act Exemption Would Adversely Affect the Company............................... 22
Limitations on Liability of Manager and Officers and Directors of the Company............................. 22
Possible Legislative or Other Actions Affecting Tax Consequences.......................................... 23
OTHER RISKS.................................................................................................... 23
Risk that Market for Common Stock Will Not Develop........................................................ 23
Year 2000 Compliance...................................................................................... 23
INVESTMENT STRATEGY................................................................................................ 24
General........................................................................................................ 24
Targeted Investments........................................................................................... 25
Investment Management.......................................................................................... 26
The Sister Co. and Preferred Stock Affiliates.................................................................. 26
Policies with Respect to Certain other Activities.............................................................. 27
THE COMPANY........................................................................................................ 29
Investments.................................................................................................... 29
Borrowings..................................................................................................... 31
THE MANAGER AND THE MANAGEMENT AGREEMENT........................................................................... 32
The Manager.................................................................................................... 32
The Manager's Experience....................................................................................... 32
Officers of the Manager........................................................................................ 32
The Management Agreement....................................................................................... 32
Management Fee................................................................................................. 37
Management Incentives.......................................................................................... 40
Limits of Responsibility.......................................................................................
Certain Relationships: Conflicts of Interest...................................................................
MANAGEMENT.........................................................................................................
Directors and Executive Officers of the Company................................................................
Executive Compensation.........................................................................................
Compensation of Directors......................................................................................
Stock Options..................................................................................................
Liability and Indemnification of Officers and Directors........................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................................................
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...............................................................
USE OF PROCEEDS................................................................................................
DISTRIBUTION POLICY............................................................................................
PRICE RANGE OF COMMON STOCK....................................................................................
CONSOLIDATED UNAUDITED PRO FORMA FINANCIAL STATEMENTS..........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................................................
Overview.......................................................................................................
Liquidity and Capital Resources................................................................................
Result of Operations...........................................................................................
Year 2000 Compliance...........................................................................................
DESCRIPTION OF SECURITIES..........................................................................................
General........................................................................................................
Common Stock...................................................................................................
Preferred Stock................................................................................................
Power to Issue Additional Shares of Common Stock and Preferred Stock...........................................
Stockholder Rights Plan........................................................................................
Dividend Reinvestment Plan.....................................................................................
Transfer Agent and Registrar...................................................................................
</TABLE>
ii
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<TABLE>
<S> <C>
Transfer Restrictions.......................................................................................... 63
Book-Entry Only Issuance - The Depository Trust Company........................................................ 67
CERTAIN PROVISIONS OF MARYLAND LAW AND OF FORTRESS' CHARTER AND BYLAWS............................................. 69
Classification of the Board of Directors....................................................................... 69
Removal of Directors........................................................................................... 69
Business Combinations.......................................................................................... 69
Control Share Acquisitions..................................................................................... 70
Amendment to the Charter....................................................................................... 70
Dissolution of Fortress........................................................................................ 71
Advance Notice of Director Nominations and New Business........................................................ 71
Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter and Bylaws....................... 71
COMMON STOCK AVAILABLE FOR FUTURE SALE............................................................................. 72
OPERATING PARTNERSHIP AGREEMENT.................................................................................... 73
General........................................................................................................ 73
General Partner Not to Withdraw................................................................................ 73
Capital Contributions.......................................................................................... 73
Issuance of Additional LP Interests............................................................................ 74
Redemption Rights.............................................................................................. 74
Operations..................................................................................................... 74
Distributions: Preferred Incentive Return...................................................................... 74
Allocations.................................................................................................... 74
Term........................................................................................................... 74
Tax Matters.................................................................................................... 74
Sister Co...................................................................................................... 74
FEDERAL INCOME TAX CONSIDERATIONS.................................................................................. 76
Taxation of the Company........................................................................................ 76
Requirements for Qualification................................................................................. 77
Failure to Qualify............................................................................................. 82
Taxation of Taxable U.S. Stockholders.......................................................................... 82
Taxation of Stockholders on the Disposition of the Common Stock................................................ 83
Taxation of Tax-Exempt Stockholders............................................................................ 83
Taxation of Non-U.S. Stockholders.............................................................................. 84
Possible Legislative or Other Actions Affecting Tax Consequences............................................... 85
State, Local and Foreign Tax Consequences...................................................................... 85
Sister Co...................................................................................................... 86
ERISA CONSIDERATIONS............................................................................................... 86
The Acquisition and Holding of Common Stock.................................................................... 86
The Treatment of the Company's Underlying Assets Under ERISA................................................... 86
SELLING STOCKHOLDERS............................................................................................... 89
PLAN OF DISTRIBUTION............................................................................................... 90
LEGAL MATTERS...................................................................................................... 90
EXPERTS............................................................................................................ 91
GLOSSARY OF TERMS.................................................................................................. 92
INDEX TO FINANCIAL STATEMENTS...................................................................................... F-1
</TABLE>
iii
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AVAILABLE INFORMATION
Fortress has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-11 (as
amended, the "Registration Statement") of which this Prospectus is a part under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements contained in this Prospectus as to the content of any contract,
agreement or other document are summaries of the material terms of such
contract, agreement or other document. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement (including the exhibits thereto) filed by
Fortress with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is
http://www.sec.gov.
Upon the effectiveness of the Registration Statement, Fortress will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the addresses set forth above. Fortress will
report its financial statements on a year ended December 31. Fortress intends to
furnish its stockholders with annual reports containing consolidated financial
statements audited by its independent certified public accountants and with
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.
<PAGE> 8
OFFERING SUMMARY
The following summary does not purport to be complete and is subject
to, and qualified in its entirety by, the more detailed information included
elsewhere in this Prospectus. Capitalized terms used but not defined herein
shall have the meanings set forth in the Glossary beginning on page __. All
references to dollars are to U.S. Dollars unless otherwise specified.
THE COMPANY
Fortress was established to continue the opportunistic real
estate-related investment activities of Messrs. Wesley R. Edens, Robert I.
Kauffman, Randal A. Nardone and Erik P. Nygaard (each, a "Principal", and
collectively the "Principals"), which were previously conducted on behalf of
BlackRock Asset Investors ("BAI") and on behalf of the Global Principal Finance
group ("GPF") of UBS Securities LLC ("UBS"). The Company is externally managed
and advised by the Manager, which the Company believes has developed an
organization of investment management professionals that is well-positioned to
take advantage of today's real estate and capital markets environment. The
Manager employs 41 professionals in offices in New York, Toronto and London and
expects to open an office in Tokyo. The Manager's professionals combine real
estate, risk management, structured finance, capital markets, financial
engineering and legal expertise, with respect to both dollar and non-dollar
denominated investments. The Company believes that it is uniquely positioned to
capitalize on market and industry trends in complex real estate-related
investments across product, credit, geographic and industry lines.
The Principals have an average of over 15 years of real estate-related
experience and believe that they have a strong track record in building and
managing successful finance and investment management businesses, and have
developed key relationships with premier organizations involved in various real
estate-related activities.
BAI is a real estate and mortgage debt fund established in 1995. The
Principals have been responsible for the day-to-day management of BAI since its
formation and will continue to manage BAI through its liquidation, which is
expected to be substantially completed by September 1999. GPF was established in
May 1997 by UBS and the Principals, as employees of UBS, to continue the
investment activities of the Principals after BAI was fully invested. The
Principals were responsible for managing the day-to-day operations of GPF
throughout its existence, which ended with the complete liquidation of the
portfolio acquired by GPF (the "GPF Assets"). The Company acquired real estate
related assets from UBS for approximately $679 million. See "The Company --
Investments."
The Company believes that the interests of both the Principals and the
Manager are aligned with those of the stockholders of Fortress because the
Principals, along with the Manager (or an affiliate of the Manager) and
employees of the Manager, have acquired an aggregate of approximately $53.7
million of shares of Common Stock of Fortress and Units of the Operating
Partnership. As a further incentive, the Manager (or an affiliate of the
Manager) receives a Preferred Incentive Return (as defined herein) on its
limited partnership interest in the Operating Partnership based in part on
Fortress' Funds From Operations (as defined herein) and was granted options to
acquire additional shares of Common Stock (or, at the option of the Company,
Units) at an exercise price, subject to adjustment, equal to the offering price
in the Original Offering. See "The Manager and the Management
Agreement -- Management Incentives" and "Management -- Stock Options."
Fortress was incorporated in the State of Maryland in May 1998 and
expects to be taxed as a REIT under the Code commencing with its taxable year
ending December 31, 1998. The Operating Partnership was formed in the State of
Delaware in May 1998. The Company had no operations prior to the Original
Offering. The principal executive offices of the Company are located at 1301
Avenue of the Americas, New York, New York 10019. The Company's telephone number
is (212) 798-6100.
2
<PAGE> 9
INVESTMENT STRATEGY
GENERAL
The Company intends to maximize stockholder value by pursuing
investments in a manner consistent with the fundamental investment philosophy of
the Principals -- that attractive risk-adjusted returns can be achieved through
a combination of real estate, structured finance and capital markets expertise
and a highly disciplined investment process. The Principals believe that they
have created a unique organization capable of successfully executing an
extensive array of multi-national real estate-related transactions. The Company
and the Manager include individuals who are former investment bankers, bond
traders, structured finance attorneys, real estate brokers, asset managers, real
estate attorneys and financial engineers. In addition, the Manager's
professionals have established relationships with various other real estate,
structured finance and capital markets professionals. The Company believes that
these relationships enable it better to cultivate investment opportunities in
diverse real estate-related asset types and jurisdictions.
The investment activities of the Company are primarily focused on real
estate-related assets that produce cash flows that are undervalued, whether due
to the credit quality of the obligors, the value of the underlying assets, the
complexity of the transaction, the viability of the capital structure, the
accuracy and availability of information or the availability of appropriate
operating systems. The Principals believe that they have historically been
successful in adding value to these types of assets through (a) increasing and
stabilizing cash flows through restructuring and workouts, (b) creating optimal
servicing and operating systems, (c) gathering and monitoring asset-specific and
obligor-specific information and (d) developing appropriate short-term and
long-term capital structures for the assets. The Principals also believe that
they have historically been successful in monetizing the value created by these
strategies through securitizations, negotiated restructurings and liquidations.
TARGETED INVESTMENTS
The Company engages primarily in the same areas of investment activity
as BAI and GPF, which include: (i) investing in net leased real estate ("Credit
Leased Real Estate"); (ii) investing in portfolios of distressed, sub-performing
and performing residential, multifamily and commercial mortgage loans ("Loan
Portfolios"); and (iii) providing financing to third party owners of real estate
and portfolios of mortgage loans ("Financings"), in each case with respect to
assets located in the U.S. and in foreign jurisdictions. Such investments are
made directly or indirectly, through an investment in an entity created to hold
such assets, or investments in operating companies that own such assets.
- Credit Leased Real Estate consists of residential
and commercial properties which are generally leased on a
long-term basis to high credit quality tenants, including both
government and private sector entities.
- Loan Portfolios consist primarily of distressed,
sub-performing and performing residential, multifamily and
commercial mortgage loans and related properties acquired in
foreclosure or by deed-in-lieu of foreclosure.
- Financings consist primarily of relatively short-term, secured
loans to third-party owners of real estate or portfolios of
mortgage loans.
- Other Investments. In addition to its three targeted lines of
business referenced above, the Company intends to continue to
opportunistically pursue a variety of real estate-related
transactions whenever the Company believes such investments
will enable it to achieve attractive risk-adjusted returns. In
certain cases, the Company may create or invest in operating
companies in connection with asset acquisitions in order to
enhance the value of the assets as well as to create platforms
for further investment. See "Investment Strategy -- The Sister
Co. and Preferred Stock Affiliates."
3
<PAGE> 10
INVESTMENTS
In connection with the Principals' departure from UBS to form Fortress,
and the liquidation of the portfolio acquired by GPF (the "GPF Assets"), the
Company has purchased certain of the GPF Assets from UBS. In addition, the
Company has made several other investments since its inception and continuously
reviews investment opportunities.
Credit Leased Real Estate
GSA Leased Properties: In July 1998, the Company purchased from UBS for
a purchase price of approximately $277 million (i) nine properties (the "Initial
GSA Properties") leased to the General Services Administration of the U.S.
government (the "GSA") and (ii) rights to purchase three additional properties
leased to the GSA (the "Option GSA Properties") upon completion of the related
construction and the commencement of the related GSA lease terms. The Company
financed this purchase through the Loan Facility discussed below. See
"--Borrowings." One of the Option GSA Properties has been completed and leased
to the GSA and has been acquired by the Company. The remaining approximately $16
million balance for this property was financed through the Loan Facility. These
properties are generally office properties located throughout the U.S. and are
net leased to the GSA.
In August 1998, the Company purchased an office property in Houston,
Texas leased primarily to the GSA for approximately $14 million. The Company has
financed 75% of the purchase price through the Loan Facility.
In August 1998, the Company purchased an office property in Washington,
D.C. leased primarily to the GSA for approximately $36 million. The Company has
financed 75% of the purchase price through the Loan Facility.
Canadian Real Estate Portfolio: In August 1998, the Company entered
into an agreement to purchase from a real estate company based in Canada a
portfolio of seven office and industrial buildings for a purchase price of
approximately $53 million. The closing is expected to occur on or about October
1, 1998. The properties are located in southern Ontario.
Loan Portfolios
Canadian Loan Portfolio: In August 1998, the Company purchased from UBS
a portfolio of Canadian mortgage loans for a purchase price of approximately $55
million. As of June 30, 1998, the portfolio consisted of 436 mortgage loans and
12 REO properties located throughout Canada with an unpaid principal balance of
approximately $56 million. The assets securing the loans are commercial and
residential properties.
U.S. Commercial Loan Portfolio: In August 1998, the Company purchased
from UBS a portfolio of U.S. commercial mortgage loans for a purchase price of
approximately $80 million. As of June 30, 1998, the portfolio consisted of 48
mortgage loans and 2 REO properties located primarily in California, Florida and
New York with an unpaid principal balance of approximately $87 million. The
assets securing the loans are primarily office, industrial, retail and
multifamily properties.
Residential Loan Portfolio #1: In August 1998, the Company purchased
from UBS a 50% interest in a residential loan portfolio for a purchase price of
approximately $6 million. As of June 30, 1998, the portfolio was comprised of
approximately 937 mortgage loans and REO assets with an unpaid principal balance
of approximately $25 million. The remaining 50% of the portfolio is owned by an
affiliate of the servicer of the mortgage loans.
Residential Loan Portfolio #2: In August 1998, the Company purchased
from UBS a 40% interest in a residential loan portfolio for a purchase price of
approximately $38 million. As of June 30, 1998, the portfolio was comprised of
approximately 2,947 mortgage loans and REO assets with an unpaid principal
balance of approximately $124 million. An affiliate of the servicer also owns
40% of the portfolio, and the remaining 20% of the portfolio is owned by an
unaffiliated third party.
Financings
Residential Servicer Loan: In connection with the initial purchase of
the residential loan portfolios described above, UBS financed the servicer's
investment in the portfolios. In August 1998, the Company purchased from UBS a
loan to the servicer with an unpaid principal balance of approximately $42
million. The purchase price was approximately $42 million. The loan has a coupon
of 400 basis points over one-month LIBOR and a maturity date in December 1998.
The loan is secured by the borrower's equity interest in the residential loan
portfolios as well as certain additional collateral.
Loan: In August 1998, the Company purchased from UBS a loan to an
affiliate of the servicer of the residential loan portfolios described above
with an unpaid principal balance of approximately $16 million. The
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<PAGE> 11
purchase price was approximately $16 million. The loan has a coupon of 400 basis
points over one-month LIBOR and a maturity date in December 1998. The loan is
secured by residential, commercial and other mortgage loans and REO.
New York Property Company Credit Facility: In August 1998, the Company
purchased from UBS a credit facility to a single-family REO rehabilitation
company located in New York with an unpaid principal balance of approximately
$16 million. The purchase price was approximately $15 million. The facility has
a coupon of 410 basis points over one-month LIBOR and a maturity date in August
2000. The loan is secured by mortgages on properties located in the New York
metropolitan area.
French Commercial Mortgage Loan: In August 1998, the Company purchased
from an affiliate of UBS a loan to an affiliate of a Boston-based investment
manager with an unpaid principal balance of approximately $53 million. The
purchase price was approximately $54 million. The loan has a coupon of 250 basis
points over the three-month Paris Interbank Offered Rate and a maturity date in
December 1998. The loan is secured by an office building located near Paris,
France.
Building Materials Retailer Loan: In August 1998, the Company purchased
from UBS a loan to a building materials retailer, which has recently completed a
Chapter 11 reorganization, with an unpaid principal balance of approximately $96
million. The purchase price was approximately $96 million. The loan has a coupon
of 400 basis points over one-month LIBOR and a maturity date in December 2004.
The loan is secured by 123 properties (retail stores and warehouse facilities)
located throughout the midwest and southwest sections of the United States.
BORROWINGS
Loan Facility: In July 1998, the Company entered into a financing
arrangement with a financial institution (the "Loan Facility") providing the
Company with approximately $234 million in debt relating to the GSA Leased
Properties described above. The financed amounts are approximately 75% of the
cost of the related properties. The facility bears interest at a floating rate,
has a term of nine and one-half years maturing in 2008, and includes declining
prepayment penalties for the first thirty months of the facility. The Loan
Facility is secured by the GSA Leased Properties and certain related assets. The
Company has entered into a series of interest rate swaps the effect of which is
intended to convert the floating rate to a fixed rate.
Secured Borrowings: Substantially all of the remaining assets of the
Company are currently financed by secured recourse facilities (secured by the
related assets) bearing interest at a floating rate and maturing between
February and August 1999.
THE SISTER CO. AND PREFERRED STOCK AFFILIATES
The Company may, from time to time, identify assets which it believes
may be advantageous investments, but which may be inappropriate (whether for
REIT qualification, tax or other reasons) for investment, in whole or in part,
by Fortress. In order to permit stockholders of Fortress to participate in the
economic benefits that may be associated
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<PAGE> 12
with such assets, the Company intends, from time to time, to utilize a
structure, often referred to as a "paper clip" structure, that would involve
distributing to Fortress' stockholders the equity interests of a newly-formed
sister company (each, a "Sister Co."), which would not qualify as a REIT, to
make such investments. To date, no Sister Co. has been established. In addition,
in order to permit stockholders of Fortress to participate in the economic
benefits that may be associated with assets which do not qualify for, or which
produce income which does not qualify for, certain REIT asset and income tests,
the Company, to the extent permitted by law, may, from time to time, transfer
such assets to an entity in which the Company will hold all or substantially all
of the preferred equity interests and third parties will hold all or
substantially all of the common equity interests. The Company has established a
preferred stock affiliate which holds certain assets that the Company has
determined are not, or may produce income that is not, qualifying assets or
income for purposes of the REIT asset or income tests. See "Risk Factors --
Investment Activity Risks -- Conflicts Relating to the Sister Co." and "Federal
Income Tax Consequences -- Requirements for Qualification."
SUMMARY RISK FACTORS
An investment in the Common Stock involves various material risks, and
prospective investors should consider carefully the matters discussed under
"Risk Factors" prior to an investment in the Company. Such risks include, among
others:
- The Company relies on the Manager for advisory and management
services pursuant to the Management Agreement, and on key
personnel of the Manager, including the Principals, whose
continued service is not guaranteed.
- Although many of the Manager's senior personnel, including the
Principals, have been operating as a group for almost four
years, the Company has limited operating history and none of
the Principals has experience operating a REIT.
- Certain of the Company's real estate-related assets will
require significant management resources, will be illiquid,
and may decrease in value due to factors and conditions beyond
the Company's control.
- The Company competes with respect to its acquisition of assets
with several other companies including other REITs and private
real estate opportunity funds.
- Conflicts of interest may arise among Fortress, the Operating
Partnership, the Manager and the Principals, which may result
in decisions that do not fully reflect the best interests of
all of the stockholders of Fortress.
- The Company has broad discretion in the types and percentages
of any types of real estate-related assets which may be
included in its portfolio and may change its investment and
operating policies and strategies at any time without the
consent of the stockholders of Fortress.
- The Company invests in commercial real properties, including
net leased properties, which are subject to risk of
non-payment by the applicable tenant, particularly in the
event of an economic downturn.
- The Company invests in various types of commercial mortgage
loans which may be subject to significant credit risk,
resulting in possible losses.
- The Management Agreement, as defined below, provides for base
management fees payable to the Manager without consideration
of the performance of the Company's portfolio. The Manager (or
an affiliate) also receives incentive fees based on certain
performance criteria, which could result in the Manager
recommending riskier or more speculative investments.
- The Company leverages its real estate-related assets, which
can compound losses.
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<PAGE> 13
- Interest rate fluctuations may adversely affect the Company's
investments and operating results.
- Hedging transactions, which are conducted to limit losses, may
actually limit gains and increase the Company's exposure to
losses.
- Certain assets may be acquired through the Sister Co., which
will not qualify as a REIT and which will be subject to income
tax at regular corporate rates, which may have the effect of
reducing cash available for distribution to the stockholders
of Fortress.
- Future offerings of securities by Fortress or the Operating
Partnership could dilute the interest of the holders of the
Common Stock.
- There is no established market for the Common Stock, which may
affect the liquidity of an investment in the Common Stock.
- Ownership of the Common Stock by any stockholder is generally
limited to 9.8% of the aggregate number of shares of any class
or series of capital stock Fortress, which may make it more
difficult to change control of Fortress even where such change
may be in the best interest of Fortress' stockholders.
- If it fails to qualify as a REIT, Fortress will be subject to
income tax at regular corporate rates, which may have the
effect of reducing cash available for distribution to
stockholders of Fortress.
- The Company's activities, structure and operations may be
adversely affected by changes in the tax laws applicable to
REITs.
THE MANAGER
The business and investment affairs of the Company are managed by the
Manager. The Principals are the founders and principal owners of the Manager.
The Company believes that the experience of the Principals in opportunistic real
estate-related investments enable the Manager to identify, acquire and manage
suitable assets for the Company; however, there can be no assurance that the
experience of the Manager and the Principals will result in attractive
investments for the Company. See "Risk Factors -- Investment Activity Risk --
Dependence on Key Personnel."
The Principals, the Manager (or an affiliate of the Manager) and
certain employees of the Manager purchased an aggregate of approximately $53.7
million of shares of Common Stock and Units, at a price per share or per Unit,
as the case may be, of $18.65, the price to investors in the Original Offering,
net of discounts to the Initial Purchaser. The Principals and the Manager (or an
affiliate of the Manager) own approximately 12.8% of the equity interests of the
Company on a fully diluted basis.
The Principals have informed the Company that, upon satisfaction of
their responsibilities under their agreement with BAI to manage its assets (the
"BAI Management Contract"), they intend to discuss with the Board of Directors
of Fortress various methods to convert the Company to a self-advised structure.
Upon such conversion, all or a portion of the following may occur, either in a
single transaction or in several discrete transactions: (a) the Management
Agreement would terminate and the employees of the Manager (which may include
the Principals) would become direct employees of the Company; (b) the Management
Fee otherwise payable to the Manager pursuant to the Management Agreement would
not be payable to the Manager, and instead the Company would be responsible for
all salaries and overhead costs applicable to such employees of the Manager; (c)
the exclusivity provisions of the Management Agreement would be set forth in new
employment contracts between the Company and such employees; and (d) the
Company's obligation to pay the Preferred Incentive Return (as discussed below)
to the Manager (or an affiliate of the Manager) would terminate. Any such
conversion transaction will be subject to the approval of the
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<PAGE> 14
Manager and the Independent Directors of Fortress with respect to, among other
things, the structure of such transactions and the consideration therefor.
THE MANAGEMENT AGREEMENT AND MANAGEMENT INCENTIVES
On June 10, 1998, Fortress and the Operating Partnership entered into
the Management and Advisory Agreement (the "Management Agreement") with the
Manager, having an initial term of three years. The Management Agreement
provides for automatic one-year extensions after the initial three-year term,
subject to certain termination rights. After the initial three-year term, the
Manager's performance will be reviewed annually and the Management Agreement may
be terminated annually upon the affirmative vote of at least two-thirds of the
Independent Directors, or by a vote of the holders of a majority of the
outstanding shares of Common Stock, based upon unsatisfactory performance that
is materially detrimental to the Company or a determination by the Independent
Directors that the compensation to the Manager is not fair, subject to the
Manager's right to prevent such a compensation termination by accepting a
mutually acceptable reduction of fees. The Manager will be provided 60 days'
prior notice of any such termination and will be paid a termination fee equal to
the amount of the Management Fee (as defined below) earned by the Manager during
the twelve-month period preceding such termination. Following any termination of
the Management Agreement, the Company shall be entitled to purchase the portion
of the Manager's (or any affiliate's) limited partnership interest in the
Operating Partnership attributable to the Preferred Incentive Return at a price
equal to the amount that would be distributed to the Manager (or an affiliate)
if the Company's assets were sold for their fair market value (as determined by
an appraisal, taking into account, among other things, the expected future value
of the underlying investments). In addition, if the Company does not elect to so
purchase the Manager's (or such affiliate's) limited partnership interest in the
Operating Partnership attributable to the Preferred Incentive Return, the
Manager (or such affiliate) shall have the right to require the Company to
purchase the same at the price described above. In addition, the Management
Agreement may be terminated at any time for cause, which is defined as fraud,
misappropriation of funds, wilful violation of the Management Agreement, or
gross negligence, without payment of any termination fee.
The Manager, pursuant to the Management Agreement and under the
direction of Fortress' Board of Directors, formulates investment strategies for
the Company, arranges for the acquisition of assets by the Company, arranges for
various types of financing for the Company, monitors the performance of the
Company's assets and provides certain advisory, administrative and managerial
services in connection with the operation of the Company. For performing these
services, the Manager receives an annual management fee (the "Management Fee")
in an amount equal to 1.5% of the Gross Equity of the Company; provided,
however, that during the remainder of 1998 following the closing of the Original
Offering, the Manager will receive a management fee equal to the greater of (i)
$6,000,000 and (ii) the product of (a) 1.5% of the Gross Equity of the Company
and (b) a fraction, the numerator of which is the number of days in 1998
following the First Closing Date of the Original Offering and the denominator of
which is 365. The Management Fee shall be calculated and paid monthly in arrears
based upon the weighted daily average of the Company's Gross Equity for such
month (except during the remainder of 1998 following the First Closing Date,
during which period such monthly amount is to be calculated and paid based on
the terms set forth in the sentence immediately preceding). The term "Gross
Equity" for any period means (A) the sum of (i) the Company's Total Equity, plus
(ii) the value of contributions made by partners, other than the General
Partner, from time to time, to the capital of the Operating Partnership or any
other subsidiary of the Company, less (B) any capital dividends or capital
distributions made by Fortress to its stockholders or by the Operating
Partnership to its partners. The Independent Directors of Fortress may adjust
the Management Fee in the future under certain conditions. See "The Manager and
the Management Agreement."
The Manager may contract (including with affiliates of the Manager), on
behalf of the Company, for the provision of property and asset management,
leasing, servicing and similar tasks with respect to the assets of the Company.
In addition, because the Manager's employees or affiliates may perform certain
legal, accounting, due diligence tasks and other services that outside
professionals or consultants otherwise would perform, the Manager or such
affiliates will be reimbursed for the cost of performing such tasks, provided
that such reimbursements are at costs no greater than those which would be paid
to outside professionals or consultants on an arm's-length basis. The Manager
also will be reimbursed for out-of-pocket expenses incurred on behalf of the
Company. See "The Manager and the Management Agreement--The Management
Agreement."
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<PAGE> 15
To provide an incentive for the Manager to enhance the value of the
Common Stock, the Manager (or an affiliate thereof) receives a quarterly
incentive return (the "Preferred Incentive Return") on its Units on a
cumulative, but not compounding, basis in an amount equal to the product of (A)
25% of the dollar amount by which (l)(a) the Funds From Operations (before the
Preferred Incentive Return) of the Company per share of Common Stock and per
Unit (based on the weighted average number of shares of Common Stock and Units
outstanding) plus (b) gains (or losses) from debt restructuring and gains (or
losses) from sales of property and other assets per share of Common Stock and
per Unit (based on the weighted average number of shares of Common Stock and
Units outstanding), exceed (2) an amount equal to (a) the weighted average of
the price per share of Common Stock and Units in the Original Offering and the
Private Placement and the price per share of Common Stock (and/or Units) in any
subsequent offerings by the Company (adjusted for prior capital dividends or
capital distributions) multiplied by (b) a simple interest rate of 10% per annum
(divided by four to adjust for quarterly calculations) multiplied by (B) the
weighted average number of shares of Common Stock and Units outstanding. See
"The Manager and the Management Agreement -- Management Incentives."
As a further incentive, the Company has granted to the Manager (or an
affiliate of the Manager) options (the "Manager Awards") representing the right
to acquire shares of Common Stock (or, at the election of the Company, Units)
equal to 10% of the shares of Common Stock and Units of the Company outstanding
immediately upon the closing of the Original Offering and the Private Placement,
at an exercise price per share of Common Stock equal to $20.00, with such price
subject to adjustment as necessary to preserve the value of such Manager Awards
in connection with the occurrence of certain events (including capital dividends
and capital distributions made by the Company). Additional Manager Awards will
be granted to the Manager (or an affiliate of the Manager) in connection with
future issuances of additional equity by the Company, subject to the approval of
the Independent Directors; provided that, the exercise price with respect to
Manager Awards granted in connection with any future issuance of equity
interests in the Company will have an exercise price per share equal to the
initial offering price of such additional equity interests, subject to
adjustment as necessary to preserve the value of such Manager Awards in
connection with the occurrence of certain events. The Manager Awards will not be
exercisable until the date (the "Option Effective Date") that is the earlier to
occur of (i) the effective date of the Registration Statement of which this
Prospectus is a part and (ii) June 10, 1999, the first anniversary of the First
Closing Date. From and after the Option Effective Date, one thirtieth (1/30) of
the Manager Awards will become exercisable on the first day of each of the
following 30 calendar months, or earlier upon the occurrence of certain events,
such as a change of control of the Company or the termination of the Management
Agreement. The Manager Awards expire on June 10, 2008, the tenth anniversary of
the First Closing Date. See "Management--Stock Options." There can be no
assurance that the Preferred Incentive Return or the Manager Awards will provide
an incentive to the Manager to enhance the value of the Common Stock.
EXCLUSIVITY
The Management Agreement generally limits the Manager's right to engage
in business or to render services to others that compete with the Company until
an amount equal to 95% of the Company's Total Equity has been invested (other
than in short-term temporary investments). As used herein, the term "Total
Equity" shall mean the total equity capital raised by the Company, including,
without limitation, the net proceeds of the Original Offering and the Private
Placement and the net proceeds of any subsequent offering of equity by the
Company. For these purposes, contributions to a Sister Co. shall be deemed to be
"investments" of the Company's Total Equity. Notwithstanding the foregoing, the
Manager will be permitted under the Management Agreement at any time (a) to
manage one or more Sister Corps., (b) to manage BAI together with its affiliated
funds and (c) to acquire and manage Excluded Investments (as defined). "Excluded
Investments" shall mean (i) investments made or committed to be made by the
Principals, the Manager or their affiliates prior to the closing of the Original
Offering, (ii) any investment as to which the equity invested by the Principals,
the Manager or their affiliates is equal to or less than $3,000,000 and (iii)
any investments made during any period of time that the exclusivity provisions
of the Management Agreement are not in effect (i.e., during any period of time
in which 95% or more of the Total Equity of the Company has been invested other
than in short-term, temporary investments), in each case together with
investments relating to the foregoing investments. See "The Manager and the
Management Agreement--Certain Relationships; Conflicts of Interest."
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<PAGE> 16
CONFLICTS OF INTEREST
The Company is managed by the Manager. In addition, a Sister Co., if
formed, will be managed by the Manager. The Company is subject to various
potential conflicts of interest arising out of the relationships with the
Manager and their respective affiliates. See "Risk Factors--Investment Activity
Risks--Conflicts of Interest in Relationship with the Manager."
To address the risks related to these potential conflicts, a majority
of the members of Fortress' Board of Directors are unaffiliated with the Manager
or the Principals ("Independent Directors"). See "The Company -- Directors and
Executive Officers." The Board of Directors has established general guidelines
for the Company's investments, borrowings and operations (the "Guidelines") and
the Independent Directors have approved the Guidelines relating to any
investments and borrowings (including co-investments) with affiliates of the
Manager. Although the Manager performs the day-to-day operations of the Company,
the Independent Directors review transactions on a quarterly basis to ensure
compliance with the Guidelines. However, in such reviews, the Independent
Directors rely primarily on information provided by the Manager.
The Manager and its affiliates are not restricted from (i) managing any
Sister Co., (ii) managing BAI or (iii) acquiring and managing Excluded
Investments. In connection with the foregoing, the Manager may undertake
business activities which may be directly or indirectly competitive with the
Company. See "Risk Factors -- Investment Activity Risks -- Manager May Advise
Others."
RESTRICTIONS ON OWNERSHIP OF STOCK
Due to limitations on the concentration of ownership of a REIT imposed
by the Code, the Charter prohibits any stockholder from directly or indirectly
owning more than 9.8% of the aggregate number of the outstanding shares of any
class or series of stock of Fortress (the "Stock Ownership Limit").
Notwithstanding the foregoing, the Board of Directors has exempted the
Principals and the Manager (and certain affiliates thereof) from such
limitation. See "Description of Securities -- Transfer Restrictions." In
addition, the Company's Charter limits equity ownership in the Company by Plans
(as defined herein) (and similar investors) to less than 25% of the value of any
class of equity securities issued by the Company prior to the date the Common
Stock qualifies as a class of "publicly-offered securities" (within the meaning
of Department of Labor Regulation (29 C.F.R.) Section 2510.3-101(b)(2)). See
"Risk Factors -- Legal and Tax Risks -- Plans Should Consider ERISA Risks of
Investing in Common Stock" and "ERISA Considerations -- The Treatment of the
Company's Underlying Assets Under ERISA."
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale
of the Offered Securities. The Company will not receive any proceeds from the
sale of the Offered Securities. See "Use of Proceeds."
DISTRIBUTION POLICY
The Operating Partnership intends to make distributions to its
partners, including Fortress, as General Partner of the Operating Partnership.
Fortress intends to make distributions to its stockholders of all or
substantially all of its net taxable income each year (subject to certain
adjustments) so as to qualify as a REIT under the Code. See "Federal Income Tax
Considerations."
The declaration and payment of dividends by the Sister Co. will be a
business decision to be made by the Sister Co.'s board of directors from time to
time based on such considerations as the Sister Co.'s board of directors deems
relevant, will be payable only out of funds legally available therefor under the
law of the state of the Sister Co.'s formation and will be subject to any
limitations which may be contained in the debt instruments, if any, of the
Sister Co.
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TAX STATUS OF THE COMPANY
Fortress will elect to be taxed as a REIT under sections 856 through
860 of the Code, commencing with its taxable year ending December 31, 1998.
Provided Fortress qualifies for taxation as a REIT, Fortress will generally not
be subject to federal corporate income tax on its taxable income that is
distributed to its stockholders. REITs are subject to a number of organizational
and operational requirements, including a requirement that they currently
distribute at least 95% of their annual taxable income. Although Fortress does
not intend to request a ruling from the Internal Revenue Service (the "IRS") as
to its REIT status, Fortress has received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP with respect to the qualification of Fortress as a REIT,
which opinion is based on certain assumptions and representations with respect
to Fortress' expected business and investment activities and other matters. No
assurance can be given that Fortress will be able to comply with such
assumptions and representations in the future. Furthermore, an opinion of
counsel is not binding on the IRS or on any court. Failure to qualify as a REIT
would subject Fortress to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
distributions to Fortress' stockholders would not be deductible by Fortress.
Even if Fortress qualifies for taxation as a REIT, it may be subject to certain
federal, state, local and foreign taxes on its income and property. In
connection with Fortress' election to be taxed as a REIT, the Charter imposes
restrictions on the transfer of the Common Stock if, as a result of such
transfer, the transferee's interest in Fortress would exceed the Stock Ownership
Limit. See "Risk Factors -- Legal and Tax Risks -- Tax Risks" and "Federal
Income Tax Considerations -- Taxation of the Company."
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<PAGE> 18
ORGANIZATION AND RELATIONSHIPS
The relationship among Fortress, the Operating Partnership and the
Manager and the equity ownership thereof is depicted in the diagram shown below
and described in the accompanying footnotes.
--------------------
Stockholders
--------------------
87.2% (1)
- -------------------- -------------------- --------------------
Fortress Investment Fortress Investment Fortress Principal
Group LLC* (3) Corp. (1) Investment Holdings
(the "Manager") ("Fortress" and the LLC* ("FPIH")
- -------------------- "General Partner") 12.8% --------------------
(4)
--------------------
--------------------
Fortress Principal
Investment
(2) Group LLC*
100% (the "Initial
Limited Partner")
(3) --------------------
--------------------
Fortress Partners, L.P.
(the "Operating (2) (nominal
Partnership") interest)
(4)
--------------------
- -------------------
* The Principals own, directly or indirectly, more than 50% of the beneficial
interests in the Manager, FPIH and the Initial Partner.
(1) Fortress was initially capitalized through the issuance of 50
shares of Common Stock to Fortress Principal Investment
Holdings LLC, an affiliate of the Manager ("FPIH"). Fortress
subsequently issued an aggregate of 2,685,248 shares of Common
Stock to FPIH and to certain employees of the Manager in the
Private Placement and 18,231,441 shares of Common Stock to
investors in the Original Offering.
(2) Fortress contributed the proceeds from the stock issuances
described above to the Operating Partnership in exchange for a
100% general partnership interest and serves as the sole
general partner of the Operating Partnership. In addition, the
Initial Limited Partner purchased 5 Units and owns a nominal
limited partnership interest in the Operating Partnership.
(3) The Manager entered into the Management Agreement with
Fortress and the Operating Partnership.
(4) The Company has made the investments described below under
"The Company -- Investments" directly or through the Operating
Partnership, and the Company has formed additional
subsidiaries or affiliates in cases where the Company has
determined that the use of a separate entity is advisable.
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RISK FACTORS
An investment in the Common Stock involves various risks. Before
purchasing shares of the Common Stock offered hereby, prospective investors
should give special consideration to the information set forth below, in
addition to the information set forth elsewhere in this Prospectus.
INVESTMENT ACTIVITY RISKS
CONFLICTS OF INTEREST IN RELATIONSHIP WITH THE MANAGER. The Company is
subject to various potential conflicts of interest arising from its relationship
with the Manager.
The Management Agreement may be terminated after the initial three-year
term, and annually thereafter, upon the affirmative vote of at least two-thirds
of the Independent Directors, or by a vote of the holders of a majority of the
outstanding shares of Common Stock, based upon unsatisfactory performance that
is materially detrimental to the Company or the determination that the
compensation to the Manager is not fair, subject to the Manager's right to
prevent such a compensation termination by accepting a mutually acceptable
reduction of fees. As a result, it may be difficult for the Company to terminate
the Management Agreement. The Manager will be provided 60 days' prior notice of
any such termination and will be paid a termination fee equal to the amount of
the Management Fee earned by the Manager during the twelve-month period
preceding such termination. In addition, following any termination of the
Management Agreement, the Company may purchase the portion of the Manager's (or
its affiliate's) limited partnership interest in the Operating Partnership
attributable to the Preferred Incentive Return at a price equal to the amount
that would be distributed to the Manager (or an affiliate) if the Company's
assets were sold for their fair market value (as determined by an appraisal,
taking into account, among other things, the expected future value of the
underlying investments) or otherwise continue to pay the Preferred Incentive
Return to the Manager (or an affiliate). In addition, if the Company does not
elect to so purchase the Manager's (or an affiliate's) limited partnership
interest attributable to the Preferred Incentive Return, the Manager (or an
affiliate) will have the right to require the Company to purchase the same at
the price described above. See "The Manager and the Management Agreement--The
Management Agreement." These provisions may increase the effective cost to the
Company of terminating the Management Agreement, thereby adversely affecting the
Company's ability to terminate the Manager without cause.
The presence of the Preferred Incentive Return may cause the Manager to
select investments for the Company that involve a higher level of risk than
otherwise would be prudent in order to increase the potential for the Manager's
receipt of the Preferred Incentive Return. See "--Structure of Management
Compensation Could Jeopardize Invested Portfolio."
The "non-compete" provision contained in the Employment Agreements
between each of the Principals and the Manager, which restricts the Principals
from engaging in investment activity which is competitive with the Company, does
not prohibit the Principals from (a) managing one or more Sister Corps., (b)
acquiring and managing the Excluded Investments and (c) managing the BAI assets.
As a result, the Principals may have interests which are not entirely aligned
with those of the Company. See "--Manager May Advise Others" and "The Manager
and the Management Agreement."
Pursuant to the Management Agreement, the conduct of the daily
operations of the Company by the Manager and its affiliates are not required to
be approved by a majority of Fortress' Independent Directors. The Independent
Directors review the Guidelines and the Company's investment policies annually,
and the Company's investments quarterly. However, in conducting this review, the
Independent Directors rely primarily on information provided to them by the
Manager.
The Company may acquire assets from the Manager only if a majority of
the Independent Directors approves the applicable transaction in advance.
However, in making each decision with respect to any transaction requiring their
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<PAGE> 20
approval, the Independent Directors will rely primarily on information provided
by the Manager in determining whether the price is fair and whether the
investment is otherwise in the best interest of Fortress and its stockholders.
EXTERNAL MANAGEMENT OF THE COMPANY. The Company is managed by the
Manager, subject to the supervision of the Board of Directors. Thus, the Company
will depend on the services of the Manager and the Principals for the success of
the Company. Moreover, the Company's success depends in part on the continuing
ability of the Manager to hire and retain knowledgeable personnel. Finally, the
Company is subject to the risk that the Manager will terminate the Management
Agreement and that no suitable replacement can be found to manage the Company.
In the future, the Company may consider the effect of transactions whereby the
Manager could be merged into the Company, or other means by which the Company
may become self-managed and self-administered. However, there can be no
assurance that the Company will become self-managed or self-administered in the
future.
MANAGER MAY ADVISE OTHERS. So long as 95% of the Company's Total Equity
has been invested, the Manager will not be restricted from pursuing other
business opportunities and investments which may be directly or indirectly
competitive with the Company. In addition, the Manager will not be restricted at
any time from pursuing business opportunities in connection with the Excluded
Investments or the management by the Principals of BAI. Therefore, the Manager
may not devote its full attention to the management of the Company's affairs.
See "The Manager and the Management Agreement--Certain Relationships; Conflicts
of Interest" and "The Manager and the Management Agreement -- The Manager."
STRUCTURE OF MANAGEMENT COMPENSATION COULD JEOPARDIZE THE INVESTED
PORTFOLIO. In addition to its Management Fee, the Manager (or an affiliate of
the Manager) will have the opportunity to earn the Preferred Incentive Return as
incentive compensation based in part upon the Company's Funds From Operations.
In evaluating investments and other management strategies, the opportunity to
earn incentive compensation based on Funds From Operations may lead the Manager
to place undue emphasis on the maximization of Funds From Operations at the
expense of other criteria, such as preservation of capital, in order to achieve
a higher incentive compensation and could result in increased risk to the value
of the invested portfolio. In addition, the incentive compensation is calculated
and earned based upon the results of each quarter. Therefore, the Manager (or an
affiliate) could earn incentive compensation based upon one quarter's results,
including during a year for which the Company experiences a net loss. See "The
Manager and the Management Agreement."
MANAGEMENT AGREEMENT MAY NOT BE MOST FAVORABLE TO THE COMPANY. The
Management Agreement was not negotiated at arm's-length and may be on terms that
are not as favorable to the Company as if it had been negotiated with a third
party.
DEPENDENCE ON KEY PERSONNEL. The Company believes that its success will
depend to a significant extent upon the experience of the Principals, whose
continued service is not guaranteed. While the Company believes that it could
replace these key executives, the loss of any such person or the loss of all of
such persons at a single point in time could have a material adverse effect on
the operations of the Company through a diminished ability to obtain investment
opportunities and to structure and execute the Company's potential investments
and business plan. In addition, the Company may not successfully recruit
additional personnel and any additional personnel that are recruited may not
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. Neither the Company nor the Manager currently
intends to maintain key man life insurance with respect to any of its executive
officers. See "The Manager and the Management Agreement."
CONFLICTS RELATING TO THE OPERATING PARTNERSHIP. Fortress, as the
General Partner of the Operating Partnership, has fiduciary obligations to the
limited partners of the Operating Partnership (including the Manager (or an
affiliate) as the Initial Limited Partner) the discharge of which may conflict
with the interests of Fortress' stockholders. In addition, limited partners,
including, without limitation, the Manager (or an affiliate of the Manager),
have the right to vote as a class on certain amendments to the Operating
Partnership Agreement and individually to
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approve certain amendments that would adversely affect their rights, which
voting rights may be exercised in a manner that conflicts with the interests of
other stockholders. In addition, under the terms of the Operating Partnership
Agreement, the holders of Units will have certain approval rights with respect
to certain transactions that affect all stockholders but which may be exercised
in a manner which does not reflect the interests of all stockholders.
GEOGRAPHIC CONCENTRATION OF THE PROPERTIES; SIGNIFICANT CONCENTRATION
OF CREDIT RISK. The Company's revenues and the values of its properties may be
affected by a number of factors relating to the particular geographic areas in
which its properties are located, including the local economic climate (which
may be adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and industrial properties). A
material decline in the demand and/or the ability of tenants to pay rent for
office and industrial space in these geographic areas may result in a material
decline in the demand for the Company's office or industrial space and the
Company's cash available for distribution, which may have a material adverse
effect greater than if the Company had a more geographically diverse portfolio
of properties. The same is true with respect to the properties underlying the
Company's commercial and residential loan portfolios which are similarly
effected by adverse economic, political or business developments and natural
hazard risks that may affect the areas in which they are located and,
ultimately, the ability of property owners to make payments of principal and
interest on the underlying mortgages will be effected.
In particular, approximately 20% of the Company's assets relate to
properties in California, approximately 9% in Canada and approximately 5% in
Virginia. Furthermore, the Company's property in Burlington, N.J. represents
approximately 10% of the Company's total assets and the Company's participation
interest in a mortgage loan secured by a building located near Paris, France
represents approximately 6% of its total assets. Adverse conditions in these
areas may have an adverse effect on the Company. See also "--International
Investments are Subject to Currency Conversion Risks and Uncertainty of Foreign
Laws."
APPROPRIATE INVESTMENTS MAY NOT BE AVAILABLE; BROAD DISCRETION ON
INVESTMENTS. The Company focuses primarily on acquiring assets eligible for
Fortress to maintain its status as a REIT, although the Company may invest in
other assets as opportunities arise. There can be no assurance, however, that
the Company will identify assets that meet its investment criteria, that the
Company will be successful in acquiring any assets that may be identified or
that any such assets will produce a return on the Company's investment. The
Company may invest in highly-leveraged companies or assets, which may increase
the likelihood of a loss of the Company's property through foreclosure. The
Manager has great latitude in the context of the Guidelines in determining the
types of assets it may decide are proper investments for the Company. No
assurance can be made that the Manager's decisions in this regard will result in
a profit for the Company.
NO LIMITATION ON LEVERAGE; LEVERAGE CAN REDUCE INCOME AVAILABLE FOR
DISTRIBUTION. The Company leverages its portfolio through borrowings, generally
through the use of bank credit facilities, repurchase agreements, mortgage loans
on real estate and other borrowings. The percentage of leverage varies depending
on the Company's ability to obtain credit facilities and the lender's estimate
of the stability of the portfolio's cash flow. However, the Company currently
has no policies respecting the use of leverage and, accordingly, there are
currently no limitations applicable to the use of leverage. To the extent that
changes in market conditions cause the cost of such financing to increase
relative to the income that can be derived from the assets acquired, the
Company's return on its investment and cash available for distribution to
Fortress' stockholders may be adversely affected.
Leverage can create an opportunity for increased returns on equity, but
at the same time creates risks. For example, debt service payments can reduce
the net income available for distributions to stockholders. The Company
leverages assets only when there is an expectation that it will enhance returns,
although there can be no assurance that the Company's use of leverage will prove
to be beneficial. Moreover, there can be no assurance that the Company will be
able to meet its debt service obligations and, to the extent that it cannot, the
Company risks the loss of some or all of its assets to foreclosure or sale to
satisfy its debt obligations. Changes in the general level of interest rates can
affect
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the Company's income by affecting the spread between the Company's income on its
assets and interest-bearing liabilities, as well as, among other things, the
value of the Company's interest-earning assets and its ability to realize gains
from the sale of assets. There is no specified limitation on the Company's
indebtedness, and the Charter and Bylaws do not limit the amount of indebtedness
the Company can incur. See "The Company-Investments-Financings."
REAL ESTATE IS ILLIQUID AND VALUE IS DEPENDENT ON CONDITIONS BEYOND
COMPANY'S CONTROL. The Company invests in real estate-related assets, which may
be subject to varying degrees of risk generally incident to the ownership of
real property. Real estate-related investments are relatively illiquid. The
ability of the Company to vary its investments in response to changes in
economic and other conditions will be limited. Further, no assurances can be
given that the fair market value of any assets acquired by the Company will not
decrease in the future. The underlying value of the assets and the Company's
income and ability to make distributions to Fortress' stockholders are dependent
upon the ability of the Manager to operate the assets in a manner sufficient to
maintain or increase revenues in excess of operating expenses and debt service
or, in the case of real property leased to one or more lessees, the ability of
the lessees to make rent payments. Revenues may be adversely affected by adverse
changes in national or local economic conditions, competition from other
properties offering the same or similar services, changes in interest rates and
in the availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements (particularly in older structures),
changes in real estate tax rates and other operating expenses, adverse changes
in governmental rules and fiscal policies, civil unrest, acts of God, including
earthquakes, hurricanes and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of the Company.
REAL ESTATE INVESTMENT RISKS. Real property investments are subject to
varying degrees of risks. If the Company's assets do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to
Fortress' stockholders will be adversely affected. An asset's revenues and value
may be adversely affected by the general economic climate, the local economic
climate, local real estate conditions, the ability of the owner to provide
adequate management, maintenance and insurance, and increased operating costs.
Certain significant expenditures associated with each equity investment (such as
mortgage payments, if any, real estate taxes, insurance and maintenance costs)
are generally not reduced when circumstances cause a reduction in income from
the investment. There are numerous competitors for development and acquisitions
of properties, including other REITs, which may have greater resources than the
Company.
RISKS RELATED TO INVESTMENTS IN MORTGAGE LOANS. Investments in mortgage
loans may carry certain risks which are not present in other types of
investments, including, without limitation, the following:
Commercial Mortgage Loans May Involve a Risk of Loss.
Commercial mortgage loans involve a high degree of risk because of a
variety of factors, including (i) a commercial mortgage lender is
dependent for repayment on the successful operation of the mortgaged
property and tenant businesses operating therein, (ii) the fact that
such loans are usually non-recourse to the borrower and (iii) the fact
that such loans may have terms that include amortization schedules
longer than the stated maturity of the applicable loan and provide for
balloon payments at a stated maturity rather than periodic principal
payments. In addition, the value of commercial real estate can be
affected significantly by the supply and demand in the market for that
type of property.
Volatility of Values of Mortgaged Properties May Affect
Adversely the Company's Mortgage Loans. Commercial real estate values
and net operating income derived therefrom are subject to volatility
and may be affected adversely by a number of factors, including, but
not limited to, national, regional and local economic conditions, local
real estate conditions, changed or continued weakness in specific
industry segments, general public perceptions of the safety,
convenience, services and attractiveness of the property, the
willingness and ability of the property's owner to provide capable
management and adequate maintenance, to
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make capital expenditures and improvements and to provide leasing
concessions, construction quality, age and design, and increases in
operating expenses (such as energy costs).
General Default Risks. With respect to its investments in
mortgage loans, the Company will be subject to risks of borrower
defaults, bankruptcies, fraud and special hazard losses that are not
covered by standard hazard insurance. In the event of any default under
mortgage loans held by the Company, the Company will bear a risk of
loss of principal to the extent of any deficiency between the value of
the collateral and the principal amount of the mortgage loan, and may
not receive interest payments on such mortgage loan, which could have a
material adverse effect on the Company's cash flow from operations. In
the event of the bankruptcy of a mortgage loan borrower, the mortgage
loan to such borrower will be deemed to be secured only to the extent
of the value of the underlying collateral at the time of bankruptcy (as
determined by the bankruptcy court), and the lien securing the mortgage
loan will be subject to the avoidance powers of the bankruptcy trustee
or debtor-in-possession to the extent the lien may be unenforceable
under state law. Foreclosure of a mortgage loan can be an expensive and
lengthy process which could have a substantial negative effect on the
Company's anticipated return on the foreclosed mortgage loan.
Default Risks Associated with Distressed Mortgage Loans. The
Company may purchase non-performing and sub-performing mortgage loans,
as well as mortgage loans that have had a history of delinquencies.
These mortgage loans may presently be in default or may have a greater
than normal risk of future defaults and delinquencies, as compared to a
pool of newly originated, high quality mortgage loans of comparable
type, size and geographic concentration. Returns on an investment of
this type depend on the borrower's ability to make required payments
or, in the event of default, the ability to foreclose and liquidate the
mortgage loans. Foreclosure and liquidation, particularly in a
bankruptcy proceeding, may be time consuming and expensive.
Additionally, certain rules related to the definition of "foreclosure
property" for purposes of the taxation of a REIT may limit the
Company's ability to realize a profit on its investment in a mortgage
loan. There can be no assurance that a defaulted mortgage loan can be
liquidated successfully, on favorable terms or in a timely fashion.
CONFLICTS RELATING TO THE SISTER CO. The Manager is expected to manage
a Sister Co. after the formation of the Sister Co. and the distribution of a
Sister Co.'s stock to the partners of the Operating Partnership and, eventually,
the stockholders of Fortress. If ownership of a Sister Co. and the Company
differ over time, conflicts of interest may develop. Although no assurances can
be made, provisions in a Sister Co.'s formation documents are expected to (i)
provide that a Sister Co. may enter into transactions with the Company to the
extent deemed beneficial by their respective boards of directors (and the
Company may enter into an intercompany agreement with the Sister Co. with
respect thereto) and (ii) generally prohibit a Sister Co. from engaging in
activities or making investments appropriate for a REIT unless the Company was
first given the opportunity but elected not to pursue such activities or
investments. Notwithstanding the foregoing, the Manager and the Board of
Directors are subject to various potential conflicts of interest as a result of
the relationships with a Sister Co. and the Company. Certain investments which
may otherwise have been made by the Company may be made by a Sister Co. However,
a Sister Co. will be subject to income tax at regular corporate rates which may
have the effect of reducing cash available for distribution to Fortress'
stockholders.
INTERNATIONAL INVESTMENTS ARE SUBJECT TO CURRENCY CONVERSION RISKS AND
UNCERTAINTY OF FOREIGN LAWS AND MARKETS. The Company invests in real estate, or
mortgage loans secured by real estate, located outside of the U.S. The Company's
international operations are subject to most of the same risks associated with
its U.S. operations as well as additional risks, such as fluctuations in foreign
currency exchange rates, unexpected changes in regulatory requirements,
heightened risks of political and economic instability in certain geographic
locations, difficulties in managing international operations, potentially
adverse tax consequences, enhanced accounting and control expenses and the
burden of complying with a wide variety of foreign laws. Legal systems abroad
may differ in a number of respects from the U.S. legal system, including
requiring transfer taxes and added taxes on certain transfers, imposing
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limits on usurious interest rates and subjecting lenders to liability for
inappropriate lending. Moreover, investments in foreign assets are subject to
currency conversion risks.
ECONOMIC AND BUSINESS RISKS
NEWLY-ORGANIZED CORPORATION. The Company has a limited operating
history. The Company is dependent upon the experience and expertise of the
Manager in administering its day-to-day operations. The Manager and its
affiliates have experience investing in and managing real estate-related assets;
however, such persons have never managed a REIT. There can be no assurance that
the Manager will be able to implement successfully the strategies that the
Company intends to pursue.
AVAILABILITY OF CAPITAL. The ability of the Company to implement its
growth strategy depends on access to capital necessary to invest in assets. The
Company may access capital through the use of borrowings, subsequent issuances
of Common Stock or other securities or operating cash flow. The failure to
obtain necessary capital could have a material adverse effect on the Company's
ability to acquire assets. There can be no assurance that the Company will be
successful in raising sufficient additional equity or debt capital on acceptable
terms and such capital, if raised, would dilute the interest of the holders of
the Common Stock and Units.
ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT THE
COMPANY'S BUSINESS. The Company's success is dependent upon the general economic
conditions in the geographic areas in which a substantial number of its
investments are located. Adverse changes in national economic conditions or in
the economic conditions of the regions in which the Company conducts substantial
business likely would have an adverse effect on real estate values, interest
rates and, accordingly, the Company's business.
RISKS ASSOCIATED WITH HEDGING INVESTMENTS. Changes in interest rates
and changes in foreign currency exchange rates may adversely affect the
Company's investments. Such rates are highly sensitive to many factors,
including governmental, monetary and tax policies, domestic and international
economic and political considerations, fiscal deficits, trade surpluses or
deficits, regulatory requirements and other factors beyond the control of the
Company. The Company employs a hedging strategy to limit the effects of changes
in such rates on its operations, including engaging in interest or currency rate
swaps, caps, floors and other interest or currency rate exchange contracts. The
use of these types of derivatives to hedge the Company's assets and liabilities
carries certain risks, including the risk that losses on a hedge position will
reduce the funds available for distribution to stockholders and, indeed, that
such losses may exceed the amount invested in such instruments. There is no
perfect hedge for any investment, and a hedge may not perform its intended use
of off-setting losses on an investment. Moreover, with respect to certain of the
instruments used as hedges for the Company's assets and liabilities, the Company
is exposed to the risk that the counterparties with which the Company trades may
cease making markets and quoting prices in such instruments, which may render
the Company unable to enter into an off-setting transaction with respect to an
open position. Consequently, the profitability of the Company may be adversely
affected during any period as a result of changing interest or currency rates.
See "Federal Income Tax Considerations -- Requirements for Qualification --
Income Tests."
FINANCING RISKS. The Company is subject to the risks normally
associated with debt financing, including the risk that the Company's cash flow
will be insufficient to meet required debt service. In addition, there is a risk
that, if necessary, existing indebtedness will not be able to be refinanced or
that the terms of such refinancing will not be as favorable as the terms of the
existing indebtedness.
MULTI-SECTOR AND MULTI-JURISDICTION INVESTMENT STRATEGY. The Company's
current strategy is to acquire assets across a variety of real estate
product-types in a variety of geographic locations. Accordingly, the Company
will be required to maintain or retain expertise, relationships and market
knowledge across a broad range of product-types and geographic regions, and will
be subject to the market conditions affecting each such product-type in various
markets, including such factors as the local economic climate, business layoffs,
industry slowdowns, changing
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demographics, and local supply and demand issues affecting each such market.
This multi-sector and multi-jurisdiction approach could require more management
time, staff support and expense than a company whose focus is dedicated to a
greater extent on a single product-type in fewer jurisdictions than the Company.
THE COMPANY'S INSURANCE MAY NOT COVER ALL LOSSES. The Company endeavors
to maintain comprehensive insurance on each of the real properties it owns,
including liability and fire and extended coverage, in amounts sufficient to
permit the replacement of the properties in the event of a total loss, subject
to applicable deductibles. The Company endeavors to obtain coverage of the type
and in the amount customarily obtained by owners of properties similar to the
applicable real properties. Consequently, the Company believes that the
insurance coverage it maintains on its real estate properties is adequate. There
are certain types of losses, however, generally of a catastrophic nature, such
as earthquakes, floods and hurricanes, that may be uninsurable or not
economically insurable. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make it infeasible to
use insurance proceeds to replace a property if it is damaged or destroyed.
Under such circumstances, the insurance proceeds received by the Company might
not be adequate to restore its economic position with respect to the affected
real property.
PROPERTY TAXES DECREASE RETURNS ON REAL ESTATE. Each real property will
be subject to real property taxes and, in some instances, personal property
taxes. The real and personal property taxes on properties in which the Company
invests may increase or decrease as property tax rates change and as the
properties are assessed or reassessed by taxing authorities. If property taxes
on the Company's investments increase, the Company's cash available for
distribution to Fortress' stockholders will be adversely affected.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND OTHER CHANGES IN
GOVERNMENTAL RULES AND REGULATIONS MAY BE COSTLY. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public properties are required to meet
certain federal requirements related to access and use by disabled persons. Real
properties acquired by the Company may not be in compliance with the ADA. If a
property is not, the Company will be required to make modifications to such
property to bring it into compliance, or face the possibility of an imposition
of fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use and
operation of the real properties, including changes to building codes and fire
and life-safety codes, may occur. If the Company were required to make
substantial modifications at the real properties to comply with the ADA or other
changes in governmental rules and regulations, the Company's ability to make
expected distributions to Fortress' stockholders could be adversely affected.
RISK OF ADVERSE EFFECT ON RESULTS OF OPERATIONS DUE TO POSSIBLE
ENVIRONMENTAL LIABILITIES. The Company's operating costs may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation with respect to the assets, or loans secured by assets, with
environmental problems that materially impair the value of the assets. Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under, or
in such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances, or
the failure to remediate properly such property, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons who
arrange for the transportation, disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In connection
with the ownership
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and operation of properties, the Company may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with such environmental laws
could materially adversely affect the Company's results of operations and
financial condition.
In connection with the acquisition of commercial real estate-related
assets, where appropriate, the Company intends to obtain Phase I environmental
site assessments ("ESAs") prepared by qualified independent environmental
engineers. The purpose of ESAs is to identify potential sources of contamination
for which the commercial real estate-related assets may be responsible and to
assess the status of environmental regulatory compliance. It is possible,
however, that these ESAs will not reveal all environmental liabilities or that
such commercial real estate-related assets may be subject to material
environmental liabilities of which the Company is unaware.
LEGAL AND TAX RISKS
TAX RISKS. Fortress operates in a manner so as to qualify as a REIT for
federal income tax purposes. Although Fortress does not intend to request a
ruling from the IRS as to its REIT status, Fortress has received an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP with respect to its qualification as a
REIT. Investors should be aware, however, that opinions of counsel are not
binding on the IRS or any court. The opinion of Skadden, Arps, Slate, Meagher &
Flom LLP represents only the view of counsel to Fortress based on counsel's
review and analysis of existing law and on certain assumptions, representations
and covenants made by the Company and the Manager. Furthermore, both the
validity of the opinion and the continued qualification of Fortress as a REIT
will depend on Fortress' satisfaction of certain asset, income, organizational,
distribution and stockholder ownership requirements on a continuing basis, the
results of which will not be monitored by Skadden, Arps, Slate, Meagher & Flom
LLP. If Fortress were to fail to qualify as a REIT in any taxable year, Fortress
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, and distributions
to stockholders would not be deductible by Fortress in computing its taxable
income. Any such corporate tax liability could be substantial and would reduce
the amount of cash available for distribution to stockholders, which in turn
could have an adverse impact on the value of, and trading prices for, the Common
Stock. Unless entitled to relief under certain Code provisions, Fortress also
would be disqualified from taxation as a REIT for the four taxable years
following the year during which Fortress ceased to qualify as a REIT. See
"Federal Income Tax Considerations -- Failure to Qualify."
Fortress must distribute annually at least 95% of its net taxable
income (excluding any net capital gain) in order to avoid corporate income
taxation of the earnings that it distributes. In addition, Fortress will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years. The amount of any net long-term capital gains that Fortress
elects to retain and pay income tax on will be treated as distributed for
purposes of the 4% excise tax. See "Federal Income Tax Considerations --
Distribution Requirements."
Fortress intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
However, differences in timing between the recognition of taxable income and the
actual receipt of cash could require the Company to sell assets or borrow funds
on a short-term or long-term basis to meet the 95% distribution requirement and
to avoid the nondeductible excise tax. The requirement to distribute a
substantial portion of Fortress' net taxable income could cause Fortress (i) to
sell assets in adverse market conditions or (ii) to distribute amounts that
would otherwise be spent on future acquisitions, capital expenditures or
repayment of debt.
STOCK OWNERSHIP LIMIT MAY RESTRICT BUSINESS COMBINATION OPPORTUNITIES.
In order for Fortress to maintain its qualification as a REIT under the Code,
not more than 50% in value of its outstanding shares of capital stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) at any time during the last half of Fortress'
taxable year (other than the first taxable year for which the election to be
treated
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as a REIT has been made). The Stock Ownership Limit generally prohibits any
stockholder from directly or indirectly owning more than 9.8% of the aggregate
number of the outstanding shares of any class or series of stock of Fortress,
which could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the shares of Common Stock might
receive a premium for their shares of Common Stock over the then-prevailing
market price or which such holders might believe to be otherwise in their best
interests. See "Description of Securities -- Transfer Restrictions" and "Federal
Income Tax Considerations -- Requirements for Qualification" and "--Stockholder
Rights Plan Could Inhibit Change of Control" below.
MARYLAND TAKEOVER STATUTES MAY RESTRICT CERTAIN OPPORTUNITIES. As a
Maryland corporation, Fortress is subject to various provisions of the Maryland
General Corporation Law (the "MGCL"), which (a) (i) prohibit certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or more of
the voting power of the corporation's shares (an "Interested Stockholder") or an
affiliate thereof for five years after the most recent date on which the
Interested Stockholder becomes an Interested Stockholder and (ii) thereafter
generally require any such business combination to be approved by two
super-majority stockholder votes and (b) provide that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, by officers or by directors who are employees of the corporation.
These provisions could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares of Common Stock over the
then-prevailing market price or which such holders might believe to be otherwise
in their best interests. See "Certain Provisions of Maryland Law and of
Fortress' Charter and Bylaws -- Business Combinations" and "-- Control Share
Acquisitions."
PREFERRED STOCK MAY PREVENT CHANGE IN CONTROL. The Charter of Fortress
authorizes the Board of Directors to issue additional authorized but unissued
shares of Common Stock or Preferred Stock, $.01 par value per share ("Preferred
Stock"), and to classify or reclassify any unissued shares of Common Stock or
Preferred Stock and to set the preferences, rights and other terms of such
classified or reclassified shares. Although the Board of Directors has no such
current intention, it could establish a series of Preferred Stock that could
have the effect of delaying or preventing a change in control of the Company
even if a majority of the holders of the Company's Common Stock believed such
change of control was in their best interest. See "Description of Securities --
Preferred Stock."
STOCKHOLDER RIGHTS PLAN COULD INHIBIT CHANGE OF CONTROL. Fortress has
adopted a stockholder rights agreement (the "Rights Agreement"). Under the terms
of the Rights Agreement, in general, if a person or group acquires more than 15%
of the outstanding shares of Common Stock (an "Acquiring Person"), all other
stockholders of Fortress will have the right to purchase securities from the
Company at a discount to such securities' fair market value, thus causing
substantial dilution to the Acquiring Person. The Rights Agreement may have the
effect of inhibiting or impeding a change in control and, therefore, could
adversely affect the stockholders' ability to realize a premium over the
then-prevailing market price for the Common Stock in connection with such a
transaction. In addition, since the Board of Directors of Fortress can prevent
the Rights Agreement from operating, in the event the Board approves of an
Acquiring Person, the Rights Agreement gives the Board of Directors significant
discretion over whether a potential acquiror's efforts to acquire a large
interest in the Company will be successful. Because the Rights Agreement
contains provisions that are designed to assure that the Principals, the Manager
and its affiliates will never, alone, be considered a group that is an Acquiring
Person, the Rights Agreement provides the Principals, the Manager and its
affiliates with certain advantages under the Rights Agreement that are not
available to other stockholders. See "Description of Securities -- Stockholder
Rights Plan."
BOARD OF DIRECTORS MAY CHANGE CERTAIN POLICIES WITHOUT STOCKHOLDER
CONSENT. The major policies of the Company, including its investment policy, the
Guidelines and other policies with respect to acquisitions, financing, growth,
operations, debt and distributions, are determined by its Board of Directors.
The Board of Directors may amend or revise the Guidelines and other policies, or
approve transactions that deviate from these policies, from time to time
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without a vote of the stockholders of Fortress. The effect of any such changes
may be positive or negative. See "Certain Provisions of Maryland Law and of
Fortress' Charter and Bylaws."
PLANS SHOULD CONSIDER ERISA RISKS OF INVESTING IN COMMON STOCK. ERISA
and section 4975 of the Code prohibit certain transactions that involve (i)
certain pension, profit-sharing, employee benefit, or retirement plans or
individual retirement accounts (each, a "Plan") and (ii) any person who is a
"party in interest" or "disqualified person" with respect to a Plan.
Consequently, the fiduciary of a Plan contemplating an investment in the Common
Stock should consider whether the Company, any other person associated with the
issuance of the Common Stock, or any affiliate of the foregoing is or might
become a "party in interest" or "disqualified person" with respect to the Plan
and, if so, whether an exemption from such prohibited transaction rules is
applicable. In addition, federal regulations provide that, subject to certain
exceptions, the assets of an entity in which a Plan holds an equity interest may
be treated as assets of an investing Plan, in which event, the underlying assets
of such entity (and transactions involving such assets) would be subject to such
prohibited transaction provisions. The Company has taken steps to qualify the
Company for one or more of the exceptions available under such regulations and
thereby prevent the assets of the Company from being treated as assets of any
investing Plan. Specifically, the Company allocated less than 25% of the
Original Offering to Plans (and similar investors) and the Company's Charter
limits equity ownership in the Company by Plans (and similar investors) to less
than 25% of the value of any class of equity issued by the Company. In addition,
the Charter provides that no Plan may purchase shares of Common Stock without
the Company's prior approval. Once the Common Stock qualifies as a class of
"publicly offered securities" (as such term is defined in such regulations) or
to qualify for another exemption under the Plan Asset Regulations, the 25%
limitation (and the associated provisions) ceases to be applicable. In addition,
with respect to any Sister Corp, the Company will take such steps as may be
necessary to qualify such Sister Co. as a venture capital operating company or
other available exemption under the Plan Asset Regulations prior to
distributions of its equity interests. See "ERISA Considerations -- The
Treatment of the Company's Underlying Assets Under ERISA."
LOSS OF INVESTMENT COMPANY ACT EXEMPTION WOULD ADVERSELY AFFECT THE
COMPANY. The Company believes that it will not be, and conducts its operations
so as not to become, regulated as an investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). The Investment Company Act
exempts entities that, directly or through majority-owned subsidiaries, are
"primarily engaged in the business of purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate" ("Qualifying
Interests"). Under current interpretations by the Staff of the Securities and
Exchange Commission, in order to qualify for this exemption, the Company, among
other things, must maintain at least 55% of its assets in Qualifying Interests
and also may be required to maintain an additional 25% in Qualifying Interests
or other real estate-related assets. The assets that the Company may acquire,
therefore, may be limited by the provisions of the Investment Company Act. In
addition, the Company could, among other things, be required either (a) to
change the manner in which it conducts its operations to avoid being required to
register as an investment company or (b) to register as an investment company,
either of which could have an adverse effect on the Company and the market price
for the Common Stock.
LIMITATION ON LIABILITY OF MANAGER AND OFFICERS AND DIRECTORS OF THE
COMPANY. As permitted by the MGCL, the Charter contains a provision which limits
the liability of a director or officer to Fortress and its stockholders for
money damages, except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) active and
deliberate dishonesty established by a final judgment as being material to the
cause of action.
The Company will indemnify the Manager and its partners from any action
or claim brought or asserted by any party by reason of any allegation that the
Manager or one or more of its partners is otherwise accountable or liable for
the debts or obligations of the Company or its affiliates. In addition, the
Manager and its partners will not be liable to the Company, and the Company will
indemnify the Manager and its partners, for acts performed pursuant to the
Management Agreement, except for claims arising from acts constituting bad
faith, willful misconduct, gross negligence
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or reckless disregard of their duties under the Management Agreement. See "The
Manager and the Management Agreement -- Limits of Responsibility."
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES. The
present Federal income tax treatment of an investment in Fortress may be
modified by legislative, judicial or administrative action at any time, and any
such action may affect investments and commitments previously made. The rules
dealing with Federal income taxation are constantly under review by persons
involved in the legislative process and by the IRS and the U.S. Treasury
Department, resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in Federal tax laws
and interpretations thereof could adversely affect an investment in Fortress. It
cannot be predicted whether, when, in what forms, or with what effective dates,
the tax laws applicable to Fortress or an investment in its Common Stock will be
changed.
OTHER RISKS
RISK THAT MARKET FOR COMMON STOCK WILL NOT DEVELOP. No assurance can be
given as to (i) the likelihood that an active market for the Common Stock will
develop, (ii) the liquidity of any such market, (iii) the ability of the
stockholders to sell their Common Stock, or (iv) the prices that stockholders
may obtain for their Common Stock.
YEAR 2000 COMPLIANCE. The Company recognizes that the arrival of the
year 2000 poses a challenge to the ability of all systems to recognize the date
change from December 31, 1999 to January 1, 2000 and like other companies, has
assessed and is reprogramming or replacing its computer applications and
business processes to provide for their continued functionality. The total cost
to the Company of these Year 2000 compliance activities has not been and is not
anticipated to be material to the Company's financial position or results of
operations in any period; however, there can be no assurance that the Company
will not experience unanticipated costs.
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INVESTMENT STRATEGY
GENERAL
The Company intends to maximize stockholder value by pursuing
investments in a manner consistent with the fundamental investment philosophy of
the Principals -- that attractive risk-adjusted returns can be achieved through
a combination of real estate, structured finance and capital markets expertise
and a highly disciplined investment process. The Principals believe that they
have created a unique organization capable of successfully executing an
extensive array of multi-national real estate-related transactions. The
organization includes individuals who are former investment bankers, bond
traders, structured finance attorneys, real estate brokers, asset managers, real
estate attorneys and financial engineers. In addition, the Manager's
professionals have established relationships with various other real estate,
structured finance and capital markets professionals. The Company believes that
these relationships will enable it to cultivate investment opportunities in
diverse real estate-related asset types and jurisdictions.
The investment activities of the Company are primarily focused on real
estate-related assets that produce cash flows that are undervalued, whether due
to the credit quality of the obligors, the value of the underlying assets, the
complexity of the transaction, the viability of the capital structure, the
accuracy and availability of information or the availability of appropriate
operating systems. The Principals believe that they have historically been
successful in adding value to these types of assets through (a) increasing and
stabilizing cash flows through restructuring and workouts, (b) creating optimal
servicing and operating systems, (c) gathering and monitoring asset-specific and
obligor-specific information and (d) developing appropriate short-term and
long-term capital structures for the assets. The Principals also believe that
they have historically been successful in monetizing the value created by these
strategies through securitizations, negotiated restructurings and liquidations.
The Company employs certain hedging instruments as a risk management
tool and it will use Treasury, mortgage, Eurodollar, and currency futures and
options (on cash and futures), interest rate, currency and mortgage swaps, caps
and floors and other financial instruments in an attempt to maximize
risk-adjusted returns to the extent such strategies do not adversely affect
Fortress' qualification as a REIT.
The Company pursues financing for its investments that allow it to
enhance equity returns and maintain maximum flexibility while maintaining an
acceptable level of risk. One of the benefits of an improving real estate market
is a concurrent improvement in the real estate lending environment, especially
in the U.S. where borrowers are able to take advantage of greater leverage at
relatively lower cost with greater structuring flexibility. In addition, the
marked expansion of the availability of debt capital through the capital markets
has further increased borrowers' options. The Company plans to take advantage of
both the traditional lender markets and the securitization markets in securing
the best available financing for the Company's investments. The Company expects
to establish an acquisition credit facility or facilities with one or more
financial institutions to enable it to finance acquisitions on an interim basis
while it pursues optimal permanent financing structures.
A number of the techniques employed by the Principals in maximizing
investment returns have been applied by the Principals in non-dollar denominated
transactions. The Company believes that an arbitrage continues to exist in a
number of foreign jurisdictions between the local market value of certain real
estate assets and the value which can be extracted via a capital markets
monetization of those same assets. The Manager maintains offices in New York,
Toronto and London and expects to open an office in Tokyo to build international
relationships that will enable it to source and evaluate international
investments. In addition to those professionals permanently positioned abroad, a
majority of the Manager's U.S.-based professionals have frequently transacted
business in international markets.
The Company believes that the past experience of the Principals in
managing operations similar to the business of the Company enables the Company
to have access to a broad array of capital markets and may enable it to utilize
its Common Stock and Units as tax-advantaged acquisition currencies.
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The officers and directors may change the investment strategy and
policies of the Company without a vote of stockholders.
TARGETED INVESTMENTS
The Company engages primarily in: (i) investing in net leased real
estate ("Credit Leased Real Estate"); (ii) investing in portfolios of
distressed, sub-performing and performing residential, multifamily and
commercial mortgage loans ("Loan Portfolios"); and (iii) providing financing to
third party owners of real estate and portfolios of mortgage loans
("Financings"), in each case with respect to assets located in the U.S. and in
foreign jurisdictions. All such investments may be made directly or indirectly,
such as in the form of an investment in a vehicle created to hold such assets,
or may be in the form of investments in the equity of operating companies that
own such assets. The Company does not intend that its investment in securities
of other issuers will require it to register as an "investment company" under
the Investment Company Act of 1940, as amended, and the Company would intend to
divest securities before any such registration would be required.
Credit Leased Real Estate consists of residential and commercial
properties which are generally leased on a long-term basis to high credit
quality tenants, including both government and private sector entities. The
Company expects to acquire Credit Leased Real Estate in privatizations and from
developers and other owners, including institutional owner/users in
purchase/leaseback transactions. The Manager has developed a standardized
underwriting process and acquisition guidelines regarding tenant credit risk,
environmental and structural matters. The due diligence process includes phase I
environmental site assessments and structural analysis by nationally recognized
third-party service providers, legal review of all documentation and full
appraisals (including market studies).
The Company also intends to pursue in foreign jurisdictions the
acquisition of real estate assets that are currently owned and operated by
government or quasi government entities, large corporations or unions and leased
to members of their constituency at subsidized rents. Currently, the Principals
believe that a number of these entities are considering disposing of their
housing stock on a bulk sale basis.
Loan Portfolios consist primarily of distressed, sub-performing and
performing residential, multifamily and commercial mortgage loans and related
properties acquired in foreclosure or by deed-in-lieu of foreclosure. Although
governmental and institutional bulk sales of Loan Portfolios in the U.S.,
particularly by the Resolution Trust Corporation and the U.S. Department of
Housing and Urban Development, have abated substantially in recent years, the
Company believes that there will continue to be opportunities to acquire Loan
Portfolios from a wide variety of sources, including banks, savings
institutions, finance companies (including "sub-prime" lenders), leasing
companies, mortgage companies, insurance companies and governmental agencies.
The Company also pursues, subject to compliance with the REIT rules, Loan
Portfolios by acquiring operating companies.
Financings will consist primarily of relatively short-term, secured
loans to third party owners of real estate or portfolios of mortgage loans. The
Company believes that Financings of particular asset classes, or Financings in
particular jurisdictions, as to which there is a relative shortage of capital,
represent an opportunity to generate attractive risk-adjusted returns with
relatively modest leverage. The Company also intends to engage in Financings for
various strategic purposes, including (a) developing relationships with
borrowers that will lead to future equity investment opportunities and (b) using
these transactions as an efficient and relatively low-risk method of acquiring
information and developing expertise, particularly as to legal, regulatory and
tax matters in foreign jurisdictions.
Other Investments. In addition to the Company's three targeted lines of
business discussed above, the Company intends to continue to opportunistically
pursue a variety of real estate-related transactions whenever it believes such
investments will enable the Company to achieve attractive risk-adjusted returns.
In certain cases, the Company may create or invest in operating companies in
connection with asset acquisitions in order to enhance the value of the assets
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as well as to create platforms for further investment. See "Investment Strategy
- -- The Sister Co. and Preferred Stock Affiliates."
INVESTMENT MANAGEMENT
The Manager expects that the value of its investments will be enhanced
through the application of innovative capital market strategies and aggressive
asset management. The Manager's employees each focus on specialized areas
necessary to maximize execution, including (i) capital markets and risk
management, (ii) financial engineering, (iii) asset valuation and management,
and (iv) structured finance. Each of these areas is further supplemented by the
use of appropriate third party service providers, including lawyers,
accountants, investment bankers, appraisers, environmental engineers and other
consultants. Each transaction will be monitored by a deal manager who has
ultimate responsibility for all decisions taken with respect to a transaction.
Once an investment is made, the asset management group will track and report on
its progress and pro forma future performance.
The Company intends to rely, in appropriate cases, on strategic
partners to provide specific expertise in local markets or with respect to
unique assets. The Manager, when appropriate, will require a strategic partner
to co-invest in the transaction to align its compensation with the success of
the transaction. Through these relationships, the Company can gain local
presence in strategic markets and hands-on knowledge of the assets underlying
its investments, as well as access to proprietary transactions. The Manager has
developed a network of such partners and intends to continue to expand such
relationships as it pursues the Company's investment strategy.
The Company pursues financing for its investments that allow it to
enhance equity returns and maintain maximum flexibility while maintaining an
acceptable level of risk. One of the benefits of an improving real estate market
is a concurrent improvement in the real estate lending environment especially in
the U.S. Borrowers are able to take advantage of greater leverage at relatively
lower cost with greater structuring flexibility. In addition marked expansion of
the availability of debt capital through the capital markets has further
increased borrowers' options. The Company plans on taking advantage of both the
traditional lender markets and the securitization markets in securing the best
available financing for the Company's investments.
THE SISTER CO. AND PREFERRED STOCK AFFILIATES
The Company anticipates that it may, from time to time, identify assets
that it believes may be advantageous investments but that may be inappropriate
(whether for REIT qualification, tax or other reasons) for investment, in whole
or in part, by Fortress or which may otherwise be determined by the Manager and
the Company, based on general prudent considerations, to be inappropriate, in
whole or in part, for investment by the Company. In order to permit stockholders
of Fortress to participate in the economic benefits that may be associated with
such inappropriate assets, the Company intends from time to time to cause the
Operating Partnership to form one or more subsidiary corporations, partnerships
or other entities (each, a "Sister Co."), which would not be taxed as a REIT.
The Operating Partnership would initially contribute capital to the Sister Co.,
together with, on behalf of the Initial Limited Partner, a pro rata portion of
the capital of the Operating Partnership allocable to the Initial Limited
Partner's contributed capital, which will be sufficient to permit the Sister Co.
to make such identified investments, in exchange for all of the issued and
outstanding equity interests in the Sister Co. The Operating Partnership would
then distribute the equity interests in the Sister Co. pro rata to Fortress and
the Initial Limited Partner. Then, Fortress would distribute the Sister Co.
equity interests to the stockholders of Fortress. The board of directors and
executive officers of the Sister Co. will initially be identical to the Board of
Directors and executive officers of Fortress. Concurrently therewith, or
immediately subsequent thereto, the Sister Co. and the Manager will form an
operating partnership upon substantially the same terms and conditions as the
Operating Partnership Agreement (including with respect to the distribution of
the incentive return to the Manager (or an affiliate of the Manager)). The
Sister Co. and its operating partnership will immediately thereafter enter into
a management agreement (or agreements) with the Manager on substantially the
same terms and conditions as the Management Agreement. The Company anticipates
that all investments determined by the Manager to be
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appropriate for the Company will continue to be made by the Company, but that
investment opportunities which the Manager believes are not appropriate for a
REIT, but which otherwise are attractive investments, will be made by the Sister
Co. Furthermore, to the extent that certain synergies are possible between the
Company and the Sister Co., the Company intends to maximize the opportunities
presented by such synergies. For example, the Company and the Sister Co. may
jointly acquire interests in assets and businesses, such as hotels or healthcare
facilities, where the Company will acquire title to underlying real property and
lease such property to the Sister Co., at market rents (including rents based
upon a percentage of gross revenues), while the Sister Co. acquires and operates
the operating business in order to comply with the Code. The Company anticipates
that such synergies will provide the Company with substantial advantages in
making investments over other companies; however, no assurance can be made that
the Company will be successful in creating and implementing such synergies.
Essentially, the formation of the Sister Co. will permit stockholders
of Fortress who retain their shares of the Sister Co. to participate in the real
estate operations of the Company (including ownership of real property) and the
Sister Co.'s operation of operating businesses and other assets which may not
otherwise be appropriate for a REIT, with the Company's principal focus being on
real estate investments while the Sister Co.'s principal function will be as an
operating company. The operating activities and operating assets made available
to the Sister Co. by the Company are designed to provide Fortress' stockholders
with the long-term benefits of ownership in an entity devoted to the conduct of
operating business activities, in addition to their ownership interest in the
Company. The Common Stock of Fortress and the equity interests of the Sister Co.
may be owned and transferred, subject to applicable securities laws
restrictions, separately and independently of each other, and, thus, will not
necessarily provide a paired investment with the Company on an ongoing basis.
After the initial formation of the Sister Co. and the distribution of its equity
interests, the Sister Co. and the Company will pursue independent sources of
financing and are expected ultimately to have differing ownership. In order to
avoid adverse tax consequences to the Company, the Sister Co.'s charter may
provide that no Person may own more than 9.8% of the Sister Co.'s outstanding
stock.
In addition, in order to permit stockholders of Fortress to participate
in the economic benefits that may be associated with non-qualifying assets, the
Company, to the extent permitted by law, may, from time to time, transfer such
assets which are not, or which may produce income which is not, qualifying
assets or income for purposes of certain REIT asset or income tests to an entity
in which the Company will hold all or substantially all of the preferred equity
and third parties will hold all or substantially all of the common equity
interests. The Company has established a preferred stock affiliate which holds
certain assets which the Company has determined are not, or which may produce
income which is not, qualifying assets or income for purposes of the REIT asset
or income tests. See "Risk Factors --Investment Activity Risks -- Conflicts
Relating to the Sister Co." and "Federal Income Tax Consequences --Requirements
for Qualification."
POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES
If the Board of Directors determines that additional funding is
required, the Company may raise such funds through additional equity offerings,
debt financing, retention of cash flow (subject to provisions in the Code
concerning taxability of undistributed REIT taxable income) or a combination of
these methods.
In the event that the Board of Directors determines to raise additional
equity capital, it has the authority, without shareholder approval, to issue
additional Common Stock or Preferred Stock of the Company in any manner and on
such terms and for such consideration it deems appropriate, including in
exchange for property.
Borrowings may be made by Fortress, the Operating Partnership or
another subsidiary. Indebtedness may be in the form of bank borrowings, secured
or unsecured, and publicly or privately placed debt instruments, purchase money
obligations to the sellers of properties, long-term, tax-exempt bonds or other
publicly or privately placed debt instruments, financing from banks,
institutional investors or other lenders, any of which indebtedness may be
unsecured
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or may be secured by mortgages or other interest in the property. Such
indebtedness may be recourse to all or any part of the property or may be
limited to the particular property to which the indebtedness relates.
The Company has authority to offer its Common Stock or other equity or
debt securities in exchange for property and to repurchase or otherwise
reacquire its shares or any other securities and may engage in such activities
in the future. Similarly, the Company may offer additional interests in the
Operating Partnership that are exchangeable into Common Shares or, at the
Company's option, cash, in exchange for property. The Company also may make
loans to the Operating Partnership or another subsidiary.
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THE COMPANY
The Company was established to continue the opportunistic real
estate-related investment activities of the Principals, which were previously
conducted on behalf of BlackRock Asset Investors ("BAI") and on behalf of the
Global Principal Finance group ("GPF") of UBS Securities LLC ("UBS"). The
Company is externally managed and advised by the Manager, which the Company
believes has developed an organization of investment management professionals
that is well-positioned to take advantage of today's real estate and capital
markets environment. The Manager employs 41 professionals in offices in New
York, Toronto and London and expects to open an office in Tokyo. The Manager's
professionals combine real estate, risk management, structured finance, capital
markets, financial engineering and legal expertise, with respect to both dollar
and non-dollar denominated investments. The Company believes that it is uniquely
positioned to capitalize on market and industry trends in complex real
estate-related investments across product, credit, geographic and industry
lines. Fortress was incorporated in the State of Maryland in May 1998. Fortress
expects to be taxed as a REIT under the Code commencing with its taxable year
ending December 31, 1998. The Operating Partnership was formed in the State of
Delaware in May 1998. The principal executive offices of the Company are located
at 1301 Avenue of the Americas, New York, New York 10019. The Company's
telephone number is (212) 798-6100.
INVESTMENTS
In connection with the Principals' departure from UBS to form Fortress,
and the liquidation of the portfolio acquired by GPF (the "GPF Assets"), the
Company has purchased certain of the GPF Assets from UBS. In addition, the
Company has made several other investments since its inception and continuously
reviews investment opportunities.
Credit Leased Real Estate
GSA Leased Properties: In July 1998, the Company purchased from UBS for
a purchase price of approximately $277 million (i) properties (the "Initial GSA
Properties") leased to the GSA and (ii) rights to purchase three additional
properties leased to the GSA (the "Option GSA Properties") upon completion of
the related construction and the commencement of the related GSA lease terms.
The Company financed this purchase through the Loan Facility discussed below.
See "-- Borrowings." One of the Option GSA Properties has been completed and
leased to the GSA and has been acquired by the Company. The remaining
approximately $16 million for this property was financed through the Loan
Facility. These properties are generally office properties located throughout
the U.S. and are not leased to the U.S. General Services Administration.
In August 1998, the Company purchased an office property in Houston,
Texas leased primarily to the GSA for approximately $14 million. The Company has
financed 75% of the purchase price through the Loan Facility.
In August 1998, the Company purchased an office property in Washington,
D.C. leased primarily to the GSA for approximately $36 million. The Company has
financed 75% of the purchase price through the Loan Facility.
Canadian Real Estate Portfolio: In August 1998, the Company entered
into an agreement to purchase from a real estate company based in Canada a
portfolio of seven office and industrial buildings for a purchase price of
approximately $53 million. The closing is expected to occur on or about October
1, 1998. The properties are located in southern Ontario.
Loan Portfolios
Canadian Loan Portfolio: In August 1998, the Company purchased from UBS
a portfolio of Canadian mortgage loans for a purchase price of approximately $55
million. As of June 30, 1998, the portfolio consisted of 436 mortgage loans and
12 REO properties located throughout Canada with an unpaid principal balance of
approximately $56 million. The assets securing the loans are commercial and
residential properties.
U.S. Commercial Loan Portfolio: In August 1998, the Company purchased
from UBS a portfolio of U.S. commercial mortgage loans for a purchase price of
approximately $80 million. As of June 30, 1998, the portfolio consisted of 48
mortgage loans and 2 REO properties located primarily in California, Florida and
New York with an unpaid principal balance of approximately $87 million. The
assets securing the loans are primarily office, industrial, retail and
multifamily properties.
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Residential Loan Portfolio #1: In August 1998, the Company purchased
from UBS a 50% interest in a residential loan portfolio for a purchase price of
approximately $6 million. As of June 30, 1998, the portfolio was comprised of
approximately 937 mortgage loans and REO assets with an unpaid principal balance
of approximately $25 million. The remaining 50% of the portfolio is owned by an
affiliate of the servicer of the mortgage loans.
Residential Loan Portfolio #2: In August 1998, the Company purchased
from UBS a 40% interest in a residential loan portfolio for a purchase price of
approximately $38 million. As of June 30, 1998, the portfolio was comprised of
approximately 2,947 mortgage loans and REO assets with an unpaid principal
balance of approximately $124 million. An affiliate of the servicer also owns
40% of the portfolio, and the remaining 20% of the portfolio is owned by an
unaffiliated third party.
Financings
Residential Servicer Loan: In connection with the initial purchase of
the residential loan portfolios described above, UBS financed the servicer's
investment in the portfolios. In August 1998, the Company purchased from UBS a
loan to the servicer with an unpaid principal balance of approximately $42
million. The purchase price was approximately $42 million. The loan has a coupon
of 400 basis points over one-month LIBOR and a maturity date in December 1998.
The loan is secured by the borrower's equity interest in the residential loan
portfolios as well as certain additional collateral.
Loan: In August 1998, the Company purchased from UBS a loan to an
affiliate of the servicer of the residential loan portfolios described above
with an unpaid principal balance of approximately $16 million. The purchase
price was approximately $16 million. The loan has a coupon of 400 basis points
over one-month LIBOR and a maturity date in December 1998. The loan is secured
by residential, commercial and other mortgage loans and REO.
New York Property Company Credit Facility: In August 1998, the Company
purchased from UBS a credit facility to a single-family REO rehabilitation
company located in New York with an unpaid principal balance of approximately
$16 million. The purchase price was approximately $15 million. The facility has
a coupon of 410 basis points over one-month LIBOR and a maturity date in August
2000. The loan is secured by mortgages on properties located in the New York
metropolitan area.
French Commercial Mortgage Loan: In August 1998, the Company purchased
from an affiliate of UBS a loan to an affiliate of a Boston-based investment
manager with an unpaid principal balance of approximately $53 million. The
purchase price was approximately $54 million. The loan has a coupon of 250 basis
points over the three-month Paris Interbank Offered Rate and a maturity date in
December 1998. The loan is secured by an office building located near Paris,
France.
Building Material Retailer Loan: In August 1998, the Company purchased
from UBS a loan to a building materials retailer, which has recently completed a
Chapter 11 reorganization, with an unpaid principal balance of approximately $96
million. The purchase price was approximately $96 million. The loan has a coupon
of 400 basis points over one-month LIBOR and a maturity date in December 2004.
The loan is secured by 123 properties (retail stores and warehouse facilities)
located throughout the midwest and southwest sections of the United States.
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BORROWINGS
Loan Facility: In July 1998, the Company entered into a financing
arrangement with a financial institution (the "Loan Facility") providing the
Company with approximately $234 million in debt relating to the GSA Leased
Properties. The financed amounts are approximately 75% of the cost of the
related properties. The facility bears interest at a floating rate, has a term
of nine and one-half years maturing in 2008, and includes declining prepayment
penalties for the first thirty months of the facility. The Loan Facility is
secured by the GSA Leased Properties and certain related assets. The Company has
entered into a series of interest rate swaps the effect of which is intended to
convert the floating rate to a fixed rate.
Secured Borrowings: Substantially all of the remaining assets of the
Company are currently financed by secured recourse facilities (secured by the
related assets) bearing interest at a floating rate and maturing between
February and August 1999.
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THE MANAGER AND THE MANAGEMENT AGREEMENT
THE MANAGER
The Manager was founded by Messrs. Wesley R. Edens, Robert I. Kauffman,
Randal A. Nardone and Erik P. Nygaard.
The Manager employs 41 professionals in New York, Toronto and London
and expects to open an office in Tokyo. Its executive offices are located at
1301 Avenue of the Americas, New York, New York 10019 and the telephone number
of its executive offices is (212) 798-6100.
THE MANAGER'S EXPERIENCE
The Company believes that the Manager has developed an organization of
investment and investment management professionals that is well-positioned to
take advantage of today's real estate and capital markets environment. The
Manager's professionals combine real estate, risk management, structured
finance, capital markets, financial engineering and legal expertise with respect
to both dollar and non-dollar denominated investments. The Company believes
that, with the management of the Manager, it will be uniquely positioned to
capitalize on market and industry trends in complex real estate-related
transactions across product, credit, geographic and industry lines.
Fortress was established to continue the opportunistic real
estate-related investment activities of the Principals which were previously
conducted on behalf of BAI and GPF. BAI is a real estate and mortgage debt fund
established in 1995 with contributions from several major institutional
investors. The Principals have been responsible for the day-to-day management of
BAI since its formation. The Principals will continue to manage BAI through its
liquidation which is expected to be substantially completed by September 1999.
GPF was established in May 1997 by UBS and the Principals, as employees of UBS,
to continue the investment activities of the Principals after BAI was fully
invested. The Principals were responsible for managing the day-to-day operations
of GPF since its inception. This responsibility ended with the complete
liquidation of the portfolio acquired by GPF.
The Principals believe that they have been successful in adding value
to assets through (a) increasing and stabilizing cash flows through
restructuring and workouts, (b) creating optimal servicing and operating
systems, (c) creating and monitoring asset- and obligor-specific information and
(d) developing appropriate short-term and long-term capital structures for the
assets. The Principals believe that they have been successful in monetizing the
value created by these strategies through securitization, negotiated
restructurings and liquidations.
OFFICERS OF THE MANAGER
The following table sets forth certain information with respect to the
senior officers of the Manager. The Principals are the senior officers of the
Manager and are also directors or senior officers of Fortress. Otherwise, no
senior officer of the Manager is a, or is related by blood, marriage or adoption
to, any other, director or senior officer or principal of the Company or the
Manager or any of their respective affiliates.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ------------------------- -------- ----------------------------------------------------
<S> <C> <C>
Wesley R. Edens 36 Chief Executive Officer and Chairman of the Board of
Directors
Robert I. Kauffman 34 President and Director
Randal A. Nardone 43 Chief Operating Officer and Secretary
Erik P. Nygaard 38 Chief Information Officer and Treasurer
Wayne C. Olson 49 Chief Financial Officer
</TABLE>
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<PAGE> 39
The principal occupation for the last several years of the senior
officers, officers and other key professionals of the Manager, as well as other
information, is set forth below.
Senior Officers
WESLEY R. EDENS is the Chief Executive Officer of the Manager and
Fortress and the Chairman of the Board of Directors of Fortress. He recently
co-founded the Manager with Messrs. Kauffman, Nardone and Nygaard, having
previously been head of GPF, as well as a Managing Director of UBS. Mr. Edens
was responsible for all aspects of GPF's operations, including setting
investment strategy, creating transaction flow, advising on financing, asset
management and acquisition issues and overseeing the day-to-day activities.
Prior to joining GPF in 1997, Mr. Edens was a partner and Managing Director of
BlackRock Financial Management, Inc. ("BFM") and the Chief Operating Officer of
BAI. In addition, Mr. Edens was formerly a partner and Managing Director of
Lehman Brothers, where he was head of the Non-Agency Mortgage Trading Desk. Mr.
Edens was primarily responsible for initially building Lehman's commercial and
non-agency mortgage effort. Mr. Edens received a B.S. degree in Finance and
Computer Science from Oregon State University.
ROBERT I. KAUFFMAN is the President of the Manager and Fortress and a
member of the Board of Directors of Fortress. He was previously the head of the
acquisitions and risk management department of GPF as well as a Managing
Director of UBS. Mr. Kauffman was responsible for the evaluation of potential
investment opportunities and the coordination of due diligence protocols. In
addition, Mr. Kauffman was responsible for all of the capital markets activities
of GPF, including hedging transactions and the issuance of securities. Prior to
joining UBS in 1997, Mr. Kauffman was a principal of BFM and Managing Director
of BAI, where he was also responsible for the acquisition and risk management of
BAI. Prior to joining BlackRock, Mr. Kauffman was an Executive Director of
Lehman Brothers International ("LBI") in London, responsible for all of LBI's
foreign asset-based financing, including capital commitments, risk management
and securitization. In addition, Mr. Kauffman was responsible for the expansion
of LBI's non-performing mortgage loan business into the U.K. residential
mortgage market and the acquisition by LBI of a U.K. mortgage servicing
operation to resolve acquired assets. Mr. Kauffman received a B.S. degree in
Business Administration from Northeastern University.
RANDAL A. NARDONE is the Chief Operating Officer and Secretary of the
Manager and Fortress. He was previously the head of the structured finance and
contract finance departments of GPF as well as a Managing Director of UBS. Mr.
Nardone was responsible for the structuring, negotiation and documentation of
all transactions. Prior to joining UBS in 1997, Mr. Nardone was a principal of
BFM and Managing Director of BAI, where he also ran the structured finance and
contract finance groups. Prior to joining BlackRock, Mr. Nardone was a partner
and a member of the executive committee at the law firm of Thacher Proffitt &
Wood. Mr. Nardone joined Thacher Proffitt & Wood in 1980 and became head of its
structured finance group of 40 lawyers in 1993. Mr. Nardone received a B.A.
degree in English and Biology from the University of Connecticut and a J.D.
degree from the Boston University School of Law.
ERIK P. NYGAARD is the Chief Information Officer and Treasurer of the
Manager and Fortress. Mr. Nygaard was previously the head of the financial
engineering department of GPF as well as a Managing Director of UBS. Mr. Nygaard
was responsible for all aspects of information technology and cash flow
analysis, which included portfolio pricing, securitization modeling, investor
reporting, monthly monitoring of all assets, and portfolio performance
projections. Prior to joining UBS in 1997, Mr. Nygaard was a principal of BFM
and Managing Director of BAI. Mr. Nygaard was also head of the financial
engineering group at BAI, which handled all aspects of information technology
and cash flow analysis. From 1990 to 1994, Mr. Nygaard was a Director at Nomura
Securities International, where he was responsible for all aspects of over $30
billion in REMIC issuances as head of the Mortgage Structuring
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<PAGE> 40
Group. Mr. Nygaard received a B.S. degree in Electrical Engineering and Computer
Science from the Massachusetts Institute of Technology.
WAYNE C. OLSON is the Chief Financial Officer of the Manager and
Fortress. Mr. Olson joined the Manager and Fortress in July 1998. Mr. Olson was
previously at Greenwich Capital Markets as co-head of the asset finance group,
focusing on principal finance, warehouse lending and new securitization products
from 1997 to July 1998. Prior to joining Greenwich, Mr. Olson was at Lehman
Brothers as head of the commercial mortgage finance group from 1992 to 1997 and
at Credit Suisse First Boston as co-head of the financial engineering and
product development group in the mortgage market area from 1982 to 1992. Mr.
Olson holds an A.B. degree in English from Harvard and an M.B.A. degree in
finance from UCLA, where he also completed four years of doctoral study in
business economics. He is a past chairman of the Bond Market Association's
commercial mortgage-backed securities unit.
Officers and Key Professionals of the Manager
JONATHAN ASHLEY joined the Manager in May 1998. He previously worked
for GPF at UBS from May 1997. Prior to joining UBS, Mr. Ashley worked for
BlackRock Capital Finance ("BCF"), the operating subsidiary of BAI, from April
1996 to May 1997. Prior to joining BCF, Mr. Ashley worked at Morgan Stanley,
Inc. in its Real Estate Investment Banking Group, where he focused on commercial
real estate securitizations. Prior to joining Morgan Stanley, Mr. Ashley was in
the Structured Finance Group at the law firm of Skadden, Arps, Slate, Meagher &
Flom LLP. Mr. Ashley received a B.A. degree in History from Tufts University and
a J.D. degree from the University of Pennsylvania Law School.
ANDREW BERMAN joined the Manager in May 1998. He worked for GPF at UBS
from January 1998. Prior to joining UBS, Mr. Berman worked for BCF from December
1994 to January 1998. Prior to joining BCF, Mr. Berman was a Vice President in
the Fixed Income Trading Group at PaineWebber Incorporated. Mr. Berman received
a B.A. degree in Mathematics from Macalester College.
LAWRENCE BOTEL joined the Manager in May 1998. He previously worked for
GPF at UBS and BCF from 1997. Prior to joining BCF, Mr. Botel worked at Mutual
of New York in its Real Estate Group from 1993 to 1997. Mr. Botel received a
B.S.B.A. degree in Finance from Georgetown University and an M.B.A. degree in
Finance from the University of Chicago Graduate School of Business.
CHRISTOPHER CHEE joined the Manager in May 1998. He previously worked
for GPF at UBS since January 1998. Prior to joining UBS, Mr. Chee worked for BFM
from 1994 to 1995 and thereafter at BCF to 1998. Mr. Chee received a B.A. degree
in History from the University of Pennsylvania.
BRYDON CRUISE joined the Manager in May 1998. He previously worked for
GPF at UBS (Canada) from June 1997. Prior to joining UBS, Mr. Cruise worked as
Vice President of Mortgage Placements at Brazos Advisors Canada from September
1995 to 1997 and as Vice President for Citibank Canada, Real Estate Capital
Markets from April 1990 to 1995. Mr. Cruise graduated from Wilfrid Laurier
University with an honors B.B.A. degree in Finance.
WILLIAM DONIGER joined the Manager in May 1998. He previously worked
for GPF at UBS since January 1998. Prior to joining UBS, Mr. Doniger worked for
BCF from January 1996 through December 1997. Prior to that, Mr. Doniger was in
the structured finance group of the law firm of Thacher Proffitt & Wood. Mr.
Doniger graduated from Princeton University with an A.B. degree in History and
received a J.D. degree from American University.
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<PAGE> 41
LILLY H. DONOHUE joined the Manager in May 1998. She previously worked
for GPF at UBS since January 1998. Prior to joining UBS, Ms. Donohue worked for
BFM from 1992 to 1995 and thereafter at BCF to 1998. Ms. Donohue graduated from
Boston University with a B.S.B.A. degree in Finance.
BARRY EDINBURG joined the Manager in May 1998. He previously worked for
GPF at UBS since January 1998. Prior to joining UBS, Mr. Edinburg worked for BCF
from March through December 1997. Mr. Edinburg graduated from Tufts University
with a B.A. degree in Psychology and received a J.D. degree from Boston
University School of Law.
TACIE J. FOX joined the Manager in May 1998. She previously worked for
GPF at UBS from 1997. Prior to joining UBS, Ms. Fox served as head of Mergers
and Acquisitions from 1996 to 1997 for Fox & Lazo, Inc., a regional Philadelphia
area real estate firm. Prior to that, Ms. Fox served as Executive Vice President
and Director of Portfolio Operations for Crown NorthCorp, Inc. from 1993 to
1996. Ms. Fox graduated from Duke University with a B.S. degree in Engineering
and received an M.B.A. degree from The Wharton School at the University of
Pennsylvania.
GREGORY A. JUNDANIAN joined the Manager in May 1998. He previously
worked for GPF at UBS from May 1997. Prior to joining UBS, Mr. Jundanian worked
for BCF from January 1996 through May 1997. Prior to joining UBS, Mr. Jundanian
worked for Lehman Brothers Inc. since 1984. Mr. Jundanian graduated from the
College of the Holy Cross with a B.S. degree in History, from the University of
Massachusetts with an Ed.M. degree in International Education and from Boston
University with an M.B.A. degree in Finance.
JOHN KATZ joined the Manager in May 1998. He previously worked for GPF
at UBS and BCF since April 1997. Prior to that, Mr. Katz worked for Citicorp
Real Estate from 1993 to 1997. Mr. Katz graduated from Tufts University with a
B.A. degree in History, and from Columbia University with an M.B.A. degree in
Finance.
ANTHONY A. LAZZARA joined the Manager in May 1998. He previously worked
for GPF at UBS from January 1998. Prior to joining UBS, Mr. Lazzara worked for
the law firm of Shearman & Sterling in its Real Estate and Mergers &
Acquisitions Practice Groups from January 1994 through December 1997. Mr.
Lazzara graduated from Trinity College with a B.A. degree in American Studies
and from the Boston University School of Law with a J.D. degree.
ALFRED MARRAPODI joined the Manager in May 1998. He previously worked
for GPF at UBS from July 1997. Prior to joining UBS, Mr. Marrapodi worked for
PaineWebber Incorporated from February 1983 where he was a Managing Director in
charge of the Mortgage Origination Services Group. At its peak, under Mr.
Marrapodi's leadership, the group had 41 professionals who managed approximately
$10 billion of credit facilities to more than 200 institutions. Mr. Marrapodi
graduated from Pace University with a B.A. degree in Finance.
KELLY MARSHALL joined the Manager in June 1998. He previously worked
for Cornerstone Capital Corp., a Toronto based corporate finance advisory group
specializing in equity and mezzanine real estate capital placements. Prior to
that, Mr. Marshall worked as Vice President of asset management and origination
at Brazos Advisors Canada from September 1995 to 1997 and acted in various roles
for Olympia & York Canary Wharf, Ltd. Mr. Marshall graduated from Wilfrid
Laurier University with an honors B.B.A. degree.
SCOTT MEZZO joined the Manager in May 1998. He previously worked for
GPF at UBS from March 1998. Prior to joining UBS, Mr. Mezzo worked for
PaineWebber Incorporated from September 1993 where he was a Vice President in
the Asset Sales and Trading Group. Mr. Mezzo graduated from Pace University with
a B.B.A. degree in General Business.
MARK H. NEWMAN joined the Manager in May 1998. He previously worked for
Gentra Inc., a Toronto Stock Exchange 300 listed company, specializing in real
estate lending and acquisitions from 1993. At Gentra, he held various
35
<PAGE> 42
positions culminating in his promotion to Head -- Loan Workout Group in 1996 and
President of the Lending Group in 1997. Mr. Newman graduated from Dartmouth
College with a B.A. degree and from Dalhousie University in Halifax, Nova
Scotia, with his L.L.B. degree.
J. DOUGLAS RIPPETO, JR. joined the Manager in May 1998. He previously
worked for GPF at UBS from August 1997. Prior to joining UBS, Mr. Rippeto worked
for CBA Mortgage Partners, L.P. from June 1994 to July 1997. Prior to joining
CBA, Mr. Rippeto worked for The Chase Manhattan Bank, N.A. in its Real Estate
Finance Group from June 1993 to May 1994. Mr. Rippeto graduated from Vanderbilt
University with a B.A. degree in History and Political Science and from Cornell
University's Johnson Graduate School of Management with an M.B.A degree in
Finance.
JOHN SCHRENKER joined the Manager in May 1998. He previously worked for
GPF at UBS from November 1997. Prior to joining UBS, Mr. Schrenker was a
Director at Jones Lang Wootton USA in the Investment Sales and Real Estate
Securities groups from January 1995 to October 1997. Mr. Schrenker graduated
from Bucknell University with a B.A. degree in Economics.
GORDON SMITH joined the Manager in May 1998. He previously worked for
GPF at UBS since 1998. Prior to joining UBS, Mr. Smith worked for BlackRock U.K.
Investors in London and was responsible for managing the Annington Homes
transaction from December 1996 to January 1998. Prior to that time, Mr. Smith
worked for BCF in New York from February 1995 to December 1996. Prior to that
time, Mr. Smith was a Vice President for the CB Commercial Real Estate Group
from 1985 to 1994. Mr. Smith graduated from Santa Clara University with a B.S.
degree in Economics and an M.B.A. degree in Finance.
PETER SMITH joined the Manager in May 1998. He previously worked for
GPF at UBS from May 1997. Prior to joining UBS, Mr. Smith worked for BCF from
1996 to 1997. Mr. Smith was a Vice President at CRIIMI MAE Inc. from 1991 to
1996. Mr. Smith graduated from Radford University with a B.B.A. degree in
Finance and from George Washington University with a M.B.A. degree in Finance.
PAUL STALEY joined the Manager in May 1998. He previously worked for
UBS and BCF from 1996. Prior to joining BCF, Mr. Staley worked for Lehman
Brothers from 1985 to 1995. Mr. Staley graduated from Harvard College with an
A.B. degree in General Studies and holds a Masters in Public Policy degree from
the University of California. Mr. Staley earned the designation of C.F.A. in
1994.
BLAIR WELCH joined the Manager in May 1998. He previously worked for
GPF at UBS from July 1997. Prior to joining UBS, Mr. Welch worked for each of
Bankers Trust and Brazos Advisors Canada. Mr. Welch graduated from the
University of British Columbia with a Bachelor of Commerce degree in Urban Land
Economics.
BRADY WELCH joined the Manager in August 1998. He previously worked
for Truscan Property Corporation, a wholly owned subsidiary of Canada Trust,
specializing in real estate acquisitions and asset management of Class A office
buildings in major Canadian centers. Prior to Truscan, Mr. Welch worked as an
asset manager for Brazos Advisors Canada from September 1995 to 1997. Mr. Welch
graduated from Mount Allison University with a Bachelor of Commerce degree in
Accounting & Finance.
The senior officers and other professionals have significant expertise
in real estate, risk management, structured finance, capital markets, financial
engineering and legal fields; however, none of such persons has previously
managed a REIT. See "Risk Factors -- Economic and Business Risks -- Newly
Organized Corporation."
Each of the Principals has entered into employment agreements (each, an
"Employment Agreement") with the Manager, for a three year term ending June 1,
2001 (the "Non-Competition Expiration Date"). Each Employment Agreement includes
a clause (the "Non-Competition Clause"), under which each of the Principals
shall be precluded, until the Non-Competition Expiration Date, from engaging in
any business which is directly competitive with a material business in which the
Manager or the Company is engaged or from serving as a partner, officer,
director, consultant, employee or equity holder (subject to limited exceptions
and the Excluded Investments as described herein) of any company or business
organization which is so engaged. The Employment Agreements provide (i) that the
Company shall be a third-party beneficiary of the Non-Competition Clause and
(ii) that the Non-Competition Clause may not be amended, waived, terminated or
otherwise modified without the prior consent of a majority of the Independent
Directors
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<PAGE> 43
and the Manager has acknowledged and agreed that the Principals may serve as
directors and executive officers of Fortress.
THE MANAGEMENT AGREEMENT
The Company entered into the Management Agreement dated as of June 10,
1998 with the Manager for an initial three-year term. The Management Agreement
provides for automatic one-year extensions after the initial three-year term.
After the initial three-year term, the Manager's performance will be reviewed
annually and the Management Agreement may be terminated annually upon the
affirmative vote of at least two-thirds of the Independent Directors, or by a
vote of the holders of a majority of the outstanding shares of Common Stock,
based upon unsatisfactory performance that is materially detrimental to the
Company or a determination by the Independent Directors of Fortress that the
compensation to the Manager is not fair, subject to the Manager's right to
prevent such a compensation termination by accepting a mutually acceptable
reduction of fees. The Manager will be provided 60 days' prior notice of any
such termination and will be paid a termination fee equal to the amount of the
Management Fee earned by the Manager during the twelve-month period preceding
such termination. Following any termination of the Management Agreement, the
Company shall be entitled to purchase the portion of the Manager's (or an
affiliate's) limited partnership interest attributable to the Preferred
Incentive Return at a price equal to the amount that would be distributed to the
Manager (or an affiliate), in its capacity as the Initial Limited Partner, if
the Company's assets were sold for cash at their then current fair market value
(as determined by an appraisal, taking into account, among other things, the
expected future value of the underlying investments) or otherwise continue to
pay the Preferred Incentive Return to the Manager (or an affiliate). In
addition, if the Company does not elect to so purchase the Manager's (or an
affiliate's) limited partnership interest attributable to the Preferred
Incentive Return, the Manager (or an affiliate) will have the right to require
the Company to purchase the same at the price discussed above. In addition, the
Management Agreement may be terminated by the Company at any time for cause,
which is defined as fraud, misappropriation of funds, willful violation of the
Management Agreement, or gross negligence, without payment of the termination
fee. The Manager may at any time assign certain duties under the Management
Agreement to any affiliate of the Manager provided that Messrs. Edens, Kauffman,
Nardone and Nygaard also jointly manage and supervise the day-to-day business
and operations of such affiliate and provided, further, that the Manager shall
be fully responsible to the Company for all errors or omissions of such
assignee.
The Management Agreement requires the Manager to manage the business
affairs of the Company in conformity with the policies and Guidelines that are
approved and monitored by the Board of Directors of Fortress. The Manager will
be required to prepare regular reports for the Board of Directors of Fortress
that will review the Company's acquisitions, portfolio composition and
characteristics, credit quality, performance and compliance with the Guidelines
and policies approved by the Board of Directors of Fortress.
The Manager's management of the Company at all times will be under the
direction of Fortress' Board of Directors and will have only such functions and
authority as the Company may delegate to it. The Manager will be responsible for
the day-to-day operations of the Company and will perform (or cause to be
performed) such services and activities relating to the assets and operations of
the Company as may be appropriate, including, without limitation, the following:
(i) serving as the Company's consultant with respect to
formulation of investment criteria and preparation of Guidelines and
policies for the approval of the Board of Directors;
(ii) investigation and selection of possible investment
opportunities and acquisitions, property and investment analysis,
market and economic surveys, on-site physical inspections, review and
projection of income and construction, renovation and/or operating
expenses and supervising and negotiating the arrangement of financing;
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<PAGE> 44
(iii) conducting negotiations with real estate brokers, owners
of property and their agents and representatives, investment bankers
and owners of privately and publicly held real estate companies;
(iv) engaging and supervising, on behalf of the Company and at
the Company's expense, independent contractors which provide real
estate brokerage, investment banking and leasing services, mortgage
brokerage and other financial services and such other services as may
be required relating to the Company's investments;
(v) negotiating on behalf of the Company for the sale,
exchange or other disposition of any of the Company's investments;
(vi) coordinating and managing operations of any joint venture
or co-investment interests held by the Company and conducting all
matters with any joint venture or co-investment partners;
(vii) coordinating and supervising, on behalf of the Company
and at the Company's expense, all property managers, leasing agents and
developers for the administration, leasing, management and/or
development of any of the Company's investments;
(viii) providing executive and administrative personnel,
office space and office services required in rendering services to the
Company;
(ix) administering the day-to-day operations of the Company
and performing and supervising the performance of such other
administrative functions necessary to the management of the Company as
may be agreed upon by the Manager and the Board of Directors, including
the collection of revenues and the payment of the Company's debts and
obligations and maintenance of appropriate computer services to perform
such administrative functions;
(x) communicating on behalf of the Company with the holders of
any equity or debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies
or trading markets and to maintain effective relations with such
holders;
(xi) counseling the Company in connection with policy
decisions to be made by the Board of Directors;
(xii) evaluating and recommending overall hedging strategies
to the Board of Directors and, upon the approval by the Board of
Directors of such overall hedging strategies, engaging in hedging
activities on behalf of the Company, consistent with the Company's
status as a REIT and with the Guidelines;
(xiii) counseling the Company regarding the maintenance of its
status as a REIT and monitoring compliance with the various REIT
qualification tests and other rules set out in the Code and Treasury
Regulations thereunder;
(xiv) counseling the Company regarding the maintenance of its
exemption from the Investment Company Act and monitoring compliance
with the requirements for maintaining an exemption from that Act;
(xv) assisting the Company in developing criteria for asset
purchase commitments that are specifically tailored to the Company's
investment objectives and making available to the Company its knowledge
and experience with respect to mortgage loans, real estate and other
real estate-related assets;
(xvi) representing and making recommendations to the Company
in connection with asset privatization, investments in operating
companies, loan origination (including on a portfolio basis) and the
38
<PAGE> 45
purchase and commitment to purchase and finance of mortgage loans
(including on a portfolio basis), real estate and other real
estate-related assets, and the sale and commitment to sell such assets;
(xvii) monitoring the operating performance of the Company's
investments and providing periodic reports with respect thereto to the
Board of Directors, including comparative information with respect to
such operating performance and budgeted or projected operating results;
(xviii) investing or reinvesting any money of the Company
(including investing in short-term investments pending investment in
long-term asset investments, payment of fees, costs and expenses, or
payments of dividends or distributions to stockholders and partners of
the Company), and advising the Company as to its capital structure and
capital raising;
(xix) causing the Company to retain qualified accountants and
legal counsel, as applicable, to assist in developing appropriate
accounting procedures, compliance procedures and testing systems with
respect to financial reporting obligations and compliance with the REIT
provisions of the Code and to conduct quarterly compliance reviews with
respect thereto;
(xx) causing the Company to qualify to do business in all
applicable jurisdictions and to obtain and maintain all appropriate
licenses;
(xxi) assisting the Company in complying with all regulatory
requirements applicable to the Company in respect of its business
activities, including preparing or causing to be prepared all financial
statements required under applicable regulations and contractual
undertakings and all reports and documents, if any, required under the
Exchange Act;
(xxii) taking all necessary actions to enable the Company to
make required tax filings and reports, including soliciting
stockholders for required information to the extent provided by the
REIT provisions of the Code;
(xxiii) handling and resolving all claims, disputes or
controversies (including all litigation, arbitration, settlement or
other proceedings or negotiations) in which the Company may be involved
or to which the Company may be subject arising out of the Company's
day-to-day operations, subject to such limitations or parameters as may
be imposed from time to time by the Board of Directors;
(xxiv) using commercially reasonable efforts to cause expenses
incurred by or on behalf of the Company to be reasonable or customary
and within any budgeted parameters or Guidelines set by the Board of
Directors from time to time;
(xxv) performing such other services as may be required from
time to time for management and other activities relating to the assets
of the Company as the Board of Directors shall reasonably request or
the Manager shall deem appropriate under the particular circumstances;
and
(xxvi) using commercially reasonable efforts to cause the
Company to comply with all applicable laws.
The Manager performs portfolio management services on behalf of the
Company pursuant to the Management Agreement with respect to the Company's
investments. Such services include, but are not limited to, consulting with the
Company on the purchase and sale of, and other investment opportunities in
connection with, the Company's portfolio of assets, collection of information
and submission of reports pertaining to the Company's assets, interest rates,
and general economic conditions, periodic review and evaluation of the
performance of the Company's portfolio of
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<PAGE> 46
assets, acting as liaison between the Company and banking, mortgage banking,
investment banking and other parties with respect to the purchase, financing and
disposition of assets, and other customary functions related to portfolio
management. The Manager may enter into subcontracts with other parties,
including its affiliates, to provide any such services to the Company, subject
to the Company's prior approval and subject to the Manager's responsibility for
such subcontractor's work.
The Manager performs monitoring services on behalf of the Company
pursuant to the Management Agreement with respect to loan servicing activities
provided by third parties. Such monitoring services will include, but not be
limited to, the following activities: negotiating servicing agreements; acting
as a liaison between the servicers of the assets and the Company; review of
servicers' delinquency, foreclosure and other reports on assets; supervising
claims filed under any insurance policies; and enforcing the obligation of any
servicer to repurchase assets. The Manager may enter into subcontracts with
other parties, including its affiliates, to provide any such services for the
Manager, subject to the Company's prior approval.
Pursuant to the Management Agreement, the Manager has agreed, at all
times during which it is serving as manager of the Company, to maintain a
tangible net worth of at least $1,000,000. In addition, the Manager has agreed
to maintain "errors and omissions" insurance coverage in an amount which is
comparable to that customarily maintained by other managers or servicers of
other assets similar to those held by the Company.
The Manager may engage property and/or asset managers on behalf of the
Company to provide property management, leasing and/or similar services to the
Company with respect to its assets; provided that any such contracts entered
into with affiliates of the Manager shall be on terms no more favorable to such
affiliate than would be obtained from a third party on an arm's-length basis and
subject to such other terms respecting contracts and assignments to affiliates
as set forth elsewhere in this Prospectus.
The Principals have informed the Company that, upon satisfaction of
their responsibilities under their agreement with BFM to manage the assets of
BAI (the "BAI Management Contract"), they intend to discuss with the Board of
Directors of Fortress various methods to convert the Company to a self-advised
structure. Upon such conversion, all or a portion of the following may occur,
either in a single transaction or in a series of transactions: (a) the
Management Agreement would terminate and the employees of the Manager (which may
include the Principals) would become direct employees of the Company, (b) the
Management Fee otherwise payable to the Manager pursuant to the Management
Agreement would not be payable to the Manager, and instead the Company would be
responsible for all salaries and overhead costs applicable to such employees of
the Manager, (c) the exclusivity provisions of the Management Agreement would be
set forth in amendments to the Employment Agreements between the Company and
such employees and (d) the Company's obligation to pay the Preferred Incentive
Return (as discussed below) to the Manager (or an affiliate of the Manager)
would terminate. Any such conversion transaction will be subject to the approval
of the Manager and the Independent Directors with respect to, among other
things, the structure of such conversion transaction(s) and the consideration
therefor.
MANAGEMENT FEE
The Manager will receive an annual Management Fee equal to 1.5% of the
Company's Gross Equity; provided, however, that during the remainder of 1998
following the First Closing Date of the Original Offering, the Manager shall
receive a Management Fee equal to the greater of (i) $6,000,000 and (ii) the
product of (a) 1.5% of the Company's Gross Equity and (b) a fraction, the
numerator of which is the number of days in 1998 following the Closing and the
denominator of which is 365. The Management Fee shall be calculated and paid
monthly in arrears based upon the weighted daily average of the Company's Gross
Equity for such month (except during the remainder of 1998 following the Closing
Date, during which period such monthly amount is to be calculated and paid based
on the terms of the proviso set forth in the sentence immediately preceding).
The term "Gross Equity" for any period means (A) the sum of (i) the Company's
Total Equity, plus (ii) the value of contributions made by partners, other than
the General Partner,
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<PAGE> 47
from time to time, to the capital of the Operating Partnership or any other
subsidiary of the Company, less (B) any capital dividends or capital
distributions made by Fortress to its stockholders or by the Operating
Partnership to its partners. The Manager will not receive any Management Fee for
the period prior to the closing of the Original Offering. The Management Fee is
intended to compensate the Manager for providing management and advisory
services to the Company and for a reimbursement of all costs. In the event of
termination of the Management Agreement by the Company other than for cause (as
specifically described in the Management Agreement), the Company is required to
pay the Manager a termination fee equal to the amount of the Management Fee
earned by the Manager during the 12 month period immediately preceding such
termination. Following any termination of the Management Agreement as aforesaid,
the Company may purchase the portion of the Manager's (or an affiliate's)
limited partnership interest attributable to the Preferred Incentive Return at a
price equal to the amount that would be distributed to the Manager (or an
affiliate) if the Company's assets were sold for their fair market value (as
determined by an appraisal, taking into account, among other things, the
expected future value of the underlying investments) or otherwise continue to
pay the Preferred Incentive Return to the Manager (or an affiliate). In
addition, if the Company does not elect to so purchase the Manager's (or an
affiliate's) limited partnership interest attributable to the Preferred
Incentive Return, the Manager (or an affiliate) will have the right to require
the Company to purchase the same at the price described above. See "--Management
Incentives" below.
Costs and Reimbursements. Because the Manager's employees or affiliates
perform certain legal, accounting, due diligence tasks and other services that
outside professionals or outside consultants otherwise would perform, the
Manager or such affiliates are paid or reimbursed for the cost of performing
such tasks, provided that such costs and reimbursements are no greater than
those which would be paid to outside professionals or consultants on an
arm's-length basis. Further, the Manager will be reimbursed for any expenses
incurred in contracting with third parties, including affiliates of the Manager,
for the special servicing of assets of the Company.
The Manager will use the proceeds from its Management Fee in part to
pay compensation to its officers and employees who, notwithstanding that certain
of them also are officers of the Company, receive no cash compensation directly
from the Company.
Expenses. The Company does not maintain an office or employ full-time
personnel. Instead it relies on the facilities and resources of the Manager to
conduct its operations, and it is required to pay out-of-pocket expenses.
Expense reimbursements to the Manager are made monthly.
Payment of Fees. The Management Fee is payable monthly in arrears based
upon the weighted average of the Company's Gross Equity for such month. The
Company is obligated to pay the Manager's fees and expenses on the first
business day of each calendar month following the First Closing Date of the
Original Offering.
Subject to the limitations set forth below, the Company will also pay
all operating expenses, except those specifically required to be borne by the
Manager under the Management Agreement (including salary, wages, payroll taxes
and the cost of employee benefit plans). The operating expenses required to be
borne by the Manager include the compensation of Manager's officers and
employees, rent for facilities, and other "overhead" expenses. The expenses that
will be paid by the Company will include (but not necessarily be limited to)
issuance and transaction costs incident to the acquisition, disposition and
financing of investments, legal and auditing fees and expenses, the compensation
and expenses of the Independent Directors, the costs associated with the
establishment and maintenance of any credit facilities and other indebtedness of
the Company (including commitment fees, legal fees, closing costs, etc.), or any
other securities offerings of the Company, the costs of printing and mailing
proxies and reports to stockholders, costs incurred by employees of the Manager
for travel on behalf of the Company, costs associated with any computer software
or hardware that is used solely for the Company, costs to obtain liability
insurance to indemnify the Company's Directors and officers and the compensation
and expenses of the Company's custodian and transfer agent, if any.
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<PAGE> 48
MANAGEMENT INCENTIVES
The Manager (or an affiliate of the Manager) is entitled to receive a
quarterly incentive return (the "Preferred Incentive Return") on its Units on a
cumulative, but not compounding, basis in an amount equal to the product of (A)
25% of the dollar amount by which (1)(a) the Funds From Operations (before the
Preferred Incentive Return) of the Company per share of Common Stock and per
Unit (based on the weighted average number of shares of Common Stock and Units
outstanding) plus (b) gains (or losses) from debt restructuring and gains (or
losses) from sales of property and other assets per share of Common Stock and
per Unit (based on the weighted average number of shares of Common Stock and
Units outstanding), exceed (2) an amount equal to (a) the weighted average of
the price per share of Common Stock and Units sold in the Original Offering and
the Private Placement and the prices per share of Common Stock (or Unit) in any
subsequent offerings by the Company (adjusted for prior capital dividends or
capital distributions) multiplied by (b) a simple interest rate of 10% per annum
(divided by four to adjust for quarterly calculations) multiplied by (B) the
weighted average number of shares of Common Stock and Units outstanding. "Funds
From Operations," as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), means net income (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and gains (or losses)
from sales of property, plus depreciation and amortization on real estate
assets, and after adjustments for unconsolidated partnerships and joint
ventures. Funds From Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
The ability of the Company to generate Funds From Operations in excess
of the 10% rate described above, and of the Manager (or an affiliate) to earn
the Preferred Incentive Return described in the preceding paragraph, is
dependent upon the Company's ability to execute successfully the investment
strategies described herein, and other factors, many of which are not within the
Company's or the Manager's control.
Upon any termination of the Management Agreement by either party, the
Company shall be entitled to purchase the portion of the Manager's (or an
affiliate's) limited partnership interest attributable to the Preferred
Incentive Return from the Manager (or an affiliate) for a cash purchase price
equal to the amount of the Preferred Incentive Return that would be distributed
to the Manager (or an affiliate), in its capacity as the Initial Limited
Partner, if all of the Company's assets were sold for cash at their then current
fair market value (taking into account, among other things, expected future
performance of the underlying investments) or otherwise continue to pay the
Preferred Incentive Return to the Manager (or an affiliate). In addition, if the
Company does not elect to so purchase the Manager's (or an affiliate's) limited
partnership interest attributable to the Preferred Incentive Return, the Manager
(or an affiliate) will have the right to require the Company to purchase the
same at the price described above. In either case, such fair market value shall
be determined by independent appraisal to be conducted by a nationally
recognized appraisal firm mutually agreed upon by the Company and the Manager.
If the Company and the Manager are unable to agree upon an appraisal firm, then
each of the Company and the Manager is to choose an independent appraisal firm
to conduct an appraisal. In such event, (i) if the appraisals prepared by the
two appraisers so selected are the same or differ by an amount that does not
exceed 20% of the higher of the two appraisals, such fair market value will be
deemed to be the average of the appraisals as prepared by each party's chosen
appraiser, and (ii) if these two appraisals differ by more than 20% of such
higher amount, the two appraisers together are to select a third appraisal firm
to conduct an appraisal. If the two appraisers are unable to agree as to the
identity of such third appraiser, either of the Manager and the Company may
request that the American Arbitration Association ("AAA") select the third
appraiser. The fair market value of the Company's assets will then be deemed to
be the amount determined by such third appraiser, but in no event less than the
lower of the two initial appraisals or more than the higher of such two initial
appraisals.
Management incentives under any partnership agreement of the operating
partnership established by the Sister Co., if any, will be substantially
identical to those set forth above, including the calculation of any preferred
incentive return.
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The Option Plan authorizes the grant of options to the Manager (or an
affiliate of the Manager) or to employees of the Manager (or an affiliate of the
Manager) to acquire, contingent upon the effectiveness of the registration
statement of which this Prospectus is part, 10% of the outstanding equity
interests in the Company (including Common Stock and Units) (as determined as of
the closing of the Original Offering and the Private Placement and each
subsequent date that Common Stock or Units are issued by the Company during the
term of the Option Plan). The purpose of the Option Plan is to provide a means
of performance-based compensation in order to provide an incentive for the
Manager to enhance the value of Fortress' Common Stock. See "Management--Stock
Options."
LIMITS OF RESPONSIBILITY
Pursuant to the Management Agreement, the Manager will not assume any
responsibility other than to render the services called for thereunder and will
not be responsible for any action of Fortress' Board of Directors in following
or declining to follow its advice or recommendations. The Manager, its directors
and its officers will not be liable to the Company, any subsidiary of the
Company, the Directors, Fortress' stockholders or any subsidiary's stockholders
for acts performed in accordance with and pursuant to the Management Agreement,
except by reason of acts constituting bad faith, willful misconduct, gross
negligence, or reckless disregard of their duties under the Management
Agreement. The Company has agreed to indemnify the Manager, its directors and
its officers with respect to all expenses, losses, damages, liabilities,
demands, charges and claims arising from acts of the Manager not constituting
bad faith, willful misconduct, gross negligence, or reckless disregard of
duties, performed in good faith in accordance with and pursuant to the
Management Agreement. The Manager has agreed to indemnify the Company, its
directors and officers with respect to all expenses, losses, damages,
liabilities, demands, charges and claims arising from acts of the Manager
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of its duties under the Management Agreement. The Manager shall carry
errors and omissions and other customary insurance.
CERTAIN RELATIONSHIPS; CONFLICTS OF INTEREST
The Company, on the one hand, and the Manager and its affiliates, on
the other, will enter into a number of relationships other than those governed
by the Management Agreement, some of which may give rise to conflicts of
interest. Moreover, two of the members of the Board of Directors of Fortress and
all of its officers are also employed by the Manager or its affiliates.
The relationships between the Company, on the one hand, and the Manager
and its affiliates, on the other, will be governed by the Guidelines. The
Guidelines establish certain parameters for the operations of the Company. The
Guidelines are to assist and instruct the Manager and to establish parameters
applicable to investments and borrowings (including co-investments) with
affiliates of the Manager. Transactions with affiliates of the Manager (other
than the acquisition of assets from affiliates of the Manager) that fall within
the provisions of the Guidelines need not be specifically approved by a majority
of the Independent Directors. The Independent Directors will, however, review
the Company's transactions on a quarterly basis to ensure compliance with the
Guidelines. Acquisition of assets from affiliates of the Manager and
transactions with the Manager or its affiliates which do not fall within the
provisions of the Guidelines will be approved in advance by the Independent
Directors.
Although the Independent Directors will review the Guidelines
periodically and will monitor compliance with those Guidelines, investors should
be aware that, in conducting this review, the Independent Directors will rely
primarily on information provided to them by the Manager. The Manager may obtain
third party appraisals for investments purchased from the Manager or its
affiliates, but the Independent Directors are likely to rely substantially on
information and analysis provided by the Manager to evaluate the Company's
Guidelines, compliance therewith and other matters relating to the Company's
investments. Moreover, appraisals are not always reliable indicators of the
value of assets.
If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the Guidelines,
then the Independent Directors will consider what corrective action, if any, can
be
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<PAGE> 50
taken. If the transaction is one with the Manager or an affiliate of the Manager
that was not approved in advance by a majority of the Independent Directors,
then the Manager may be required to repurchase the asset at the purchase price
(plus closing costs) to the Company.
The Management Agreement generally limits the Manager's right to engage
in business or to render services to others that compete with the Company until
an amount equal to 95% of the Company's Total Equity has been invested (other
than in short-term temporary investments) by the Company (and for these purposes
contributions to a Sister Co. shall be deemed to be "investments" of the
Company's Total Equity). As used herein, the term, "Total Equity" shall mean the
total equity capital raised by Fortress, including, without limitation, the net
proceeds of the Original Offering and the Private Placement and the net proceeds
of any subsequent offering of Common Stock or Preferred Stock by Fortress.
Notwithstanding the foregoing, the Manager will be permitted under the
Management Agreement at any time (a) to manage the Sister Co., (b) to manage
BAI, together with its affiliated funds, and (c) to acquire and manage "Excluded
Investments," which shall mean (i) investments made or committed to be made by
the Principals, the Manager or their affiliates prior to the closing of the
Original Offering, (ii) any investment as to which the equity invested by the
Principals, the Manager or their affiliates is equal to or less than $3,000,000,
and (iii) any investments made during any period of time that the exclusivity
provisions of the Management Agreement are not in effect (i.e., during any
period of time in which 95% or more of the Total Equity of the Company has been
invested), in each case together with investments relating to the foregoing
investments.
The Manager (or an affiliate), the Principals and certain employees of
the Manager have purchased, in the aggregate, approximately $53.7 million of
Common Stock of Fortress and a nominal interest in the Operating Partnership.
The Manager (or an affiliate) owns approximately 12.8% of the equity interests
in the Company, on a fully diluted basis. The Manager (or an affiliate) has also
been granted stock options pursuant to the Company's Option Plan. See "The
Manager and the Management Agreement--Management Incentives" and
"Management--Stock Options."
After the formation of the Sister Co. and the distribution of the
Sister Co.'s equity interests to the partners and stockholders of the Company,
the Sister Co. will rely on the Company and the Manager to provide investments
to it. Provisions in the Sister Co.'s formation documents will (i) provide that
the Sister Co. will enter into transactions with the Company to the extent
deemed beneficial by their respective boards of directors (and the Company may
enter into an intercompany agreement with the Sister Co. with respect thereto)
and (ii) generally prohibit the Sister Co. from engaging in activities or making
investments appropriate for a REIT unless the Company was first given the
opportunity but elected not to pursue such activities or investments. The
Manager and the Board of Directors may be subject to various potential conflicts
of interest as a result of the relationships with the Sister Co. and the
Company.
The market in which the Company purchases assets is characterized by
rapid evolution of products and services and, thus, there may in the future be
relationships between the Company and the Manager and its affiliates, in
addition to those described herein.
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<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about the directors
and senior officers of Fortress.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ------------------------- ------- ----------------------------------------------------
<S> <C> <C>
Wesley R. Edens 36 Chief Executive Officer and Chairman of the Board of
Directors
Robert I. Kauffman 34 President and Director
Mark H. Burton 39 Independent Director
Douglas A. Jacobs 50 Independent Director
Stuart A. McFarland 51 Independent Director
Randal A. Nardone 43 Chief Operating Officer and Secretary
Erik P. Nygaard 38 Chief Information Officer and Treasurer
Wayne C. Olson 49 Chief Financial Officer
</TABLE>
The principal occupation for the last five years of each Independent
Director of Fortress, as well as some other information, is set forth below. For
biographical information on Messrs. Edens, Kauffman, Nardone, Nygaard and Olson,
see "The Manager and the Management Agreement."
MARK H. BURTON has been a director of Fortress since May 1998. Mr.
Burton is a Managing Director in the Financial Services Group at Lehman Brothers
Inc. This group has primary coverage responsibility for Investment Banking
clients in the Bank, Savings and Loan, Consumer and Commercial Finance,
Insurance, Brokerage and Asset Management businesses. Mr. Burton is the senior
banker for many of the firm's priority bank, savings and loan and finance
company relationships. Mr. Burton, a graduate of Dartmouth College, joined
Lehman Brothers in 1981, becoming a Managing Director in 1990 and Partner in
1991. During his seventeen years with the firm, his responsibilities have
included a broad array of disciplines critical to appropriately serving his
client base; structured finance/asset securitization, mergers and acquisitions,
corporate finance and real estate finance/principal transactions.
DOUGLAS L. JACOBS has been a director of Fortress since May 1998. Mr.
Jacobs is a Senior Vice President and Treasurer of Fleet Financial Group
("Fleet"), a $97 billion diversified regional financial services company. Mr.
Jacobs is primarily responsible for all balance sheet management activities,
including Fleet's debt funding, capital management, securities portfolios,
residential mortgage portfolios, and asset/liability management activities. In
addition, Fleet's Capital Markets Group, which specializes in foreign exchange,
interest rate risk products and short-term securities sales to middle market
customers, reports to Mr. Jacobs. Mr. Jacobs also serves as a Director of Fleet
Mortgage Group and Fleet Venture Capital. Prior to his appointment as Treasurer
of Fleet, Mr. Jacobs served in a variety of roles at Fleet, including Senior
Vice President in charge of Secondary Marketing at Fleet Mortgage Group. He has
also been responsible for a number of special transactions connected with
Fleet's acquisition of banking franchises, the public sale and subsequent
repurchase of Fleet Mortgage Group, and a bulk sale of distressed commercial
real estate-related assets. From 1972 until 1988, Mr. Jacobs was employed by
Citibank, N.A., most recently as Division Executive of Citicorp Investment Bank,
where he was responsible for the development and oversight of the
Mortgage-Backed Securities Division. Mr. Jacobs is a graduate of Amherst College
with a degree in Chemistry and the Wharton School of the University of
Pennsylvania with an M.B.A. degree in Finance.
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<PAGE> 52
STUART A. MCFARLAND has been a director of Fortress since May 1998. Mr.
McFarland is a Managing Partner of Federal City Capital Advisors, LLC ("FCCA"),
a strategic advisory and corporate financial services firm located in
Washington, DC. FCCA's clients include start-up companies, high growth
corporations, Fortune 100 businesses and government-sponsored enterprises. Mr.
McFarland has had a long involvement in financial services, working at various
times as Executive Vice President and General Manager of GE Capital Mortgage
Services, President and CEO of GE Capital Asset Management Corporation,
Chairman, President and CEO of Skyline Financial Services Corporation, and as a
consultant and advisor to James Ford, the Chairman and CEO of Ford Motor Credit
Company. At the request of the Federal Home Loan Bank Board, Mr. McFarland was
the President and CEO of National Permanent Federal Savings Bank in Washington,
DC. Prior to this position, Mr. McFarland served as Executive Vice President and
Chief Financial Officer of the Federal National Mortgage Association ("Fannie
Mae"), where he was part of a team of executives that re-engineered the
organization into an aggressive, innovative, profit-oriented organization. Prior
to working at Fannie Mae, Mr. McFarland was a Director and President of Ticor
Mortgage Insurance Company. Mr. McFarland serves on the Board of Directors and
the Executive Committee of the Center for Housing Policy, the Advisory Board of
Lender's Service, Inc., the Board of Trustees of the National Building Museum,
and the Board of Trustees of the Greater Washington Research Center. Mr.
McFarland attended Lafayette College in Easton, Pennsylvania, where he earned an
A.B. degree in Government and Law in 1970.
EXECUTIVE COMPENSATION
Directors and senior officers of Fortress will be required to devote
only so much of their time to the Company's affairs as is necessary or required
for the effective conduct and operation of the Company's business. Because the
Management Agreement provides that the Manager will assume principal
responsibility for managing the affairs of the Company, the officers of
Fortress, in their capacities as such, are not expected to devote substantial
portions of their time to the affairs of the Company and will not receive
compensation from the Company. However, in their capacities as officers or
employees of the Manager, or its affiliates, they will devote such portion of
their time to the affairs of the Manager as is required for the performance of
the duties of the Manager under the Management Agreement. See "The Manager and
the Management Agreement -- the Management Fee," "-- Management Incentives" and
"Management -- Stock Options."
COMPENSATION OF DIRECTORS
The Board of Directors is divided into three classes of directors. The
initial terms of the first, second and third classes will expire in 1999, 2000
and 2001, respectively. Beginning in 1999, directors of each class will be
chosen for three-year terms upon the expiration of their current terms and each
year one class of directors will be elected by the stockholders. All officers
serve at the discretion of the Board of Directors. Fortress will pay an annual
director's fee to each Independent Director equal to $15,000, with no additional
fee to be paid for the first four meetings of the Board of Directors. After the
first four meetings, each Independent Director will be paid a fee of $1,000 for
each additional meeting of the Board of Directors attended in person by such
Independent Director. All members of the Board of Directors of Fortress will be
reimbursed for their costs and expenses in attending all meetings of the Board
of Directors. In addition, an annual fee of $1,000 will be paid to the chair of
any committee of the Board of Directors of Fortress. Affiliated directors,
however, will not be separately compensated by the Company. Fees to the
Independent Directors may be made by issuance of Common Stock, based on the
value of such Common Stock at the date of issuance, rather than in cash.
The Charter of Fortress provides that, except in the case of a vacancy,
the majority of the members of the Board of Directors will at all times be
Independent Directors.
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<PAGE> 53
STOCK OPTIONS
Fortress has adopted the Fortress Investment Corp. Non-Qualified Stock
Option and Incentive Award Plan (the "Option Plan") to provide incentives to
attract and retain the highest qualified directors, officers, employees,
advisors, consultants and other personnel. The Option Plan will be administered
by the Compensation Committee.
Stock Options
The Option Plan permits the granting of options to purchase Common
Stock that do not qualify as incentive stock options under section 422 of the
Code ("Non-Qualified Options"). The option exercise price of each option will be
determined by the Compensation Committee and may be less than 100% of the fair
market value of the Common Stock subject to such option on the date of grant.
The terms of each option will be fixed by the Compensation Committee.
The Compensation Committee will determine at what time or times each option may
be exercised and, subject to the provisions of the Option Plan, the period of
time, if any, after retirement, death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments, and the exercisablity of options may be accelerated by the
Compensation Committee. Upon exercise of options, the option exercise price must
be paid in full either in cash or by certified or bank check or other instrument
acceptable to the Compensation Committee or, if the Compensation Committee so
permits, by delivery of shares of Common Stock already owned by the optionee or
delivery of a promissory note. The exercise price may also be delivered to
Fortress by a broker pursuant to irrevocable instructions to the broker from the
optionee.
At the discretion of the Compensation Committee, stock options granted
under the Option Plan may include a "re-load" feature pursuant to which an
optionee exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to exercise options using previously
owned shares of Common Stock while continuing to maintain their previous level
of equity ownership in Fortress.
Stock Option Grants
Pursuant to the Option Plan, the Company has granted to the Manager (or
an affiliate of the Manager) or to employees of the Manager (or an affiliate of
the Manager) options (the "Manager Awards") representing the right to acquire
shares of Common Stock (or, at the election of the Company, Units) equal to 10%
of the shares of Common Stock and Units of the Company outstanding immediately
upon the closing of the Original Offering and the Private Placement. Such
Manager Awards will have an exercise price per share of $20.00, with such price
subject to adjustment as necessary to preserve the value of such Manager Awards
in connection with the occurrence of certain events (including capital dividends
and capital distributions made by the Company). Additional Manager Awards may be
granted to the Manager (or an affiliate of the Manager) or to employees of the
Manager (or an affiliate of the Manager) in connection with the issuance of
additional stock by the Company, subject to the approval of the Compensation
Committee of the Board of Directors. Manager Awards granted in connection with
any future issuance of equity interests in the Company will have an exercise
price per share of Common Stock equal to the initial offering price of such
additional equity interests, subject to adjustment as necessary to preserve the
value of such options in connection with the occurrence of certain events. The
Manager Awards granted at the closing of the Original Offering will not be
exercisable until the Option Effective Date. From and after the Option Effective
Date, one thirtieth (1/30) of the Manager Awards will become exercisable on the
first day of each of the following thirty calendar months, or earlier
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<PAGE> 54
upon the occurrence of certain events, such as a change of control of the
Company or the termination of the Management Agreement, or such other vesting
schedule as the Compensation Committee of the Board of Directors may determine.
The Manager Awards expire on the tenth anniversary of the First Closing Date of
the Original Offering. The Manager Awards will be administered by the
Compensation Committee, a majority of whose members will be Independent
Directors.
Stock options in any Sister Co. will be granted to the Manager (or an
affiliate of the Manager) or to employees of the Manager (or an affiliate of the
Manager) in substantially identical amounts, and pursuant to a Manager Award
substantially similar to those set forth above, which Manager Award will be
established by the Sister Co. upon its formation.
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<PAGE> 55
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes Fortress, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of
Fortress and at the request of Fortress, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his or her status as a present or former director or
officer of Fortress. The Bylaws obligate Fortress, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, while a director of
Fortress and at the request of Fortress, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit Fortress to indemnify and advance expenses to any person
who served a predecessor of Fortress in any of the capacities described above
and to any employee or agent of Fortress or a predecessor of Fortress.
49
<PAGE> 56
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. See
"Description of Securities -- Limitation of Liability and Indemnification of
Directors and Officers." Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling Fortress pursuant to the foregoing provisions, Fortress has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 57
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 1998, the total number
of shares of Common Stock beneficially owned, and the percent so owned, by (i)
each person known by Fortress to own more than 5% of the Common Stock, (ii) each
of Fortress' directors and executive officers and (iii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership (1)
--------------------------------------------------------
Number
Name and Address of Beneficial Owner (2) of Shares Percent
- --------------------------------------------------------- --------------------------- ------------------------
<S> <C> <C>
Fortress Principal Investment Holdings LLC .............. 2,825,747 (3) 13.5% (4)
Wallace R. Weitz & Company............................... 2,000,000 (5) 9.6% (4)
Wellington Management.................................... 1,500,000 (6) 7.2% (4)
Wesley R. Edens.......................................... 2,825,747 (7) 13.5% (4)
Robert I. Kauffman....................................... 2,825,747 (7) 13.5% (4)
Randal A. Nardone........................................ 2,825,747 (7) 13.5% (4)
Erik P. Nygaard.......................................... 2,825,747 (7) 13.5% (4)
Wayne C. Olson........................................... __ __
Mark H. Burton........................................... __ __
Douglas A. Jacobs........................................ __ __
Stuart A. McFarland...................................... __ __
All directors and executive officers as a group
(eight persons)................................. 2,825,747 (5) 13.5% (4)
</TABLE>
- -----------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable, or exercisable
within 60 days of the date hereof, are deemed outstanding for computing
the percentage of the person holding such options or warrants but are not
deemed outstanding for computing the percentage of any other person.
(2) The address of Fortress Principal Investment Holdings LLC and all
officers and directors listed above are in care of Fortress.
(3) Includes 5 shares issuable upon redemption of 5 Units in the Operating
Partnership owned by Fortress Principal Investment Group LLC. Includes
140,444 shares underlying Manager Awards representing 2/30ths of the
2,091,678 shares (representing 10% of the total outstanding equity of the
Company) underlying Manager Awards, 1/30th of which shall vest each month
after the Registration Statement, of which this Prospectus forms a part,
becomes effective. See "Management--Stock Options" for a description of
the Manager Awards. Excludes 1,951,234 shares issuable pursuant to
Manager Awards which are not currently exercisable.
(4) Percentage amount assumes the exercise by such persons of all options to
acquire shares of Common Stock and no exercise by any other person.
(5) The address for Wallace R. Weitz & Company is 1125 South 103rd Street,
Omaha, NE 68124.
(6) The address for Wellington Management is 75 State Street, Boston, MA
02109.
(7) All shares are held by Fortress Principal Investment Holdings LLC or
Fortress Principal Investment Group LLC, in which Messrs. Edens,
Kauffman, Nardone and Nygaard own more than 50% of the beneficial
interests.
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<PAGE> 58
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Manager manages the operations of the Company pursuant to the
Management Agreement, for which it receives the fees (including incentive fees)
described herein. Messrs. Edens, Kauffman, Nardone and Nygaard, executive
officers and, in the case of Messrs. Edens and Kauffman, directors of Fortress,
are the founders and principal owners of the Manager. See "The Manager and the
Management Agreement--The Management Agreement," "--Management Incentives,"
"--Limits of Responsibility," "--Certain Relationships; Conflicts of Interest"
and "Management--Stock Options."
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale
of the Offered Securities. The Company will not receive any proceeds from the
sale of the Offered Securities. The net proceeds from the Original Offering were
used to make the investments described under "The Company--Investments."
DISTRIBUTION POLICY
In order to avoid corporate income taxation on the earnings that it
distributes, Fortress must distribute to its stockholders an amount at least
equal to (i) 95% of its REIT taxable income (determined before the deduction for
dividends paid and excluding any net capital gain) plus (ii) 95% of the excess
of its net income from foreclosure property (as defined in Section 856 of the
Code) over the tax imposed on such income by the Code less (iii) any excess
noncash income (as determined under the Code). See "Federal Income Tax
Considerations." The actual amount and timing of distributions, however, will be
at the discretion of the Board of Directors and will depend upon the financial
condition of Fortress in addition to the requirements of the Code.
Subject to the distribution requirements referred to in the immediately
preceding paragraph, Fortress intends, to the extent practicable, to invest
substantially all of the principal from repayments, sales and refinancings of
the Company's assets in Real Estate-Related Assets and Other Assets. Fortress
may, however, under certain circumstances, make a distribution of principal or
of assets. Such distributions, if any, will be made at the discretion of
Fortress' Board of Directors.
It is anticipated that distributions generally will be taxable as
ordinary income to non-exempt stockholders of Fortress, although a portion of
such distributions may be designated by Fortress as long-term capital gain or
may constitute a return of capital. Fortress will furnish annually to each of
its stockholders a statement setting forth distributions paid during the
preceding year and their federal income tax status. For a discussion of the
federal income tax treatment of distributions by Fortress, see "Federal Income
Tax Considerations--Taxation of the Company" and "--Taxation of Taxable U.S.
Stockholders."
The declaration and payment of dividends by a Sister Co., if any, will
be made by the Sister Co.'s board of directors from time to time based on such
considerations as the Sister Co.'s board of directors deems relevant, will be
payable only out of funds legally available therefor under the law of the state
of the Sister Co.'s formation and will be subject to any limitations which may
be contained in the debt instruments of the Sister Co.
PRICE RANGE OF COMMON STOCK
There is no established market for the Common Stock, which is not
listed on any securities exchange, and trading in the Common Stock has not been
quoted on any interdealer or over-the-counter bulletin board since the Original
Offering. The Common Stock is eligible for trading in the Private Offering,
Resales and Trading through Automated Linkages Market of the National
Association of Securities Dealers, Inc. (the "PORTAL Market"). As of July 30,
1998, there were approximately 320 holders of record of Fortress' Common Stock.
52
<PAGE> 59
CONSOLIDATED UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
The consolidated unaudited pro forma financial statements set forth
below present the consolidated historical financial statements of Fortress and
its subsidiaries as of June 30, 1998 and for the period from May 11, 1998
(inception) to June 30, 1998, and have been derived from Fortress' audited
financial statements. The pro forma consolidated financial statements of
Fortress set forth below assume that Fortress will qualify as a REIT and have
been prepared to show the effect of certain significant transactions entered
into by Fortress subsequent to June 30, 1998, the date of Fortress' audited
financial statements. These transactions include the exercise of the Initial
Purchaser's option to purchase additional shares of common stock, the purchase
of certain investments and the financing of certain purchases with debt, as
described in the notes below (collectively, the "Pro Forma Transactions"). The
pro forma income statement assumes the Pro Forma Transactions occurred on
January 1, 1998, that no further investments occurred during the period covered
by the statements, that no significant resolutions of assets occurred during the
period and that no financings were undertaken other than those associated with
the assets at the time of acquisition. The pro forma balance sheet assumes the
Pro Forma Transactions occurred on June 30, 1998. The pro forma financial
statements are not necessarily indicative of what the actual financial position
or results of operation of the Company would have been as of or for the period
ended June 30, 1998, nor do they purport to be indicative of the financial
position or results of operation of future periods. The financial statements
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the audited historical
financial statements and notes thereto each included elsewhere herein.
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<PAGE> 60
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
COST ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $367,875 $(258,763)(m) $109,112
Other investments 12,411 613(e) 13,024
Loans receivable -- 406,492(c) 406,492
Revenue producing real estate -- 395,542(b) 395,542
Other assets 892 3,211(d) 4,103
-------- ---------- --------
TOTAL ASSETS $381,178 $547,095 $928,273
======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Funding agreements $ -- $ 536,589(b)(c) $536,589
Due to Manager 1,587 -- 1,587
Other liabilities 847 -- 847
-------- ---------- --------
Total Liabilities 2,434 536,589 539,023
-------- ---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, -- -- --
authorized 100,000,000 shares; no shares
issued and outstanding
Common stock, $.01 par value, 500,000,000 204 6(a) 210
shares authorized; 20,353,450 shares issued and
outstanding; 20,916,739 shares issued and
outstanding
Additional paid-in capital 378,339 10,500(a) 388,839
Retained earnings 201 -- 201
-------- ---------- --------
Total Stockholders' Equity 378,744 10,506 389,250
-------- ---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $381,178 $547,095 $928,273
======== ========== ========
</TABLE>
54
<PAGE> 61
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
COST ADJUSTMENTS (f) PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
REVENUES:
Rental revenue $ -- $22,997(g) $22,997
Interest Income 1,146 18,749(h) 19,895
---------- ---------- -------
TOTAL REVENUES $1,146 $41,746 $42,892
---------- ---------- -------
EXPENSES:
Property operating expenses -- 6,150(i) 6,150
Interest expense 88 20,016(j) 20,104
Management fee 857 2,062(k) 2,919
Depreciation and amortization 4,464(l) 4,464
---------- ---------- -------
TOTAL EXPENSES 945 32,692 33,637
---------- ---------- -------
NET INCOME $201 $9,054 $9,255
========== ========== =======
NET INCOME PER SHARE
BASIC & DILUTED $0.01 $0.44
========== =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC & DILUTED 20,353,450 20,916,739
========== ==========
</TABLE>
55
<PAGE> 62
The following table summarizes the pro forma Funds From Operations
("FFO") for the period from January 1, 1998 to June 30, 1998, as calculated in
accordance with National Association of Real Estate Investment Trusts'
("NAREIT") definition published in March 1995. The Company considers FFO to be
one measure of REIT performance. FFO is defined as net income (loss) before
minority interest, computed in accordance with GAAP, excluding gains (or losses)
from debt restructurings, other extraordinary and significant non-recurring
items, and sales of property, plus real estate-related depreciation and
amortization. FFO should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
NAREIT's definition of FFO indicates that the calculation should be
made before any extraordinary item (determined in accordance with GAAP), and
before any deduction of significant non-recurring events that materially distort
the comparative measurement of the Company's performance.
FFO figures are not comparable to other REITs that do not compute FFO
in the same manner.
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CALCULATION OF FUNDS FROM OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Cost Adjustments
---------- ----------- ---------
<S> <C> <C> <C>
NET INCOME $ 201 $ 9,054 $ 9,255
Depreciation and amortization -- 4,464 4,464
Straight-lining of property rent escalations -- -- --
Net gain (loss) from asset sales and debt restructurings -- -- --
---------- ---------- --------
FFO $ 201 $ 13,518 $ 13,719
========== ========== ========
FFO per Share
Basic $ 0.01 $ 0.66
========== ========
</TABLE>
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<PAGE> 63
The following table summarizes the pro forma adjusted FFO ("Adjusted FFO")
for the period from January 1, 1998 to June 30, 1998. Adjusted FFO is equal to
FFO plus gains (less losses) from debt restructurings and gains (less losses)
from sales of property and other assets. The Company considers Adjusted FFO to
be one measure of REIT performance. Adjusted FFO is used in the calculation of
the Manager's Preferred Incentive Return. See "The Manager and the Management
Agreement -- Management Incentives."
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CALCULATION OF ADJUSTED FUNDS FROM OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Pro Forma
Cost Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
FFO $ 201 $ 13,518 $ 13,719
Net gain (loss) from asset sales and debt restructurings - - -
---------- ----------- ---------
Adjusted FFO $ 201 $ 13,518 $ 13,719
========== =========== =========
Adjusted FFO per Share
Basic $ 0.01 $ 0.66
========== =========
</TABLE>
57
<PAGE> 64
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 1998
(a) Reflects the exercise of the Initial Purchaser's option to purchase
additional shares of Common Stock in the Original Offering (559,001 shares)
and the purchase of shares of Common Stock (4,288 shares) by certain
employees of the Manager. The total proceeds to the Company were
$10,506,000.
(b) Reflects the purchase of (i) 12 office properties and rights to purchase
two additional properties leased primarily to the GSA for an aggregate
purchase price of $342,290,000, which purchase was partially financed with
the proceeds of the Loan Facility (a $234,156,000 financing arrangement);
and (ii) a Canadian real estate portfolio of seven office and industrial
buildings for a purchase price of approximately $53,252,000, which will be
financed, in part, with a loan facility. See "The Company -- Investments --
Credit Leased Real Estate" and "-- Borrowings."
(c) Reflects the purchase of three loan portfolios, aggregating $179,221,000;
the purchase of credit facilities aggregating $227,271,000; and the
financing of such transactions with the proceeds of repurchase agreements
totaling $262,403,000. See "The Company -- Investments -- Loan Portfolios"
and "-- Borrowings."
(d) Reflects financing costs related to the above noted financings and other
deposits.
(e) Reflects the purchase of a 43% interest in a partnership specializing in
servicing distressed "sub prime" home equity mortgage loans.
(f) Reflects pro forma adjustments assuming the investments described under
"The Company -- Investments" were consummated as of January 1, 1998.
(g) Reflects leases in place on real estate at time of acquisition.
(h) Reflects interest income on loan portfolios and financings purchased and
reflects interest income on cash balances at an assumed annual rate of
5.4%.
(i) Reflects real estate taxes, utilities, repairs and maintenance and other
operating expenses on acquired properties.
(j) Reflects the terms of financing agreements relating to the purchased
assets.
(k) Reflects fee to the Manager, based on Management Agreement, at an annual
rate of 1.5% of equity (assumed to be approximately $389,200,000). See
"The Manager and the Management Agreement."
(l) Reflects depreciation expense based on a forty-year useful life of the GSA
Properties and the Canadian Real Estate Portfolio.
(m) Reflects the net effect, on cash and cash equivalents, of the purchase and
the financings of assets described in (b), (c) and (e), as well as the
exercise of the Initial Purchaser's option described in (a).
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<PAGE> 65
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following should be read in conjunction with the Consolidated
Financial Statements and notes thereto of Fortress and the unaudited Pro Forma
Condensed Consolidated Financial Statements of Fortress, each contained
elsewhere herein. The Consolidated Financial Statements of the Company include
Fortress and the Operating Partnership, its majority-owned subsidiary. Due to
its recent formation and the relatively short period of operations presented in
the Consolidated Financial Statements, Management does not believe that the
information presented herein is indicative of expected financial performance.
LIQUIDITY AND CAPITAL RESOURCES
On June 10, 1998 and July 1, 1998, Fortress consummated the Original
Offering by issuing an aggregate of 18,231,441 shares of Common Stock. The
proceeds of the Original Offering, net of expenses, were approximately $340
million. In addition, Fortress Principal Investment Holdings LLC, an affiliate
of the Manager, contributed $50 million to Fortress and the Operating
Partnership in exchange for 2,681,010 shares of Common Stock of Fortress and
Fortress Principal Investment Group LLC, an affiliate of the Manager,
contributed a nominal amount in exchange for 5 Units in the Operating
Partnership. In addition, Fortress issued 4,288 shares to certain employees of
the Manager for an aggregate purchase price of $80,000.
Fortress formed the Operating Partnership and contributed the net
proceeds of the Original Offering and the Private Placement to the Operating
Partnership. Fortress is the sole General Partner of the Operating Partnership.
At June 30, 1998, cash and cash equivalents amounted to approximately $368
million which represented the Company's primary source of liquidity
(approximately $378 million after the Second Closing Date of the Original
Offering).
Since June 30, 1998 the Company has used a significant amount of its
cash and cash equivalents to fund investments in real estate-related assets and
expects to be able to continue its investing activity with the funds raised from
the Original Offering, the Private Placement and additional borrowings. To the
extent that the Company accelerates or expands its contemplated investment
activity, additional capital may be required. The Company expects that a portion
of such additional capital requirements will be funded through acquisition
indebtedness and/or secured or unsecured lines of credit. Thereafter, the
Company expects that capital needs will be met through a combination of net cash
provided by operations (after distributions), borrowings and additional debt and
equity issuances.
RESULTS OF OPERATIONS
The Company's principal source of income was interest on its invested
cash and cash equivalents, which amounted to approximately $1.2 million for the
period from May 11, 1998 (inception) to June 30, 1998. In view of its recent
investment activity, the Company expects that cash provided by operating
activities will increase, although such expected cash flow may not be recognized
immediately after consummation of any particular transaction. As such, the
Company's operating income is expected to be derived primarily from its
proportionate share of cash flow arising from its acquisition of real
estate-related investments and, to a lesser extent, temporary investment income.
YEAR 2000 COMPLIANCE
The Company recognizes that the arrival of the year 2000 poses a
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and like other companies, has assessed and
is reprogramming or replacing its computer applications and business processes
to provide for their continued functionality. The total cost to the Company of
these Year 2000 compliance activities has not been and is not anticipated to be
material to the Company's financial position or results of operations in any
period; however, there can be no assurance that the Company will not experience
unanticipated costs.
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<PAGE> 66
DESCRIPTION OF SECURITIES
The following summary of the terms of the stock of Fortress does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Charter and the Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Charter provides that Fortress may issue up to 500,000,000 shares
of Common Stock, $.01 par value per share, and 100,000,000 shares of preferred
stock, $.01 par value per share ("Preferred Stock"). Currently, 20,916,739
shares of Common Stock are issued and outstanding and no shares of Preferred
Stock are issued and outstanding. Under Maryland law, stockholders generally are
not liable for the corporation's debts or obligations.
COMMON STOCK
All issued and outstanding shares of Common Stock are duly authorized,
fully paid and nonassessable. Subject to the preferential rights of any other
class or series of stock and to the provisions of the Charter regarding the
restrictions on transfer of stock, holders of shares of Common Stock are
entitled to receive dividends on such stock if, as and when authorized and
declared by the Board of Directors of Fortress out of assets legally available
therefor and to share ratably in the assets of Fortress legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding up after payment of or adequate provision for all known debts and
liabilities of Fortress.
Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors and, except as provided with respect to any other class or
series of stock the holders of such shares of Common Stock will possess the
exclusive voting power. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election and
the holders of the remaining shares will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion,
exchange, sinking fund, or redemption and have no preemptive rights to subscribe
for any securities of the Company. Subject to the provisions of the Charter
regarding the restrictions on transfer of stock, shares of Common Stock will
have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter provides
that any such action shall be effective and valid if taken or authorized by the
affirmative vote of holders of shares entitled to cast a majority of all the
votes entitled to be cast on the matter, except that amendments to the
provisions of the Charter relating to the Independent Directors must be approved
by either the affirmative vote of stockholders holding at least 2/3 of the
shares entitled to vote on the matter or 85% of the members of the Board of
Directors.
The Charter authorizes the Board of Directors to reclassify any
unissued shares of Common Stock into other classes or series of classes of stock
and to establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of any series, as authorized by the Board of Directors. Prior to
issuance of shares of each class or series, the Board is required by the MGCL
and the Charter to fix, subject to the
60
<PAGE> 67
provisions of the Charter regarding the restrictions on transfer of stock, the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class or series. Thus, the Board could
authorize the issuance of shares of Preferred Stock with terms and conditions
which could have the effect of delaying, deferring or preventing a transaction
or a change of control of Fortress that might involve a premium price for
holders of Common Stock or otherwise be in their best interest. As of the
Closing of the Original Offering, no shares of Preferred Stock are outstanding.
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
Fortress believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common or Preferred Stock and
thereafter to cause Fortress to issue such classified or reclassified shares of
stock will provide Fortress with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs which might arise.
The additional classes or series, as well as the Common Stock, will be available
for issuance without further action by Fortress' stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which Fortress' securities may be listed or
traded. Although the Board of Directors has no intention at the present time of
doing so, it could authorize Fortress to issue a class or series that could,
depending upon the terms of such class or series, delay, defer or prevent a
transaction or a change in control of Fortress that might involve a premium
price for holders of Common Stock or otherwise be in their best interest.
STOCKHOLDER RIGHTS PLAN
The Board of Directors of Fortress has adopted a Stockholder Rights
Agreement (the "Rights Agreement"). The adoption of the Rights Agreement could
make it more difficult for a third party to acquire, or could discourage a third
party from acquiring, Fortress or a large block of the Fortress Common Stock.
Pursuant to the terms of the Rights Agreement, the Board of Directors
has declared a dividend distribution of one Preferred Stock Purchase Right (a
"Right") for each outstanding share of Common Stock to stockholders of record at
the close of business on the First Closing Date of the Original Offering (the
"Record Date"). In addition, one Right will automatically attach to each share
of Common Stock issued between the record Date and the Distribution Date (as
hereinafter defined). Each Right entitles the registered holder to purchase from
Fortress a unit consisting of one one-hundredth of a share (a "Rights Unit") of
Series A Junior Participating Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock") at a purchase price of $80 per Rights Unit (the
"Purchase Price"), subject to adjustment. Each share offered hereby will be
entitled to a Right when distributed.
Initially, the Rights are not exercisable and are attached to and
transfer and trade with, the outstanding shares of Common Stock. The Rights will
separate from the Common Stock and will become exercisable upon the earliest of
(i) the close of business on the tenth business day following the first public
announcement that an Acquiring Person has acquired beneficial ownership of 15%
or more of the sum of the outstanding shares of Common Stock, subject to certain
exceptions (the date of said announcement being referred to as the "Stock
Acquisition Date"), or (ii) the close of business on the tenth business day (or
such later date as the Board of Directors may determine) following the
commencement of a tender offer or exchange offer that would result upon its
consummation in a person or group becoming an Acquiring Person (the earlier of
such dates being herein referred to as the "Distribution Date"). For these
purposes, a person will not be deemed to beneficially own shares of Common Stock
which may be issued in exchange for Rights Units. The Rights Agreement contains
provisions that are designed to ensure that the Manager and its affiliates will
never, alone, be considered a group that is an Acquiring Person.
Until the Distribution Date (or earlier redemption, exchange or
expiration of Rights), (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after the Record Date
will contain a notation incorporating the Stockholder Rights Agreement by
reference, and (c) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with Common Stock represented by such certificate.
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The Rights are not exercisable until the Distribution Date and will
expire ten years after the issuance thereof, unless such date is extended or the
rights are earlier redeemed or exchanged by Fortress as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
In the event that a person becomes an Acquiring Person, except pursuant
to an offer for all outstanding shares of Common Stock which the Independent
Directors determine to be fair to and to otherwise be in the best interests of
Fortress and Fortress' stockholders, after receiving advice from one or more
investment banking firms (a "Qualified Offer"), each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of Fortress) having a
value equal to two times the exercise price of the Right. The exercise price is
the Purchase Price times the number of shares of Common Stock associated with
each Right. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of the event set forth above until such time as the
Rights are no longer redeemable by Fortress as set forth below.
In the event that, at any time following the Stock Acquisition Date,
(i) Fortress engages in a merger or other business combination transaction in
which Fortress is not the surviving corporation (other than with an entity which
acquired the shares pursuant to a Qualified Offer), (ii) Fortress engages in a
merger or other business combination transaction in which Fortress is the
surviving corporation and the Common Stock of Fortress is changed or exchanged,
or (iii) 50% or more of Fortress' assets or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
and in the preceding paragraph are referred to as the "Triggering Events."
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the
outstanding Common Stock, the Board may exchange the Rights (other than Rights
owned by such person or group which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or one one-hundredth of a share
of Preferred Stock (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
The Purchase Price payable, and the number of Rights Units of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (ii) if holders of the Series
A Preferred Stock are granted certain rights or warrants to subscribe for Series
A Preferred Stock or convertible securities at less than the current market
price of the Series A Preferred Stock, or (iii) upon the distribution to holders
of the Series A Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price, determined on a per Right basis. Fortress is not obligated to issue
fractional Rights Units. If Fortress elects not to issue fractional Rights
Units, in lieu thereof an adjustment in cash will be made based on the market
price of the Series A Preferred Stock on the last trading date prior to the date
of exercise.
Fortress may redeem the Rights in whole, but not in part, at a price of
$0.01 per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors) at any time until the earlier of (i) the
close of business on the tenth business day after the Stock Acquisition Date, or
(ii) the expiration date of the Rights Agreement. Immediately upon the action of
the Board of Directors ordering redemption of the Rights, the Rights will
terminate and thereafter the only right of the holders of Rights will be to
receive the redemption price.
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The Rights Agreement may be amended by the Board of Directors in its
sole discretion at any time prior to the Distribution Date. After the
Distribution Date, subject to certain limitations set forth in the Rights
Agreement, the Board of Directors may amend the Rights Agreement only to cure
any ambiguity, defect or inconsistency, to shorten or lengthen any time period,
or to make changes that do not adversely affect the interests of Rights holders
(excluding the interests of an Acquiring Person or its associates or
affiliates). The foregoing notwithstanding, no amendment may be made at such
time as the rights are not redeemable.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Fortress, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to Fortress, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock, other securities of Fortress, other consideration
or for common stock of an acquiring company or in the event of the redemption of
the Rights as set forth above.
A copy of the Rights Agreement is available from the Company upon
written request. The foregoing description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
DIVIDEND REINVESTMENT PLAN
Fortress may implement a dividend reinvestment plan whereby
stockholders may automatically reinvest their dividends in the Common Stock.
Details about any such plan would be sent to Fortress' stockholders following
adoption thereof by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York (the "Transfer Agent").
TRANSFER RESTRICTIONS
RESTRICTIONS UNDER CHARTER. For Fortress to qualify as a REIT under the
Code, its shares of stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year (other than the first year for
which an election to be a REIT has been made). Also, not more than 50% of the
value of the outstanding shares of stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain entities
such as qualified pension plans) at any time during the last half of a taxable
year (other than the first year for which an election to be a REIT has been
made).
The Charter, subject to certain exceptions, contains certain
restrictions on the number of shares of stock of Fortress that a person may own.
The Stock Ownership Limit prohibits any person from acquiring or holding,
directly or indirectly, shares of stock in excess of 9.8% of the aggregate value
of outstanding shares of any class or series of stock of Fortress.
Fortress' Board of Directors, in its sole discretion, may exempt a
person from the Stock Ownership Limit (an "Excepted Holder"). However, the Board
may not grant such an exemption to any person whose ownership, direct or
indirect, of in excess of 9.8% of the aggregate value of the outstanding shares
of any class or series of stock of Fortress would result in Fortress being
"closely held" within the meaning of Section 856(h) of the Code or otherwise
would result in Fortress failing to qualify as a REIT. In order to be considered
by the Board as an Excepted Holder, a person also must not own, directly or
indirectly, an interest in a tenant of Fortress (or a tenant of any entity owned
or controlled by the Company) that would cause Fortress to own, directly or
indirectly, more than a 9.9% interest in such a tenant (both actually or
constructively pursuant to Section 318 of the Code, as modified by Section
856(d)(s) of the Code). The person seeking an exemption must represent to the
satisfaction of the Board that it will not violate the two aforementioned
restrictions. The person also must agree that any violation or attempted
violation of any of the foregoing restrictions will result in the automatic
transfer of the shares of stock causing such violation to the Trust (as defined
below). The Board of Directors may require a ruling from the IRS or an opinion
of counsel, in either case in form and
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substance satisfactory to the Board of Directors in its sole discretion, in
order to determine or ensure Fortress' status as a REIT.
The Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of Fortress that would result in Fortress
being "closely held" under Section 856(h) of the Code or otherwise cause
Fortress to fail to qualify as a REIT and (b) any person from transferring
shares of stock of Fortress if such transfer would result in shares of stock of
Fortress being owned by fewer than 100 persons. Any person who acquires or
attempts or intends to acquire beneficial or constructive ownership of shares of
stock of Fortress that will or may violate any of the foregoing restrictions on
transferability and ownership, or any person who would have owned shares of the
stock of Fortress that resulted in a transfer of shares to the Trust (as defined
herein), is required to give notice immediately to Fortress and provide Fortress
with such other information as Fortress may request in order to determine the
effect of such transfer on Fortress' status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of Fortress to
continue to qualify, as a REIT.
If any transfer of shares of stock of Fortress occurs which, if
effective, would result in any person beneficially or constructively owning
shares of stock of Fortress in excess or in violation of the above transfer or
ownership limitations (a "Prohibited Owner"), then that number of shares of
stock of Fortress the beneficial or constructive ownership of which otherwise
would cause such person to violate such limitations (rounded to the nearest
whole share) shall be automatically transferred to a trust (the "Trust") for the
exclusive benefit of one or more charitable beneficiaries (the "Charitable
Beneficiary"), and the Prohibited Owner shall not acquire any rights in such
shares. Such automatic transfer shall be deemed to be effective as of the close
of business on the Business Day (as defined in the Charter) prior to the date of
such violative transfer. Shares of stock held in the Trust shall be issued and
outstanding shares of stock of Fortress. The Prohibited Owner shall not benefit
economically from ownership of any shares of stock held in the Trust, shall have
no rights to dividends and shall not possess any rights to vote or other rights
attributable to the shares of stock held in the Trust. The trustee of the Trust
(the "Trustee") shall have all voting rights and rights to dividends or other
distributions with respect to shares of stock held in the Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by Fortress that
shares of stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand, and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares of stock held in the Trust and, subject to
Maryland law, effective as of the date that such shares of stock have been
transferred to the Trust, the Trustee shall have the authority (at the Trustee's
sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner
prior to the discovery by Fortress that such shares have been transferred to the
Trust and (ii) to recast such vote in accordance with the desires of the Trustee
acting for the benefit of the Charitable Beneficiary. However, if Fortress has
already taken irreversible corporate action, then the Trustee shall not have the
authority to rescind and recast such vote.
Within 20 days of receiving notice from Fortress that shares of stock
of Fortress have been transferred to the Trust, the Trustee shall sell the
shares of stock held in the Trust to a person, designated by the Trustee, whose
ownership of the shares will not violate the ownership limitations set forth in
the Charter. Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Prohibited Owner and to the Charitable Beneficiary as follows.
The Prohibited Owner shall receive the lesser of (i) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did not give value
for the shares in connection with the event causing the shares to be held in the
Trust (e.g., a gift, devise or other such transaction), the Market Price (as
defined in the Charter) of such shares on the day of the event causing the
shares to be held in the Trust and (ii) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust. Any
net sale proceeds in excess of the amount payable to the Prohibited Owner shall
be paid immediately to the Charitable Beneficiary. If, prior to the discovery by
Fortress that shares of stock have been transferred to the Trust, such shares
are sold by a Prohibited Owner, then (i) such shares shall be deemed to have
been sold on behalf of the Trust and (ii) to the extent that the Prohibited
Owner received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to the aforementioned
requirement, such excess shall be paid to the Trustee upon demand.
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In addition, shares of stock of Fortress held in the Trust shall be
deemed to have been offered for sale to Fortress, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date Fortress, or its designee, accepts such offer. Fortress shall have the
right to accept such offer until the Trustee has sold the shares of stock held
in the Trust. Upon such a sale to Fortress, the interest of the Charitable
Beneficiary in the shares sold shall terminate and the Trustee shall distribute
the net proceeds of the sale to the Prohibited Owner.
The Charter further provides that, prior to the date the Common Stock
qualifies as a class of "publicly offered securities" (within the meaning of
Department of Labor Regulation Section 2510.3-101(b)(2)), (a) no Plan investor
may acquire shares of stock of the Company without the Company's prior written
consent; and (b) any transfers to Plan investors that would increase the
aggregate Plan investors, ownership of shares of stock of the Company to a level
that meets or exceeds 25% or more of the value of any class of stock of the
Company will be void ab initio. If any transfer of shares of stock of the
Company to Plan investors occurs which, if effective, would result in Plan
investors beneficially or constructively owning, in the aggregate, shares of
stock of Fortress in excess or in violation of the above transfer or ownership
limitations, then that number of shares of stock of Fortress the beneficial or
constructive ownership of which otherwise would cause such Plan investors to
violate such limitations shall be automatically transferred to the Trust (as
defined above) to be held, subject to certain adjustments, in accordance with
the provisions detailed above.
All certificates representing shares of Common Stock and Preferred
Stock will bear a legend referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by
the Code or the regulations promulgated thereunder) of all classes or series of
Fortress' stock, including shares of Common Stock, within 30 days after the end
of each taxable year, is required to give written notice to Fortress stating the
name and address of such owner, the number of shares of each class and series of
stock of Fortress which the owner beneficially owns and a description of the
manner in which such shares are held. Each such owner shall provide to Fortress
such additional information as Fortress may request in order to determine the
effect, if any, of such beneficial ownership on Fortress' status as a REIT and
to ensure compliance with the Stock Ownership Limit. In addition, each
stockholder shall upon demand be required to provide to Fortress such
information as Fortress may request, in good faith, in order to determine
Fortress' status as a REIT and to comply with the requirements of any taxing
authority or governmental authority or to determine such compliance.
These ownership limits could delay, defer or prevent a change in
control or other transaction of Fortress that might involve a premium price for
the Common Stock or otherwise be in the best interest of the stockholders.
OTHER TRANSFER RESTRICTIONS. Purchasers are advised to consult legal
counsel prior to making any offer, resale, pledge or transfer of any of the
Common Stock.
1. It shall not sell or otherwise transfer such Common Stock to, and
each purchaser represents and covenants that it is not acquiring the Common
Stock for or on behalf of, and will not transfer the Common Stock to, any
pension or welfare plan (as defined in Section 3 of ERISA), except that such a
purchase for or on behalf of a pension or welfare plan shall be permitted:
a. to the extent such purchase is made by or on behalf of a
bank collective investment fund maintained by the purchaser in which,
at any time while the Common Stock is held by the purchaser, no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
assets in such collective investment fund and the conditions of Section
III of Prohibited Transaction Class Exemption 91-38 issued by the
Department of Labor are satisfied;
b. to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchaser
in which, at any time while the Common Stock is held by the purchaser,
no plan (together with any other plans maintained by the same employer
or employee organization) has an
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interest in excess of 10% of the total of all assets in such pooled
separate account and the conditions of Section III of Prohibited
Transaction Class Exemption 90-1 issued by the Department of Labor are
satisfied;
c. to the extent such purchase is made by or on behalf of an
insurance company general account maintained by the purchaser in which,
at any time while the Common Stock is held by the purchaser, the
conditions of Prohibited Transaction Class Exemption 95-60 issued by
the Department of Labor are satisfied;
d. to the extent such purchase is made on behalf of a plan by
(i) an investment adviser registered under the Investment Advisers Act
of 1940 that had as of the last day of its most recent fiscal year
total assets under its management and control in excess of
U.S.$50,000,000 and had stockholders' or partners' equity in excess of
U.S.$750,000, as shown in its most recent balance sheet prepared in
accordance with GAAP, (ii) a bank as defined in Section 202(a)(2) of
the Investment Advisers Act of 1940 with equity capital in excess of
U.S.$1,000,000 as of the last day of its most recent fiscal year, (iii)
an insurance company which is qualified under the laws of more than one
state to manage, acquire or dispose of any assets of a plan, which
insurance company has, as of the last day of its most recent fiscal
year, net worth in excess of U.S.$1,000,000 and which is subject to
supervision and examination by a state authority having supervision
over insurance companies, or (iv) a savings and loan association, the
accounts of which are insured by the Federal Savings and Loan Insurance
Corporation, that has made application for and been granted trust
powers to manage, acquire or dispose of assets of a plan by a State or
Federal authority having supervision over savings and loan
associations, which savings and loan association has, as of the last
day of its most recent fiscal year, equity capital or net worth in
excess of U.S.$1,000,000 and, in any case, such investment adviser,
bank, insurance company or savings and loan is otherwise a qualified
professional asset manager, as such term is used in Prohibited
Transaction Exception 84-14 issued by the Department of Labor, and the
assets of such plan when combined with the assets of other plans
established or maintained by the same employer (or affiliate thereof)
or employee organization and managed by such investment adviser, bank,
insurance company or savings and loan do not represent more than 20% of
the total client assets managed by such investment adviser, bank,
insurance company or savings and loan and the conditions of Section I
of such exemption are otherwise satisfied;
e. to the extent such plan is a governmental plan (as defined
in Section 3 of ERISA) which is not subject to the provisions of Title
I of ERISA or Section 4975 of the Code, if such purchase does not
violate any other rule or regulation applicable to such governmental
plan;
f. to the extent such purchase is made by or on behalf of a
plan by an in-house manager and the conditions of Prohibited
Transaction Class Exemption 96-23 issued by the Department of Labor are
otherwise satisfied; or
g. to the extent such purchase is exempt under another
applicable exemption.
2. It acknowledges that the Transfer Agent for the Common Stock will
not be required to accept for registration of transfer any Common Stock acquired
by it, except upon presentation of evidence satisfactory to the Company and the
Transfer Agent that the restrictions set forth herein have been complied with.
3. It acknowledges that the Company and others will rely upon the truth
and accuracy of the foregoing acknowledgments, representations and agreements
and agrees that if any of the acknowledgments, representations or agreements
deemed to have been made by its purchase of the Common Stock are no longer
accurate, it shall promptly notify the Company. If it is acquiring the Common
Stock as a fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such account and it
has full power to make the foregoing acknowledgments, representations and
agreements on behalf of each account.
RESTRICTION ON OWNERSHIP BY PLANS. Prior to the date the Common Stock
qualifies as a class of "publicly offered securities" (within the meaning of
Department of Labor Regulation (29 C.F.R.) Section 2510.3-101(b)(2)), the
Company's Charter limits equity ownership in the Company by Plans (and similar
investors) to less than 25% of the value of any class of equity issued by the
Company. See "ERISA Considerations -- The Treatment of the Company's
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Underlying Assets Under ERISA." See "Risk Factors -- Legal and Tax Risks --
Plans Should Consider ERISA Risks of Investing in Common Stock."
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interest in the global certificate or certificates issued in connection with
sales of Common Stock to qualified institutional buyers pursuant to Rule 144A
under the Securities Act. One or more fully registered global Common Stock
certificates (the "Global Certificates") have been issued, representing, in the
aggregate, the Common Stock sold in reliance on Rule 144A.
Common Stock initially sold to investors other than qualified
institutional buyers was issued in fully registered, certificated form
("Certificated Securities"). Upon the transfer of any such Certificated
Securities initially sold to an institutional or an individual "accredited
investor" to a qualified institutional buyer in reliance on Rule 144A, such
Certificated Securities may, unless the Global Certificates have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Certificates representing the number of shares of Common Stock being
transferred.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Common Stock within the DTC system must be made by or
through Participants, which will receive a credit for the Common Stock on DTC's
records. The ownership interest of each actual purchaser of Common Stock
("Beneficial Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased Common Stock. Transfers of
ownership interests in the Common Stock are to be accomplished by entries made
on the books of Participants and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Common Stock, except in the event that use of the
book-entry system for the Common Stock is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Common
Stock; DTC's records reflect only the identity of the Participants to whose
accounts such shares of Common Stock are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants,
by Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
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Redemption notices will be sent to Cede & Co. If less than all of the
shares of Common Stock are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Common Stock is limited to the
holders of record of the Common Stock, in those cases where a vote is required,
neither DTC nor Cede & Co. will itself consent or vote with respect to Common
Stock. Under its usual procedures, DTC would mail an omnibus proxy to the
registrar as soon as possible after the record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those Participants to whose accounts
the shares of Common Stock are credited on the record date (identified in a
listing attached to such omnibus proxy).
Distributions on the Common Stock held in a book-entry form will be
made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and Indirect Participants and not of DTC or the Company, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the Company,
disbursement of such payments to Participants is the responsibility of DTC and
disbursement of such payments to the Beneficial Owners is the responsibility of
Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
Global Certificate will not be entitled to receive physical delivery of Common
Stock. Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Common Stock.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among Participants
of DTC, DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. The Company
will not have any responsibility for the performance by DTC or its Participants
or Indirect Participants under the rules and procedures governing DTC. DTC may
discontinue providing its services as securities depository with respect to the
Preferred Securities at any time by giving notice to the registrar and the
Company. Under such circumstances, in the event that a successor securities
depository is not obtained, Common Stock certificates are required to be printed
and delivered. Additionally, the Company may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depository). In that
event, certificates for the Common Stock will be printed and delivered. In each
of the above circumstances, the Company will appoint a paying agent with respect
to the Common Stock.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Common
Stock as represented by a Global Certificate.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF FORTRESS' CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of Fortress does not purport to be complete and is subject to
and qualified in its entirety by reference to Maryland law and to the Charter
and Bylaws of Fortress.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Bylaws provide that the number of directors of Fortress may be
established, increased or decreased by the Board of Directors but may not be
fewer than the minimum number required by the MGCL (which currently is three for
corporations with three or more stockholders) nor more than fifteen. Any vacancy
will be filled, at any regular meeting by a majority of the remaining directors,
even if such a majority constitutes less than a quorum, except that a vacancy
resulting from an increase in the number of directors must be filled by a
majority of the entire Board of Directors. The Charter provides that a majority
of the Board of Directors must be Independent Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. Beginning in 1998, directors of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of directors will be elected by the stockholders. The initial terms of
the first, second and third classes will expire in 1999, 2000 and 2001,
respectively. The Company believes that classification of the Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Directors. Holders of
shares of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of Common Stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. The staggered terms of directors may delay, defer or
prevent a tender offer or an attempt to change control of the Company, even
though a tender offer or change in control might be in the best interest of the
stockholders.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed only for cause (as
defined in the Charter) and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast generally in the election of directors. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, precludes stockholders from removing
incumbent directors, except upon the existence of cause for removal and a
substantial affirmative vote, and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate of
such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of voting stock of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their
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shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. However, pursuant to
the statute and a resolution adopted by the Board of Directors, the Company has
exempted any business combinations (a) between the Company and the Manager or
any affiliate of the Manager or (b) between the Company and any Interested
Stockholder, provided that any such business combination is first approved by
the Board of Directors, including by a majority of the Independent Directors
and, consequently, the five-year prohibition and the super-majority vote
requirements will not apply to business combinations between any of them and the
Company. As a result, such parties may be able to enter into business
combinations with the Company that may not be in the best interest of its
stockholders without compliance by the Company with the super-majority vote
requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more, but less than one-third, (ii) one-third or more, but less
than a majority, or (iii) a majority or more of all voting power. Control shares
do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors of the corporation to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or (b) to acquisitions approved or exempted by the
charter or bylaws of the corporation.
The Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of Fortress' shares
of stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
AMENDMENT TO THE CHARTER
Except as provided below, the Charter, including its provisions on
classification of the Board of Directors and removal of directors, may be
amended only by the affirmative vote of the holders of not less than a majority
of all of the votes entitled to be cast on the matter. Amendments to the
provisions of the Charter relating to Independent
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Directors must be approved either by the affirmative vote of stockholders
holding at least two-thirds of the shares entitled to vote on the matter or 85%
of the members of the Board of Directors.
DISSOLUTION OF FORTRESS
The dissolution of Fortress must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (i)
pursuant to Fortress' notice of the meeting, (ii) or at the direction of the
Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, only the
business specified in Fortress' notice of meeting may be brought before the
meeting of stockholders and nominations of persons for election to the Board of
Directors may be made only (x) pursuant to Fortress' notice of the meeting, (y)
by or at the direction of the Board of Directors or (z) provided that the Board
of Directors has determined that directors shall be elected at such meeting, by
a stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and, if the applicable provision in
the Bylaws is rescinded, the control share acquisition provisions of the MGCL,
the provisions of the Charter on classification of the Board of Directors and
removal of directors and the advance notice provisions of the Bylaws could
delay, defer or prevent a change in control of Fortress or other transaction
that might involve a premium price for holders of Common Stock or otherwise be
in their best interest.
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COMMON STOCK AVAILABLE FOR FUTURE SALE
As of the date of this Prospectus, Fortress has outstanding (or
reserved for issuance upon exercise of options or redemption of Units)
20,916,739 shares of Common Stock, all of which are "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144"),
but will be freely transferrable when sold pursuant to this Prospectus.
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from the
Company or any "affiliate" of the Company, as defined in Rule 144 (an
"Affiliate"), the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 also
are subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company which will require
Fortress to file periodic reports under the Exchange Act. If two years have
elapsed since the date of acquisition of restricted shares from the Company or
from any Affiliate of the Company, and the acquiror or subsequent holder thereof
is deemed not to have been an Affiliate of the Company at any time during the
three months preceding a sale, such person would be entitled to sell such shares
in the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
No assurance can be given as to (i) the likelihood that an active
market for the shares will develop, (ii) the liquidity of any such market, (iii)
the ability of the stockholders to sell their Common Stock, or (iv) the prices
that stockholders may obtain for their Common Stock.
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OPERATING PARTNERSHIP AGREEMENT
The Operating Partnership has been organized as a Delaware limited
partnership, the General Partner of which is Fortress, and the Initial Limited
Partner of which is the Manager (or an affiliate of the Manager). Fortress
organized the Operating Partnership for a variety of reasons, including in order
to provide future sellers of assets with the opportunity to transfer those
assets to the Company in a tax-deferred exchange of property for Units. The
following summary of certain provisions of the Partnership Agreement of the
Operating Partnership (the "Operating Partnership Agreement") does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Operating Partnership Agreement, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
GENERAL
Pursuant to the Operating Partnership Agreement, the General Partner,
as the sole general partner of the Operating Partnership, has full, exclusive
and complete responsibility and discretion in the management and control of the
Operating Partnership. The limited partners of the operating partnership (the
"Limited Partners") have no authority in their capacity as Limited Partners to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership except as required by applicable law.
Consequently, Fortress, by virtue of its position as the General Partner, will
control the assets and business of the Operating Partnership. However, any
amendment to the Operating Partnership Agreement that would (i) affect the
Redemption Rights (as defined below), (ii) adversely affect the Limited
Partners' rights to receive cash distributions, (iii) convert a limited partner
interest into a general partner interest, or (iv) modify the limited liability
of a limited partner, will require the consent of each Partner adversely
affected (on a non uniform basis) thereby or else shall be effective against
only those partners who shall have consented thereto.
GENERAL PARTNER NOT TO WITHDRAW
The General Partner is not able voluntarily to withdraw from the
Operating Partnership or transfer or assign its interest in the Operating
Partnership unless the transaction in which such withdrawal or transfer occurs
results in the Limited Partners receiving property in an amount equal to the
amount they would have received had they exercised the Redemption Rights
immediately prior to such transaction, or unless the successor to the General
Partner contributes substantially all of its assets to the Operating Partnership
in return for an interest in the Operating Partnership.
CAPITAL CONTRIBUTIONS
Fortress contributed, in its capacity as General Partner, all of the
net proceeds of the Original Offering and the Private Placement to the Operating
Partnership in exchange for an almost 100% general partnership interest in the
Operating Partnership. The Initial Limited Partner contributed cash in the
amount of approximately $100 to the Operating Partnership in exchange for 5
Units, giving the Initial Limited Partner a nominal limited partnership interest
in the Operating Partnership.
Although the Operating Partnership received the net proceeds of the
Original Offering, the General Partner is deemed to have made a capital
contribution to the Operating Partnership in the aggregate amount of the gross
proceeds of the Offering and the Operating Partnership is deemed simultaneously
to have paid the Initial Purchaser's discount and other expenses paid or
incurred in connection with the Original Offering.
The Operating Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in excess
of funds available to the Operating Partnership from borrowing or capital
contributions, the General Partner may borrow such funds from a financial
institution or other lender and lend such funds to the Operating Partnership on
the same terms and conditions as are applicable to the General Partner's
borrowing of such funds.
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ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
Fortress is authorized, without the consent of the Limited Partners, to
cause the Operating Partnership to issue additional Units to Fortress, to the
Limited Partners or to other persons for such consideration and on such terms
and conditions as Fortress deems appropriate. If additional Units are issued to
Fortress, then Fortress must (i) issue additional shares of Common Stock and
must contribute to the Operating Partnership the entire proceeds received by
Fortress from such issuance or (ii) issue additional Units to all partners in
proportion to their respective interests in the Operating Partnership. In
addition, Fortress may cause the Operating Partnership to issue to Fortress
additional partnership interests in different series or classes, which may be
senior to the Units, in conjunction with an offering of securities of Fortress
having substantially similar rights, in which the proceeds thereof are
contributed to the Operating Partnership. Consideration for additional
partnership interests may be cash or other property or assets. No Limited
Partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
REDEMPTION RIGHTS
Pursuant to the Operating Partnership Agreement, the Limited Partners
(including the Initial Limited Partner) will have the right (the "Redemption
Rights") to cause the Operating Partnership to redeem their Units for cash or,
at the election of the General Partner, shares of Common Stock on a one-for-one
basis. The redemption price will be paid in cash in the discretion of Fortress
or in the event that the issuance of shares of Common Stock to the redeeming
Limited Partner would (i) result in any person owning, directly or indirectly,
shares of Common Stock in excess of the Ownership Limitation, (ii) result in
shares of securities of Fortress being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in
Fortress being "closely held" within the meaning of section 856(h) of the Code,
(iv) cause Fortress to own, actually or constructively, 10% or more of the
ownership interests in a tenant of Fortress' or the Operating Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code, or (v) cause
the acquisition of shares of Common Stock by such redeeming Limited Partner to
be "integrated" with any other distribution of shares of Common Stock for
purposes of complying with the Securities Act. The Manager holds options to
acquire shares of Common Stock (or, at the option of the Company, Units), none
of which is exercisable until the Option Effective Date. Upon an acquisition of
Units pursuant to such options, the Manager may immediately exercise its
Redemption Rights.
OPERATIONS
The Operating Partnership Agreement requires that the Operating
Partnership be operated in a manner that will enable Fortress to satisfy the
requirements for being classified as a REIT for federal tax purposes, to avoid
any federal income or excise tax liability imposed by the Code, and, unless the
Board of Directors determines otherwise, to ensure that the Operating
Partnership will not be classified as a "publicly traded partnership" taxable as
a corporation for purposes of section 7704 of the Code.
In addition to the administrative and operating costs and expenses
incurred by the Operating Partnership, it is anticipated that the Operating
Partnership will pay all administrative costs and expenses of the Company
(collectively, the "Company Expenses") and the Company Expenses will be treated
as expenses of the Operating Partnership. The Company Expenses generally will
include (i) all expenses relating to the formation and continuity of existence
of the Company, (ii) all expenses relating to this offering and any registration
of securities by the Company, (iii) all expenses associated with the preparation
and filing of any periodic reports by the Company under federal, state or local
laws or regulations, (iv) all expenses associated with compliance by the Company
with laws, rules and regulations promulgated by any regulatory body, and (v) all
other operating or administrative costs of the Company incurred in the ordinary
course of its business on behalf of the Operating Partnership.
DISTRIBUTIONS; PREFERRED INCENTIVE RETURN
The Operating Partnership Agreement provides that the Operating
Partnership shall distribute cash from operations (including net sale or
refinancing proceeds, but excluding net proceeds from the sale of the Operating
Partnership's property in connection with the liquidation of the Operating
Partnership) on a quarterly (or, at the election
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of the General Partner, more or less frequent) basis, in amounts determined by
the General Partner in its sole discretion, to the partners in accordance with
their respective percentage interests in the Operating Partnership. In addition,
the Operating Partnership will distribute the Preferred Incentive Return to the
Manager (or an affiliate) in its capacity as the Initial Limited Partner. See
"The Manager and the Management Agreement -- Management Incentives." Upon
liquidation of the Operating Partnership, after payment of, or adequate
provision for, debts and obligations of the Operating Partnership, including any
partner loans, it is anticipated that any remaining assets of the Operating
Partnership will be distributed to all partners with positive capital accounts
in accordance with their respective positive capital account balances. If the
General Partner has a negative balance in its capital account following a
liquidation of the Operating Partnership, it will be obligated to contribute
cash to the Operating Partnership equal to the negative balance in its capital
account.
ALLOCATIONS
It is anticipated that income, gain and loss of the Operating
Partnership for each fiscal year generally will be allocated among the partners
in accordance with their respective interests in the Operating Partnership,
subject to compliance with the provisions of Code sections 704(b) and 704(c) and
Treasury regulations ("Treasury Regulations") promulgated thereunder and subject
to the Manager's quarterly incentive return described in "The Manager and the
Management Agreement -- Management Incentives."
TERM
The Operating Partnership shall continue until December 31, 2051, or
until sooner terminated as provided in the Operating Partnership Agreement or by
operation of law.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner is
the tax matters partner of the Operating Partnership and, as such, has authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
SISTER CO.
The Company anticipates that the terms of the partnership agreement of
any operating partnership established by Sister Co. will be substantially
identical to the Operating Partnership Agreement.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations that may be relevant to the Company and to a prospective
purchaser of Common Stock. The discussion contained herein does not address all
aspects of taxation that may be relevant to particular stockholders in light of
their personal investment or tax circumstances, or to certain types of
stockholders (including, without limitation, insurance companies, financial
institutions or broker-dealers, and, except as discussed below, tax-exempt
organizations, foreign corporations and persons who are not citizens or
residents of the U.S.) subject to special treatment under the federal income tax
laws.
This summary is based on current provisions of the Code, existing,
temporary, and currently proposed Treasury Regulations promulgated under the
Code, the legislative history of the Code, existing administrative rulings and
practices of the IRS, and judicial decisions. No assurance can be given that
future legislative, judicial, or administrative actions or decisions, which may
be retroactive in effect, will not affect the accuracy of any statements in this
Prospectus.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON STOCK AND OF FORTRESS' ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
Fortress plans to make an election to be taxed as a REIT under sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth only
the material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
Skadden, Arps, Slate, Meagher & Flom LLP acted as counsel to Fortress
in connection with the Original Offering and Fortress' election to be taxed as a
REIT. In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP (the
"Opinion"), provided that the elections and other procedural steps described in
this discussion of "Federal Income Tax Considerations" are completed by Fortress
in a timely fashion, Fortress will be organized in conformity with the
requirements for qualification and taxation as a REIT. Investors should be aware
that opinions of counsel are not binding upon the IRS or any court. It must be
emphasized that the Opinion is based on various assumptions and is conditioned
upon certain representations as to factual matters, including representations
regarding the nature of Fortress' properties, and certain covenants made by
Fortress regarding the future conduct of its business and investment activities.
Moreover, qualification and taxation as a REIT depends upon Fortress' ability to
meet on a continuing basis, through actual annual operating results,
distribution levels, and stock ownership, the various qualification tests
imposed under the Code discussed below. Skadden, Arps, Slate, Meagher & Flom LLP
will not review Fortress' compliance with those tests on a continuing basis and
has no obligation to advise holders of Common Stock of any subsequent change in
the matters stated, represented, covenanted or assumed or any subsequent change
in applicable law. Accordingly, no assurance can be given that the actual
results of Fortress' operations for any particular taxable year will satisfy any
such requirements. For a discussion of the tax consequences of failure to
qualify as a REIT, see "Federal Income Tax Considerations -- Failure to
Qualify."
If Fortress qualifies for taxation as a REIT, it will generally not be
subject to federal corporate income tax on its taxable income that is
distributed to its stockholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and stockholder levels)
that generally results from an investment in a corporation. However, Fortress
will be subject to federal income tax in the following circumstances. First,
Fortress will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, Fortress may be subject to the "alternative minimum tax" on its
undistributed items of tax
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preference, if any. Third, if Fortress has (i) net income from the sale or other
disposition of "foreclosure property" (as such term is defined in Section 856 of
the Code) that is held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying income from foreclosure property (as such
term is defined in Section 856 of the Code), it will be subject to tax at the
highest corporate rate on such income. Fourth, if Fortress has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if Fortress should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), but has
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the gross income attributable to
the greater of the amount by which Fortress fails the 75% or 95% gross income
test, multiplied by a fraction intended to reflect Fortress' profitability.
Sixth, if Fortress should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year (other than certain long-term capital
gain net income which Fortress elects to retain and pay tax on), and (iii) any
undistributed taxable income from prior periods, Fortress would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if Fortress acquires any asset from a "C"
corporation (i.e., a corporation generally subject to a full corporate-level
tax) in a merger or other transaction in which the basis of the asset in
Fortress' hands is determined by reference to the basis of the asset (or any
other asset) in the hands of a "C" corporation and Fortress recognizes gain on
the disposition of such asset during the 10-year period beginning on the date on
which it acquired such asset, then to the extent of such asset's "built-in-gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition by Fortress over the adjusted basis in such asset at such time),
Fortress will be subject to tax at the highest regular corporate rate applicable
(as provided in Treasury Regulations that have not yet been promulgated). The
results described above with respect to the tax on "built-in-gain" assume that
Fortress will elect pursuant to IRS Notice 88-19 to be subject to the rules
described in the preceding sentence if it were to make any such acquisition.
Eighth, Fortress may be subject to foreign taxation on its investments and
activities in foreign countries.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i)
that is managed by one or more trustees or directors, (ii) the beneficial
ownership of which is evidenced by transferable shares, or by transferable
certificates of beneficial interest, (iii) that would be taxable as a domestic
corporation, but for sections 856 through 860 of the Code, (iv) that is neither
a financial institution nor an insurance company subject to certain provisions
of the Code, (v) the beneficial ownership of which is held by 100 or more
persons, (vi) not more than 50% in value of the outstanding shares of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable year (the
"5/50 Rule"), (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the IRS that must be met in
order to elect and maintain REIT status, (viii) that uses a calendar year for
federal income tax purposes and complies with the recordkeeping requirements of
the Code and Treasury Regulations promulgated thereunder, and (ix) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (v) and (vi) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
the 5/50 Rule. If a REIT complies with all the requirements for ascertaining the
ownership of its outstanding stock in a taxable year and does not know or have
reason to know that it violated the 5/50 Rule, the REIT will be deemed to have
complied with the 5/50 Rule for such taxable year.
Fortress' Charter provides for restrictions regarding the transfer of
the Common Stock that are intended to assist Fortress in continuing to satisfy
the share ownership requirements described in clauses (v) and (vi) above. Such
transfer restrictions are described in "Description of Securities -- Transfer
Restrictions."
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Code section 856(i) provides that a corporation that is a "qualified
REIT subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which is held by the REIT. Fortress
does not currently own any qualified REIT subsidiary but may own one or more of
such subsidiaries in the future. If Fortress acquires a corporation already in
existence at the time of acquisition, such corporation would be treated as
liquidating on the date of acquisition and Fortress would be required to
distribute any C corporation earnings and profits of the corporation before the
end of the taxable year. Thus, in applying the requirements described herein,
any "qualified REIT subsidiaries" of Fortress will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities, and items of income, deduction, and
credit of Fortress.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Fortress' proportionate share of
the assets and gross income of the Operating Partnership will be treated as
assets and gross income of Fortress for purposes of applying the requirements
described herein.
Income Tests
In order for Fortress to qualify and to maintain its qualification as a
REIT, two requirements relating to Fortress' gross income must be satisfied
annually. First, at least 75% of Fortress' gross income (excluding gross income
from prohibited transactions) for each taxable year must consist of certain
types of income derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property" and
interest on obligations secured by mortgages on real property or on interests in
real property, and dividends or other distributions on and gain from the sale of
stock in other REITs) or from certain types of temporary investment income.
Second, at least 95% of Fortress' gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property, mortgages on real property, or temporary investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing.
The rent received by Fortress from the tenants of real property
("Rent") will qualify as "rents from real property" in satisfying the gross
income tests for a REIT described above only if several conditions are met.
First, the amount of Rent must not be based, in whole or in part, on the income
or profits of any person. However, an amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales or solely
by reason of being based on the income or profits of a tenant if such tenant
derives substantially all of its gross income from the related property through
the sub-leasing of substantially all of its interest in the property to the
extent the amounts received by such tenant would be characterized as rents from
real property by the REIT. Second, the Code provides that the Rent received from
a tenant will not qualify as "rents from real property" in satisfying the gross
income tests if Fortress, or a direct or indirect owner of 10% or more of
Fortress, owns 10% or more of such tenant, both actually and constructively (a
"Related Party Tenant"). Third, if Rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total Rent received under the lease, then the portion of Rent attributable
(taking into account both actual and constructive ownership) to such personal
property will not qualify as "rents from real property." Finally, for the Rent
to qualify as "rents from real property," Fortress generally must not furnish or
render services (other than certain de minimis services) to the tenants of such
real property, other than through an "independent contractor" who is adequately
compensated by the tenants and from whom Fortress derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by Fortress are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant."
Fortress has represented that it will not charge Rent for any portion
of any real property that is based, in whole or in part, on the income or
profits of any person (except by reason of being based on a fixed percentage or
percentages of receipts or sales, as described above) to the extent that the
receipt of such Rent would jeopardize Fortress' status as a REIT. In addition,
Fortress has represented that, to the extent that it receives Rent from a
Related Party Tenant, such
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Rent will not cause Fortress to fail to satisfy either the 75% or 95% gross
income test. Fortress also has represented that it will not allow the Rent
attributable to personal property leased in connection with any lease of real
property to exceed 15% of the total Rent received under the lease, if the
receipt of such Rent would cause Fortress to fail to satisfy either the 75% or
95% gross income test. Finally, Fortress has represented that it will not
furnish or render noncustomary services (other than certain de minimis services)
to the tenants of its real property other than through an "independent
contractor," to the extent that such operation or the provision of such services
would jeopardize Fortress' status as a REIT.
The term "interest," as defined for purposes of the 75% and 95% gross
income tests, generally does not include any amount received or accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as rents from real property if received by a REIT. Furthermore, to
the extent that interest from a loan that is based on the cash proceeds from the
sale of the property securing the loan constitutes a "shared appreciation
provision" (as defined in the Code), income attributable to such participation
feature will be treated as gain from the sale of the secured property, which
generally is qualifying income for purposes of the 75% and 95% gross income
tests.
Interest will qualify as "interest on obligations secured by mortgages
on real property or on interests in real property" if the obligation is secured
by a mortgage on real property having a fair market value at the time of
acquisition of the obligation at least equal to the principal amount of the
loan. However, if Fortress receives interest income with respect to a mortgage
loan that is secured by both real property and other property and the highest
principal amount of the loan outstanding during a taxable year exceeds the fair
market value of the real property on the date Fortress acquired or originated
the mortgage loan, the interest income will be apportioned between the real
property and the other property, which apportionment may cause Fortress to
recognize income that is not qualifying income for purposes of the 75% gross
income test.
Fortress may receive income not described above that is not qualifying
income for purposes of one or both of the 75% and 95% gross income tests. For
example, it is possible that certain fees for services rendered by the Operating
Partnership will not be qualifying income for purposes of either gross income
test. It is not anticipated that the Operating Partnership will receive a
significant amount of such fees. In addition, dividends received from regular
corporations generally will be qualifying income for purposes of the 95% gross
income test, but not the 75% gross income test. Fortress will monitor the amount
of nonqualifying income produced by its assets and has represented that it will
manage its portfolio in order to comply at all times with the two gross income
tests.
REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default was imminent) on a lease
of such property or on an indebtedness owed to the REIT that such property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and (iii) for which such REIT makes a
proper election to treat such property as foreclosure property. Fortress does
not anticipate that it will receive any income from foreclosure property that is
not qualifying income for purposes of the 75% gross income test, but, if
Fortress does receive any such income, Fortress will make an election to treat
the related property as foreclosure property.
Property acquired by Fortress will not be eligible for the election to
be treated as foreclosure property ("Ineligible Property") if the related loan
was acquired by Fortress at a time when default was imminent or anticipated. In
addition, income received with respect to such Ineligible Property may not be
qualifying income for purposes of the 75% or 95% gross income tests.
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Net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. Fortress
intends to conduct its operations so that no asset owned by Fortress or the
Operating Partnership will be held for sale to customers and that a sale of any
such asset will not be in the ordinary course of Fortress' or the Operating
Partnership's business. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular property. Nevertheless, Fortress will attempt to comply with the
terms of safe-harbor provisions in the Code prescribing when asset sales will
not be characterized as prohibited transactions. Complete assurance cannot be
given, however, that Fortress can comply with the safe-harbor provisions of the
Code or avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of a trade or business."
From time to time, Fortress may enter into hedging transactions with
respect to interest rate exposure on one or more of its assets or liabilities.
Any such hedging transactions could take a variety of forms, including, without
limitation, interest rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, and options. To the extent that Fortress enters
into such a contract to hedge interest rate risk on indebtedness incurred to
acquire or carry real estate assets, any periodic income thereon or gain from
the disposition thereof should be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. To the extent that
Fortress hedges with other types of financial instruments or in other situations
(for example, hedges against fluctuations in the value of foreign currencies),
it may not be entirely clear how the income from those transactions will be
treated for purposes of the various income tests that apply to REITs under the
Code. Fortress intends to structure any hedging transactions in a manner that
does not jeopardize its status as a REIT. Accordingly, Fortress may conduct some
or all of its hedging activities (including hedging activities relating to
currency risk) through a corporate subsidiary that is fully subject to federal
corporate income tax.
If Fortress fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it nevertheless may qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions generally will be available if Fortress' failure to meet
such tests is due to reasonable cause and not due to willful neglect, Fortress
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Fortress
would be entitled to the benefit of those relief provisions. As discussed above
in "Federal Income Tax Considerations -- Taxation of the Company," even if those
relief provisions apply, a 100% tax would be imposed on the net income
attributable to the greater of the amount by which Fortress fails the 75% or 95%
gross income test.
Asset Tests
Fortress, at the close of each quarter of each taxable year, also must
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of Fortress' total assets must be represented by cash or cash items
(including certain receivables), government securities, "real estate assets,"
or, in cases where Fortress raises new capital through stock or long-term (at
least five-year) debt offerings, temporary investments in stock or debt
instruments during the one-year period following Fortress' receipt of such
capital. The term "real estate assets" includes interests in real property,
interests in mortgages on real property to the extent the principal balance of a
mortgage does not exceed the fair market value of the associated real property,
and shares of other REITs. For purposes of the 75% asset test, the term
"interest in real property" includes an interest in mortgage loans or land or
improvements thereon, such as buildings or other inherently permanent structures
(including items that are structural components of such buildings or
structures), a leasehold of real property, and an option to acquire real
property (or a leasehold of real property). An "interest" in real property also
generally includes an interest in mortgage loans secured by controlling equity
interests in entities treated as partnerships for federal income tax purposes
that own real property, to the extent that the principal balance of the mortgage
does not exceed the fair market value of the real property that is allocable to
the equity interest. Second, not more than 25% of the Company's total assets may
be represented by securities other than those in the 75% asset class. Third, of
the investments not included in the 75% asset class, the value of any one
issuer's securities owned by Fortress may not exceed 5% of the value of
Fortress' total assets, and Fortress may not own more than 10% of any one
issuer's outstanding voting securities.
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Fortress expects that any interests in real property that it acquires
generally will be qualifying assets for purposes of the 75% asset test. If
Fortress acquires any interest in a C corporation, such interest may not (i)
represent more than 5% of the value of Fortress' total assets or (ii) constitute
more than 10% of such corporation's outstanding voting securities. Fortress will
monitor the status of the assets that it acquires for purposes of the various
asset tests and has represented that it will manage its portfolio in order to
comply at all times with such tests.
If Fortress should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter
and (ii) the discrepancy between the value of Fortress' assets and the asset
test requirements arose from changes in the market values of its assets and was
not wholly or partly caused by the acquisition of one or more non-qualifying
assets. If the condition described in clause (ii) of the preceding sentence were
not satisfied, Fortress still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Distribution Requirements
Fortress, in order to avoid corporate income taxation of the earnings
that it distributes, is required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to its stockholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before Fortress timely files its federal
income tax return for such year and if paid on or before the first regular
dividend payment date after such declaration. To the extent that Fortress does
not distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates. Furthermore,
if Fortress should fail to distribute during each calendar year (or, in the case
of distributions with declaration and record dates falling in the last three
months of the calendar year, by the end of the January immediately following
such year) at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year (other than certain
long-term capital gains income which Fortress elects to retain and pay tax on),
and (iii) any undistributed taxable income from prior periods, Fortress would be
subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. Pursuant to recently enacted
legislation, Fortress may elect to retain, rather than distribute its net
long-term capital gains. The effect of such an election would be that (i)
Fortress would be required to pay the tax on such gains, (ii) U.S. stockholders,
while required to include their proportionate share of the undistributed
long-term capital gains in income, would receive a credit or refund for their
share of the tax paid by Fortress and (iii) the basis of U.S. stockholder's
Common Stock would be increased by their share of the amount of the
undistributed long-term capital gains (minus the amount of capital gains tax
paid by Fortress).
In certain circumstances, the Company's investments may generate income
for federal income tax purposes without a corresponding receipt of cash
("Phantom Income"). In order for Fortress to meet REIT qualifications and/or
avoid tax at the REIT level on such Phantom Income, Fortress may be forced to
use cash generated from other sources, including, without limitation, asset
sales and borrowings, to make required distributions.
Under certain circumstances, Fortress may be able to rectify a failure
to meet the distribution requirements for a year by paying "deficiency
dividends" to its stockholders in a later year, which may be included in
Fortress' deduction for dividends paid for the earlier year. Although Fortress
may be able to avoid being taxed on amounts distributed as deficiency dividends,
it will be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
Foreign Investments
The Company may acquire investments and, accordingly pay taxes, in
foreign countries. In general, taxes paid by the Company in foreign
jurisdictions may not be passed-through to, or used by, holders of Common Stock
as a foreign tax credit or otherwise. The Company's foreign investments may also
generate foreign currency gains and losses, the treatment of which is unclear
under the tax laws relating to REITs. Prospective stockholders should consult
their tax advisors regarding the tax implications of the Company's foreign
investments.
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Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, Fortress must maintain
certain records and request on an annual basis certain information from its
stockholders designed to disclose the actual ownership of its outstanding stock.
Failure to comply with such record keeping requirements could result in monetary
penalties to Fortress. Fortress intends to comply with such requirements.
Impact of Proposed Legislation
Fortress' qualification as a REIT or its ability to utilize the Sister
Co. structure could be affected as a result of proposed or future legislation.
For example, the IRS Restructuring and Reform Bill of 1998 included, among other
things, a freeze on the grandfathered status of REITs that are "paired" or
"stapled" with a related operating company. Although such legislation does not
affect "paper clip" structures, there can be no assurance that future Clinton
Administration proposals or similar proposed legislation affecting the Sister
Co. structure will not place legislative or judicial scrutiny on the "paper
clip" structure, or that legislation adversely affecting such structure will not
be proposed and enacted, possibly on a retroactive basis. Any such legislation
could have an adverse impact on Fortress' qualification as a REIT and an
investment in Fortress. See "Risk Factors -- Legal and Tax Risks -- Tax Risks."
FAILURE TO QUALIFY
If Fortress fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, Fortress will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to Fortress' stockholders in any year in
which Fortress fails to qualify will not be deductible by Fortress nor will they
be required to be made. In such event, to the extent of Fortress' current and
accumulated earnings and profits, distributions to stockholders will be taxable
as ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, Fortress also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which Fortress ceased to qualify as a REIT. It is not possible to
state whether in all circumstances Fortress would be entitled to statutory
relief from its failure to qualify as a REIT.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. stockholder" means a holder of Common
Stock that for U.S. federal income tax purposes is (i) a citizen or resident of
the U.S., (ii) a corporation, partnership, or other entity created or organized
in or under the laws of the U.S. or of any political subdivision thereof, (iii)
an estate whose income from sources without the U.S. is includible in gross
income for U.S. federal income tax purposes regardless of its connection with
the conduct of a trade or business within the U.S., or (iv) any trust with
respect to which (A) a U.S. court is able to exercise primary supervision over
the administration of such trust and (B) one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust.
Provided Fortress qualifies as a REIT, distributions made to Fortress'
taxable U.S. stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends or retained net long-term capital
gains) will be taken into account by such U.S. stockholders as ordinary income
and will not be eligible for the dividends received deduction generally
available to corporations. Distributions that are designated as capital gain
dividends by Fortress will be taxed as long-term capital gains (to the extent
that they do not exceed Fortress' actual net capital gain for the taxable year)
without regard to the period for which the stockholder has held his Common
Stock. Pursuant to recently enacted legislation, in the case of a stockholder
who is an individual, an estate or a trust, long-term capital gains and losses
are separated into two tax rate groups: a 20% group and a 25% group and subject
to tax at the rate effective for each group. The Company intends to designate
capital gain dividends, if any, as 20% rate gain distributions or 25% rate gain
distributions and detail such designations in a manner intended to comply with
applicable requirements. If Fortress elects to retain their share of capital
gains rather than distribute them, a stockholder will be deemed to receive a
capital gain dividend equal to the amount of such retained net long-term capital
gains. A stockholder will be allowed a credit against its federal income tax
liability for its proportionate share of tax paid by Fortress on retained
capital gains. See "Federal Income Tax Considerations -- Requirements for
Qualifications -- Distribution Requirements." Such gains
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are subject to apportionment among the two tax rate groups as set forth above.
Corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a stockholder's Common Stock, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the Common Stock has been held for one year or less),
provided that the Common Stock is a capital asset in the hands of the
stockholder. In addition, any distribution declared by Fortress in October,
November, or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by Fortress and
received by the stockholder on December 31 of such year, provided that the
distribution is actually paid by Fortress during January of the following
calendar year.
Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of Fortress. Instead, such losses would
be carried over by Fortress for potential offset against its future income
(subject to certain limitations). Taxable distributions from Fortress and gain
from the disposition of the Common Stock will not be treated as passive activity
income and, therefore, stockholders generally will not be able to apply any
"passive activity losses" (such as losses from certain types of limited
partnerships in which a stockholder is a limited partner) against such income.
In addition, taxable distributions from Fortress generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of Common Stock (or distributions treated as such),
however, will be treated as investment income only if the stockholder so elects,
in which case such capital gains will be taxed at ordinary income rates.
Fortress will notify stockholders after the close of Fortress' taxable year as
to the portions of the distributions attributable to that year that constitute
ordinary income or capital gain dividends.
It is possible that Fortress may invest in certain types of mortgage
loans that may cause it under certain circumstances to recognize Phantom Income
or to experience an offsetting excess of economic income over its taxable income
in later years. As a result, stockholders may from time to time be required to
pay federal income tax on distributions that economically represent a return of
capital, rather than a dividend. Such distributions would be offset in later
years by distributions representing economic income that would be treated as
returns of capital for federal income tax purposes. Accordingly, if Fortress
receives Phantom Income, its stockholders may be required to pay federal income
tax with respect to such income on an accelerated basis, i.e., before such
income is realized by the stockholders in an economic sense. If there is taken
into account the time value of money, such an acceleration of federal income tax
liabilities would cause stockholders to receive an after-tax rate of return on
an investment in Fortress that would be less than the after-tax rate of return
on an investment with an identical before-tax rate of return that did not
generate Phantom Income. In general, as the ratio of Fortress' Phantom Income to
its total income increases, the after-tax rate of return received by a taxable
stockholder of Fortress will decrease. Fortress will consider the potential
effects of Phantom Income on its taxable stockholders in managing its
investments.
TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. stockholder who is not a dealer in securities will be
treated as capital gain or loss. Any such capital gain or loss generally will
(x) in the case of U.S. stockholders which are corporations, be long-term
capital gain or loss if the Common Stock has been held for more than 12 months,
and (y) in the case of U.S. stockholders who are non-corporate tax payers, be
long-term capital gain or loss taxed at a maximum federal income tax rate of 20%
if the U.S. stockholder's holding period in such Common Stock was more than 12
months at the time of such disposition.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has issued a published ruling
that dividend distributions from a REIT to an exempt employee pension trust do
not constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Based on
that ruling, amounts distributed by Fortress to Exempt Organizations
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generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of the Common Stock with debt, a portion of its income
from Fortress will constitute UBTI pursuant to the "debt-financed property"
rules. In addition, in certain circumstances, a pension trust that owns more
than 10% of Fortress' stock is required to treat a percentage of the dividends
from Fortress as UBTI. This rule applies to a pension trust holding more than
10% of Fortress' stock only if (i) the percentage of income of Fortress that is
UBTI (determined as if Fortress were a pension trust) is at least 5%, (ii)
Fortress qualifies as a REIT by reason of the modification of the 5/50 Rule that
allows the beneficiaries of the pension trust to be treated as holding shares of
Fortress in proportion to their actuarial interests in the pension trust, and
(iii) either (A) one pension trust owns more than 25% of the value of Fortress'
stock or (B) a group of pension trusts individually holding more than 10% of the
value of Fortress' stock collectively owns more than 50% of the value of
Fortress' stock. The restrictions on ownership and transfer should prevent an
Exempt Organization from owning more than 9.8% of the value of Fortress stock.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS TO DETERMINE THE
IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT
IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to
gain from sales or exchanges by Fortress of U.S. real property interests and are
not designated by Fortress as capital gains dividends or returned capital gains
will be treated as dividends of ordinary income to the extent that they are made
out of current or accumulated earnings and profits of Fortress. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. stockholders
are taxed with respect to such distributions (and also may be subject to the
branch profits tax in the case of a Non-U.S. Stockholder that is a corporation).
Fortress expects to withhold U.S. income tax at the rate of 30% on the gross
amount of any such distributions made to a Non-U.S. Stockholder unless (i) a
lower treaty rate applies and any required form evidencing eligibility for that
reduced rate is filed with Fortress or (ii) the Non-U.S. Stockholder files an
IRS Form 4224 with Fortress claiming that the distribution is effectively
connected income. Furthermore, on October 6, 1997, the U.S. Treasury Department
issued final Treasury regulations governing information reporting and the
certification procedures regarding withholding and backup withholding on certain
amounts paid to Non-U.S. Stockholders after December 31, 1999 (the "New
Withholding Regulations"). The New Withholding Regulations may alter the
procedure for claiming the benefits of an income tax treaty.
Distributions in excess of current and accumulated earnings and profits
of Fortress will not be taxable to a Non-U.S. Stockholder to the extent that
such distributions do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Stockholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of
current and accumulated earnings and profits of Fortress. To obtain a refund of
withheld tax, a Non-U.S. Stockholder must generally file a claim with and
provide the required information to the IRS. Fortress is required to withhold
10% of any distribution in excess of Fortress' current and accumulated earnings
and profits. Consequently, although Fortress intends to withhold at a rate of
30% on the entire amount of any distribution, to the extent that Fortress does
not do so, any portion of a distribution not subject to withholding at a rate of
30% will be subject to withholding at a rate of 10%.
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For any year in which Fortress qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by Fortress of U.S. real
property interests (i.e., interests in real property located in the U.S. and
interests in U.S. corporations at least 50% or whose assets consist of U.S. real
property interests) will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Stockholder as if such gain were effectively
connected with a U.S. trade or business. Non-U.S. Stockholders thus would be
taxed at the normal capital gain rates applicable to U.S. stockholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a Non-U.S.
Stockholder that is a corporation. Fortress is required to withhold 35% of any
distribution that is designated by Fortress as a capital gain dividend. The
amount withheld is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of his Common
Stock generally will not be taxed under FIRPTA if Fortress is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. Although, it is currently anticipated that
Fortress will be a "domestically controlled REIT" and, therefore, the sale of
the Common Stock will not be subject to taxation under FIRPTA, there can be no
assurance that Fortress will be a "domestically-controlled REIT." Even if such
gain is not subject to FIRPTA, such gain will be taxable to a Non-U.S.
Stockholder if (i) investment in the Common Stock is effectively connected with
the Non-U.S. Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. Stockholders with
respect to such gain, or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the U.S. for 183 days or more during the taxable
year and certain other conditions apply, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of the Common Stock were to be subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations).
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Stockholders. The New Withholding
Regulations alter the application of the information reporting and backup
withholding rules to Non-U.S. Stockholders. Non-U.S. Stockholders should consult
with a tax advisor with respect to any such information reporting and backup
withholding requirements. Backup withholding with respect to a Non-U.S.
Stockholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Stockholder will be allowed
as a credit against any U.S. federal income tax liability of such Non-U.S.
Stockholder. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue IRS.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
The present Federal income tax treatment of an investment in Fortress
may be modified by legislative, judicial or administrative action at any time.
The rules dealing with Federal income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the U.S. Treasury
Department, resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in Federal tax laws
and interpretations thereof could adversely affect an investment in Fortress. It
cannot be predicted whether, when, in what forms, or with what effective dates,
the tax laws applicable to Fortress' Common Stock will be changed.
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
The Company and Fortress' stockholders may be subject to state, local
and foreign tax in various states, localities and foreign jurisdiction, in which
it or they transact business or own property. The state and local tax treatment
of the Company and its stockholders in such jurisdictions may differ from the
federal income tax treatment described above. Consequently, prospective
stockholders should consult their tax advisors regarding the effect of state,
local and foreign tax laws upon an investment in the Common Stock.
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SISTER CO.
Each Sister Co. organized as a corporation will pay federal, state and
local income taxes on its taxable income at regular corporate rates. Any such
taxes will reduce amounts available for distribution by each such Sister Co. to
its stockholders.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in Section
3(3) of ERISA), (b) plans described in section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans, (c) any entities whose underlying
assets include plan assets by reason of a plan's investment in such entities
(each a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties-in-Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the U.S. Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party-in-Interest or
Disqualified Person with respect to a Plan by virtue of such investment. ERISA
also imposes certain duties on persons who are fiduciaries of Plans subject to
ERISA and prohibits certain transactions between a Plan and Parties-in-Interest
or Disqualified Persons with respect to such Plans.
THE ACQUISITION AND HOLDING OF COMMON STOCK
The Initial Purchaser, the Manager, or certain affiliates thereof may
be "Parties-in-Interest" or "Disqualified Persons" with respect to a number of
Plans. Accordingly, investment in the Common Stock by a Plan that has such a
relationship could be deemed to constitute a transaction prohibited under Title
I of ERISA or Section 4975 of the Code (e.g., the indirect transfer to or use by
Party-in-Interest or Disqualified Person of assets of a Plan). Such transactions
may, however, be subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
91-38, which exempts certain transactions involving bank collective investment
funds; and PTCE 84-14, which exempts certain transactions effected on behalf of
a Plan by a "qualified professional asset manager;" PTCE 95-60, which exempts
certain transactions involving insurance company general accounts; PTCE 96-23,
which exempts certain transactions effected on behalf of a Plan by an "in-house
asset manager;" or another available exemption. Such exemptions may not,
however, apply to all of the transactions that could be deemed prohibited
transactions in connection with a Plan's investment.
THE TREATMENT OF THE COMPANY'S UNDERLYING ASSETS UNDER ERISA
The U.S. Department of Labor (the "DOL") has issued a regulation (29
C.F.R. 2510.3-101) concerning the definition of what constitutes the assets of a
Plan (the "Plan Asset Regulations"). This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan purchases an "equity interest" will
be deemed for purposes of ERISA to be assets of the investing Plan unless
certain exceptions apply. The Plan Asset Regulations define an "equity interest"
as any interest in an entity other than an instrument that is treated as
indebtedness under applicable local law and which has no substantial equity
features. The Common Stock offered hereby should be treated as "equity
interests" for purposes of the Plan Asset Regulations.
One exception under the Plan Asset Regulations provides that an
investing Plan's assets will not include any of the underlying assets of an
entity if at all times less than 25% of each class of "equity" interests in the
entity is held by "benefit plan investors," which is defined to include Plans
that are not subject to ERISA such as governmental pension plans and individual
retirement accounts as well as Plans that are subject to ERISA. Another
exception is provided for an investment in an "operating company," which is
defined in the Plan Asset Regulations to include a "venture capital operating
company" and a "real estate operating company." To be a "venture capital
operating company," an entity must have at least 50% of its assets (other than
short-term investments pending long-term
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commitment or distribution to investors), valued at cost, invested in "venture
capital investments," which are defined as companies in the business of selling
goods or services (other than the investment of capital) with respect to which
the entity has or obtains management rights. To be a "real estate operating
company" an entity must have at least 50% of its assets (other than short-term
investments pending long-term commitment or distribution to investors), valued
at cost, invested in real estate that is managed or developed and with respect
to which such entity has the right to substantially participate in such
management or development activities. Another exception under the Plan Asset
Regulations provides that an investing Plan's assets will not include any of the
underlying assets of an entity if the class of "equity" interests in question is
(i) widely held (i.e., held by 100 or more investors who are independent of the
issuer and each other), (ii) freely transferable, and (iii) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act (the
"Publicly Offered Securities Exception").
The Board of Directors of Fortress will take such steps as may be
necessary to qualify for one or more of the exceptions available under the Plan
Asset Regulations and thereby prevent the assets of the Company or any Sister
Co. from being treated as assets of any investing Plan. Specifically, the
Company intends to initially limit equity ownership in the Company by benefit
plan investors to less than 25% of the value of any class of equity securities
issued by the Company and to subsequently take steps to qualify the Common Stock
as a class of publicly offered securities at which time the 25% limitation will
cease to be applicable. In addition, with respect to any Sister Co., the Company
will take such steps as may be necessary to qualify such Sister Co. as a venture
capital operating company or other available exception under the Plan Asset
Regulations prior to distribution of its equity interests.
If, however, none of the exceptions under the Plan Asset Regulations
were applicable and the Company were deemed to hold Plan assets by reason of a
Plan's investment in Common Stock (or other equity security of the Company),
such Plan's assets would include an undivided interest in the assets held by the
Company. In such event, such assets, transactions involving such assets and the
persons with authority or control over and otherwise providing services with
respect to such assets would be subject to the fiduciary responsibility
provisions of Title I of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code and there is no assurance that any statutory
or administrative exemption from the application of such rules would be
available.
Accordingly, prior to the date (i) the Common Stock qualifies as a
class of publicly offered securities, or (ii) the Company complies with another
available exception under the Plan Asset Regulations, the Company will not
approve the sale, transfer or disposition of the Common Stock or other equity
security of the Company unless, following such sale, transfer or disposition,
less than twenty-five percent (25%) of the value of such Common Stock and any
other class of security that is treated as an equity interests in the Company
for purposes of the Plan Asset Regulations is held by (i) employee benefit plans
(as defined in section 3(3) of ERISA, whether or not it is subject to Title I of
ERISA; (ii) Plans described in section 4975 of the Code; (iii) entities whose
underlying assets include Plan assets by reason of a Plan's investment in such
entities; or (iv) entities that otherwise constitute "benefit plan investors"
within the meaning of the Plan Asset Regulations determined without regard to
the value of any such interests held by affiliates of the Manager or other
persons with authority or control with respect to the assets of the Company
other than benefit plan investors.
As noted above, based on the reasoning of the U.S. Supreme Court in
John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993),
an insurance company's general account may be deemed to include assets of the
Plans investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party-in-Interest
with respect to a Plan by virtue of such investment. Any purchaser that is an
insurance company using the assets of an insurance company general account
should note that the Small Business Job Protection Act of 1996 added new Section
401(c) of ERISA relating to the status of the assets of insurance company
general accounts under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the Department of Labor is required to issue final regulations (the
"General Account Regulations") not later than December 31, 1997 with respect to
insurance policies issued on or before December 31, 1998 that are supported by
an insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code. Section 401(c) also provides that, except in the case of avoidance of
the General Account Regulation and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also constitute breaches
of state or federal criminal law, until the date that is 18 months after the
General Account Regulations become final, no liability under the fiduciary
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responsibility and prohibited transaction provisions of ERISA and Section 4975
may result on the basis of a claim that the assets of the general account of an
insurance company constitute the plan assets of any such plan. The plan asset
status of insurance company separate accounts is unaffected by new Section
401(c) of ERISA, and separate account assets continue to be treated as the plan
assets of any such plan invested in a separate account.
Any Plan fiduciary that proposes to cause a Plan to purchase Common
Stock should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and determine on its own
whether any exceptions or exemptions are applicable and whether all conditions
of any such exceptions or exemptions have been satisfied.
Moreover each Plan fiduciary should determine whether, under the
general fiduciary standards of investment prudence and diversification, an
investment in the Common Stock is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
The sale of the Common Stock is in no respect a representation by the
Company or any other person that such an investment meets all relevant legal
requirements with respect to investments by Plans generally or that such an
investment is appropriate for any particular Plan.
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SELLING STOCKHOLDERS
Certain shares of the Common Stock were originally issued by Fortress
and sold by NationsBanc Montgomery Securities LLC (the "Initial Purchaser"), in
the Original Offering in a transaction exempt from the registration requirements
of the Securities Act, to persons reasonably believed by the Initial Purchaser
to be "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act), to a limited number of institutional "accredited investors" (as
defined in Rule 501 (a) (1), (2), (3) or (7) under the Securities Act) and to
individual "accredited investors" (as defined in Rule 501 (a) (4), (5) or (6)
under the Securities Act). Additional shares of the Common Stock were issued and
sold by Fortress directly to an affiliate of the Manager and to certain
employees of the Manager in the Private Placement. The Selling Stockholders may
from time to time offer and sell pursuant to this Prospectus any or all of the
Common Stock. The term Selling Stockholders includes the holders listed below
and the beneficial owners of the Common Stock and their transferees, pledgees,
donees or other successors.
The following table sets forth information with respect to the Selling
Stockholders of the Common Stock and the respective number of shares of Common
Stock beneficially owned by each Selling Stockholder that may be offered
pursuant to this Prospectus.
<TABLE>
<CAPTION>
SELLING STOCKHOLDER NUMBER OF SHARES
- ------------------------------------------------ ----------------------------
<S> <C>
</TABLE>
Because the Selling Stockholders may, pursuant to this Prospectus,
offer all or some portion of the Common Stock, no estimate can be given as to
the amount of the Common Stock that will be held by the Selling Stockholders
upon termination of any such sales. In addition, the Selling Stockholders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Common Stock since the date on which they provided the
information regarding their Common Stock, in transactions exempt from the
registration requirements of the Securities Act.
Notwithstanding the foregoing, the Manager (and its affiliates), the
Principals, each senior officer and director of Fortress and of the Manager, and
each employee of Fortress or the Manager that beneficially owns greater than 5%
of the Common Stock have agreed not to offer, sell, grant any options to
purchase or otherwise dispose of or pledge any shares of Common Stock for a
period of one year following the First Closing Date of the Original Offering
without the Initial Purchaser's consent. In addition, the Manager and the
Principals have agreed that they will continue to own at least 50% of the Common
Stock or Units purchased by them in connection or concurrently with the Original
Offering and the Private Placement for an additional one year period.
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PLAN OF DISTRIBUTION
The Offered Securities may be offered and sold from time to time by the
Selling Stockholders directly to purchasers. Alternatively, the Selling
Stockholders may from time to time offer the Offered Securities to or through
underwriters, broker/dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Stockholders or the purchasers of such securities for whom they may act as
agents. The Selling Stockholders and any underwriters, broker/dealers or agents
that participate in the distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act. If
required, the names of any such agents or underwriters involved in the sale of
the Offered Securities and the applicable agent's commission, dealer's purchase
price or underwriter's discount, if any, will be set forth in an accompanying
supplement to this Prospectus (the "Prospectus Supplement").
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of the purchases and sales of any of the Offered Securities by
the Selling Stockholders. The foregoing may affect the marketability of such
securities.
The Selling Stockholders will pay all the underwriting discounts and
selling commissions and transfer taxes, if any, applicable to any sale. Fortress
is responsible for payment of all other expenses incident to the registration of
the Offered Securities, including, without limitation, Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that the Selling Stockholders will be indemnified by the Company
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company will be indemnified by the Selling Stockholders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters will be passed upon for Fortress by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York, and Ballard Spahr Andrews
and Ingersoll LLP, Baltimore, Maryland.
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EXPERTS
The consolidated financial statements of the Company, as of June
30, 1998 and for the period from May 11, 1998 (Inception) to June 30, 1998,
appearing in this Prospectus and Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon included elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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GLOSSARY OF TERMS
Except as otherwise specified or as the context may otherwise require,
the following terms used herein shall have the meanings assigned to them below.
All terms in the singular shall have the same meanings when used in the plural
and vice-versa.
"AAA" shall mean the American Arbitration Association.
"ACM's" shall mean asbestos-containing materials.
"Acquiring Person" as defined under "Risk Factors -- Stockholder
Rights Plan Could Inhibit Changes of Control."
"ADA" shall mean the Americans with Disabilities Act of 1990, as
amended.
"Adjusted Funds from Operations" or "Adjusted FFO" shall mean FFO plus
gains (less losses) from debt restructuring and gains (less losses) from sales
of property and other assets.
"Affiliate" shall mean (i) any person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse, children,
parents, siblings or mothers-, fathers-, sisters- or brothers-in-law is or has
been associated with a person.
"BAI" shall mean BlackRock Asset Investors.
"Beneficial Owner" as defined under "Description of Securities --
Book-Entry Only Issuance -- The Depository Trust Company."
"Board of Directors" shall mean the Board of Directors of Fortress.
"Bylaws" shall mean the Bylaws of Fortress.
"Certificated Securities" as defined under "Description of Securities
- -- Book-Entry Only Issuance -- The Depository Trust Company."
"Charitable Beneficiary" as defined under "Description of Securities --
Transfer Restrictions -- Restrictions Under Charter."
"Charter" shall mean the Charter of Fortress, as may be amended or
restated from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of Fortress.
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"Company Expenses" shall mean all administrative costs and expenses of
the Company.
"Company" shall mean Fortress Investment Corp., a Maryland corporation,
together with its subsidiaries, including the Operating Partnership, unless the
context indicates otherwise.
"Compensation Committee" shall mean the committee of the Board of
Directors administering the Option Plan, a majority of whose members are
Independent Directors.
"Credit Leased Real Estate" shall mean residential and commercial
properties leased to third parties, including properties subject to net leases
to credit tenants.
"Distribution Date" as defined under "Description of Securities --
Stockholder Rights Plan."
"DOL" shall mean the U.S. Department of Labor.
"DTC" shall mean the Depository Trust Company, New York, New York.
"Employment Agreement" shall mean the employment agreements of each of
Messrs. Edens, Kauffman, Nardone and Nygaard with the Manager.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ESA's" as defined under "Risk Factors -- Risk of Adverse Effect on
Results of Operations Due to Possible Environmental Liabilities."
"Excepted Holder" as defined under "Description of Securities --
Transfer Restrictions -- Restrictions Under Charter."
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Investments" shall mean (i) investments made or committed to
by the Principals, the Manager or their affiliates prior to the closing of the
Original Offering, (ii) any investment as to which the equity invested by the
Principals, the Manager or their affiliates is equal to or less than $3,000,000,
and (iii) any investments made during any period of time that the exclusivity
provisions of the Management Agreement are not in effect (i.e. during any period
of time in which 95% or more of the Total Equity of the Company has been
invested other than in short-term, temporary investments), in each case together
with investments relating to the foregoing investments.
"Exempt Organizations" shall mean tax-exempt entities, including, but
not limited to, charitable organizations, qualified employee pension and profit
sharing trusts and individual retirement accounts.
"Financings" shall mean providing financing to third party owners of
real estate and portfolios of mortgage loans.
"FIRPTA" shall mean the Foreign Investment in Real Property Tax Act of
1980.
"First Closing Date" shall mean June 10, 1998, the date of the first
closing of the Original Offering.
"Fortress" shall mean Fortress Investment Corp., a Maryland
corporation.
"FPIH" shall mean Fortress Principal Investment Holdings LLC, a
Delaware limited liability company and an affiliate of the Manager.
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"Funds From Operations" or "FFO" shall mean net income (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring or
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"General Partner" shall mean Fortress, as the sole general partner of
the Operating Partnership.
"General Account Regulations" as defined under "ERISA Considerations --
The Treatment of the Company's Underlying Assets Under ERISA."
"Global Certificates" as defined under "Description of Securities --
Book Entry Only Issuance -- The Depository Trust Company."
"GPF Assets" as defined under "Offering Summary -- Investment Strategy
- -- Investments."
"GPF" shall mean the Global Principal Finance group of UBS.
"Gross Equity" shall mean the total equity raised by the Company,
including, without limitation, the proceeds of the Original Offering, the
Private Placement and any subsequent offering of Common Stock or Preferred Stock
by Fortress, plus the value of distributions made by partners (other than the
General Partner) from time to time, to the capital of the Operating Partnership
or any other subsidiary of the Company, less any capital dividends or
distributions made by Fortress to its stockholders or by the Operating
Partnership to its partners.
"Guidelines" shall mean guidelines that set forth general parameters
for the Company's investments, borrowings and operations which are approved by a
majority of the Independent Directors.
"Independent Director" shall mean a Director of Fortress who is not an
affiliate of the Manager or Messrs. Edens, Kauffman, Nardone or Nygaard.
"Indirect Participants" as defined under "Description of Securities --
Book Entry Only Issuance -- The Depository Trust Company."
"Ineligible Property" as defined under "Federal Income Tax
Considerations -- Income Tests."
"Initial Limited Partner" shall mean Fortress Principal Investment
Group LLC, an affiliate of the Manager, as initial limited partner of the
Operating Partnership.
"Initial Purchaser" shall mean NationsBanc Montgomery Securities LLC,
as initial Purchaser in connection with the Original Offering.
"Interested Stockholder" shall mean any beneficial owner of 10% or more
of any class of outstanding voting shares of the Company.
"Limited Partners" shall mean the Initial Limited Partner and any
additional persons admitted as limited partners of the Operating Partnership.
"IRS" shall mean the Internal Revenue Service.
"Loan Facility" as defined under "The Company -- Borrowings."
"Loan Portfolios" shall mean portfolios of distressed, sub-performing
and performing residential, multifamily and commercial mortgage loans.
"Management Agreement" shall mean an agreement or agreements between
the Company and the Manager pursuant to which the Manager will perform various
services for the Company.
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"Management Fee" shall mean the management fee paid to the Manager
under the Management Agreement.
"Manager" shall mean Fortress Investment Group LLC, a Delaware limited
liability company.
"Manager Awards" as defined under "Management -- Stock Options."
"MGCL" shall mean the Maryland General Corporation Law, as amended.
"NAREIT" shall mean the National Association of Real Estate Investment
Trusts, Inc.
"New Withholding Regulations" as defined under "Federal Income Tax
Considerations -- Taxation of Taxable Non-U.S. Stockholders."
"Non-Competition Expiration Date" as defined under "The Manager and the
Management Agreement -- Senior Partners of the Manager."
"Non-U.S. Stockholder" as defined under "Federal Income Tax
Considerations -- Taxation of Non-U.S. Stockholders."
"Operating Partnership" shall mean Fortress Partners, L.P.
"Operating Partnership Agreement" shall mean the partnership agreement
of the Operating Partnership, as amended from time to time.
"Opinion" shall mean the legal opinion of Skadden, Arps, Slate, Meagher
& Flom LLP regarding the REIT qualification of Fortress.
"Option Plan" as defined in "Management -- Stock Options."
"Option Effective Date" shall mean the date that is the earlier to
occur of (i) the date that a registration statement filed by Fortress under the
Securities Act, registering the sale of any common stock of Fortress, is
declared effective by the Commission and (ii) the first anniversary of the
Closing Date.
"Original Offering" shall mean the offering and sale of Common Stock on
June 10, 1998 and July 1, 1998 to the Initial Purchaser.
"Participants" as defined under "Description of Securities --
Book-Entry Only Issuance -- The Depository Trust Company."
"Phantom Income" shall mean an event where the Company's investments
generate income for federal income tax purposes without a corresponding receipt
of cash.
"Plan" shall mean certain pension, profit-sharing, employee benefit, or
retirement plans or individual retirement accounts.
"Plan Asset Regulations" shall mean regulations of the Department of
Labor that define "plan assets."
"PORTAL Market" shall mean the Private Offering, Resales and Trading
through Automated Linkages Market of the National Association of Securities
Dealers, Inc.
"Preferred Stock" shall mean the preferred stock of the Company.
"Preferred Incentive Return" as defined under "The Manager and the
Management Agreement -- Management Incentives."
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<PAGE> 102
"Principal" and "Principals" shall mean Messrs. Wesley R. Edens, Robert
I. Kauffman, Randal A. Nardone and Erik P. Nygaard (each a "Principal" and
collectively, the "Principals").
"Private Placement" shall mean the sale of shares of Common Stock and
Units from Fortress and the Operating Partnership to the Manager or its
affiliates, the Principals and certain individuals who are not "accredited
individuals" but who are employees of the Manager.
"PTCE" as defined under "ERISA Considerations -- The Acquisition and
Holding of Common Stock."
"Publicly Offered Securities Exception" as defined under "ERISA
Considerations -- The Treatment of the Company's Underlying Assets under ERISA."
"Purchase Price" as defined under "Description of Securities --
Stockholder Rights Plan."
"Qualified Offer" as defined under "Description of Securities --
Stockholder Rights Plan."
"Qualifying Interests" shall mean mortgages and other liens on and
interests in real estate.
"Record Date" as defined under "Description of Securities --
Stockholder Rights Plan."
"Redemption Rights" shall mean the rights that the Limited Partners
(including the Initial Limited Partner) will have pursuant to the Operating
Partnership Agreement to cause the Operating Partnership to redeem all or a
portion of their Units for Common Stock on a one-for-one basis or, at the option
of the Company, an equivalent amount of cash.
"REIT" shall mean real estate investment trust, as defined in section
856 of the Code.
"Related Party Tenant" shall mean a tenant of Fortress or the Operating
Partnership in which Fortress, or a direct or indirect owner of 10% or more of
Fortress, owns 10% or more of such tenant, both actually and constructively.
"Rent" shall mean rent received by the Company from tenants of real
property.
"REO" shall mean real estate owned.
"Right" as defined under "Description of Securities -- Stockholder
Rights Plan."
"Rights Agreement" shall mean that stockholder rights agreement adopted
by the Board of Directors.
"Rule 144" shall mean the rule promulgated under the Securities Act
that permits holders of restricted securities as well as affiliates of an issuer
of the securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under the
Securities Act.
"Second Closing Date" shall mean July 1, 1998, the date of the second
closing of the Original Offering.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Stockholders" as defined on the cover page of this Prospectus.
"Series A Preferred Stock" as defined under "Description of Securities
- -- Stockholder Rights Plan."
"Sister Co." shall mean an entity established by the Company to make an
investment in assets which are not, or which may produce income which is not,
qualifying assets or income for purposes of certain REIT asset or income tests.
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<PAGE> 103
"Stock Acquisition Date" as defined under "Description of Securities --
Stockholder Rights Plan."
"Stock Ownership Limit" as defined under "Description of Securities--
Transfer Restrictions--Restrictions Under Charter."
"Total Equity" shall mean the total equity capital raised by Fortress,
including, without limitation, the net proceeds of the Original Offering, the
Private Placement and any subsequent offering of Common Stock or Preferred Stock
by Fortress.
"Transfer Agent" shall mean American Stock Transfer & Trust Company.
"Treasury Regulations" shall mean the income tax regulations
promulgated under the Code.
"Triggering Events" as defined under "Description of Securities --
Stockholder Rights Plan."
"Trust" shall mean a trust created in the event of an impermissible
transfer of shares of Common Stock.
"Trustee" shall mean the trustee of the Trust.
"U.S. Stockholder" as defined under "Federal Income Tax Considerations
- -- Taxation of Taxable U.S. Stockholders."
"UBS" shall mean UBS Securities, LLC.
"UBTI" shall mean unrelated business taxable income.
"Units" shall mean units of limited partnership interest in the
Operating Partnership.
"UPB" shall mean unpaid principal balance.
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<PAGE> 104
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
June 30, 1998 Consolidated Financial Statements of the Company:
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheet as of June 30, 1998.................... F-3
Consolidated Income Statement for the Period from May 11, 1998
(Inception) to June 30, 1998...................................... F-4
Consolidated Statement of Cash Flows for the Period from May
11, 1998 (Inception) to June 30, 1998............................. F-5
Notes to Consolidated Financial Statements........................ F-6
Combined Statement of Revenue and Certain Expenses for the Properties
Known as the "Initial GSA Properties" for the Year Ended
December 31, 1997:
Independent Auditors' Report...................................... F-12
Combined Statement of Revenue and Certain Expenses................ F-13
Notes to Combined Statement of Revenue and Certain Expenses....... F-14
F-1
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fortress Investment Corp.
New York, NY
We have audited the accompanying consolidated balance sheet of Fortress
Investment Corp. and subsidiaries. (the "Company") as of June 30, 1998, and the
related consolidated statements of income, and cash flows for the period from
May 11, 1998 (inception) through June 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1998, and
the results of their operations and their cash flows for the period from May 11,
1998 (inception) through June 30, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
September 3, 1998
F-2
<PAGE> 106
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents $367,874,956
Investment in marketable securities 12,411,300
Accrued interest receivable 323,541
Property and equipment, net 255,032
Other assets 312,933
------------
TOTAL ASSETS $381,177,762
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to Manager $ 1,587,455
Other liabilities 847,063
------------
Total Liabilities 2,434,518
------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share,
authorized 100,000,000 shares; no shares
issued and outstanding
Common stock, $.01 par value, 500,000,000
shares authorized, 20,353,450 shares issued and
outstanding 203,535
Additional paid-in capital 378,339,074
Retained earnings 200,635
------------
Total Stockholders' Equity 378,743,244
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $381,177,762
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 107
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD FROM MAY 11, 1998 (INCEPTION) TO JUNE 30, 1998
<TABLE>
<S> <C>
REVENUES:
Interest Income $ 1,146,209
-----------
TOTAL REVENUES 1,146,209
-----------
EXPENSES:
Management Fee 857,160
Other 88,414
-----------
TOTAL EXPENSES 945,574
-----------
NET INCOME $ 200,635
===========
NET INCOME PER SHARE:
BASIC & DILUTED $ 0.01
===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC & DILUTED 20,353,450
===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 108
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 11, 1998 (INCEPTION) TO JUNE 30, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $ 200,635
Adjustment to reconcile net income to cash
provided by operating activities:
Depreciation 12,267
Changes in assets and liabilities:
Increase in accrued interest receivable (323,541)
Increase in other assets (112,832)
Increase in due to manager 1,005,685
Increase in other liabilities 24,036
-------------
Net cash provided by operating activities 806,250
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of marketable securities (12,411,300)
Purchase of property and equipment (267,399)
Increase in other assets (100,000)
Increase in due to manager 267,399
-------------
Net cash used in investing activities (12,511,300)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from Private Placement, net of certain expenses 378,542,609
Increase in other assets (100,000)
Increase in due to manager 314,371
Increase in other liabilities 823,026
-------------
Net cash provided by financing activities 379,580,006
-------------
Net increase in cash and cash equivalents
and balance at June 30, 1998 $ 367,874,956
=============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 109
FORTRESS INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PURPOSE
Formation and Capitalization. Fortress Investment Corp. ("Fortress")
was incorporated under the laws of the State of Maryland on May 11,
1998 and was initially capitalized through the sale of 50 shares of
common stock for $1,000. Fortress is involved in the following three
main business lines: (1) investing in residential and commercial
properties leased to third parties, (2) investing in portfolios of
distressed, sub-performing and performing residential, multifamily and
commercial mortgage loans and related properties acquired in
foreclosure or by deed-in-lieu of foreclosure, and (3) making
relatively short-term, secured loans to third-party owners of real
estate or portfolios of mortgage loans.
In June 1998, Fortress increased the number of its authorized shares to
500,000,000 of common stock and 100,000,000 shares of preferred stock.
In June 1998, Fortress completed a private offering for the sale of
20,353,400 shares of common stock (the "Offering"), subject to an
over-allotment option granted to NationsBanc Montgomery Securities LLC
(the "Initial Purchaser"). The proceeds of the Offering, net of
expenses, were approximately $378 million.
At June 30, 1998, the stockholders' equity of Fortress consisted of the
following:
<TABLE>
<CAPTION>
SHARES COMMON STOCK ADDITIONAL PAID- RETAINED TOTAL
IN-CAPITAL EARNINGS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stockholders' Equity-May 11, 1998 -- $ -- $ -- $ -- $ --
Initial Capital Contribution-June 4, 1998 50 1 999 1,000
Net proceeds from Private Offering 20,353,400 203,534 378,338,075 378,541,609
Net income for the Period from May 11,
1998 (inception) to June 30, 1998 200,635 200,635
------------------------------------------------------------------------------------
Stockholders' Equity-June 30, 1998 $20,353,450 $203,535 $378,339,074 $ 200,635 $378,743,244
====================================================================================
</TABLE>
In July 1998, the Initial Purchaser exercised its over-allotment option
and purchased an additional 559,001 shares of common stock. The Initial
Purchaser was obligated to sell the common stock to qualified
institutional buyers as required by Rule 144A of the Securities Act. In
addition, in July 1998, certain employees of Fortress Investment Group
LLC (the "Manager") purchased 4,288 shares of common stock.
Operating Partnership. In connection with the Offering, Fortress formed
Fortress Partners, L.P. (the "Operating Partnership"). Fortress and the
Operating Partnership are collectively referred to as the "Company."
Fortress contributed the net proceeds of the Offering to the Operating
Partnership and is the sole General Partner of the Operating
Partnership.
Management Agreement. Fortress will be managed by the Manager pursuant
to a management agreement (the "Management Agreement") (see Note 3) for
an initial term of three years, subject to certain termination rights.
The Management Agreement provides for, among other things, use of the
investment guidelines, as defined, in determining appropriate
investments, the duties of the Manager and the compensation of the
Manager.
F-6
<PAGE> 110
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. The accompanying consolidated financial statements
are prepared in accordance with generally accepted accounting
principles and include the accounts of Fortress, the Operating
Partnership, and its subsidiaries. Fortress consolidates all
wholly-owned subsidiaries and those majority-owned subsidiaries in
which it can exercise control. All significant intercompany
transactions and balances have been eliminated in consolidation.
Fortress has elected a December 31 fiscal year end.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of
revenue and expenses during the period. Actual results could differ
from those estimates.
Federal Income Taxes. Fortress expects to elect to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code,
commencing with its taxable year ending December 31, 1998. As a result
of such election, Fortress will not be subject to federal income
taxation in such taxable years to the extent that Fortress distributes
its pre-distribution taxable income.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash in
banks and investments in money market fund accounts offered by major
financial institutions. The amounts on deposit with these financial
institutions exceed insured limits. The Company considers all highly
liquid short-term investments purchased with a maturity of 90 days or
less to be cash equivalents.
Investment in Marketable Securities. The Company has classified its
investment in marketable securities as available for sale. Securities
available for sale are carried with the net unrealized gains or losses
reported as a separate component of stockholders' equity. Unrealized
losses on securities that reflect a decline in value which is other
than temporary, if any, are charged to earnings. At disposition, the
realized net gain or loss is included in earnings.
The investment in marketable securities was purchased on June 30, 1998,
therefore the cost of the investment approximates market value.
Syndication Costs. Costs associated with the Company's private
placement of its common stock approximate $21 million. Such figure
includes, among others, the fee paid to the placement agent, printing
costs and legal fees and have been reflected as a reduction of
stockholders' equity.
Impairment of Long-Lived Assets. The Company annually assesses any
impairment in value of long-lived assets by making a comparison of the
current and projected operating cash flows of each of its properties,
over its remaining useful life on an undiscounted basis, to the
carrying amount of such property. Such carrying amount would be
adjusted, if necessary, to reflect an impairment in the value of the
asset.
Property and Equipment. Property and equipment are recorded at cost.
Major improvements are capitalized and repairs are expensed when
incurred. Depreciation is calculated using the straight-line method
over the assets' estimated useful lives.
Net Income per Share. Net income per share is computed in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," and is calculated on the basis of the weighted average number
of common shares outstanding during each period. The Company did not
have any dilutive common stock equivalents during the period from May
11 to June 30, 1998.
Stock Options. Fortress accounts for stock options granted to
non-employees in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, the
F-7
<PAGE> 111
fair value of the options the Company is obligated to grant to the
Manager (Note 4) will be provided for when all contingencies associated
with granting the options are satisfied. As such options are issued as
compensation to the Manger for its efforts in raising capital for the
Company, the value of options granted will be recorded as a reduction
of capital proceeds received.
Fair Value of Financial Instruments. The Company is required to
disclose the fair value of financial instruments for which it is
practicable to estimate such fair value. The fair values of financial
instruments are estimates based upon market conditions and perceived
risks at June 30, 1998 and require varying degrees of management
judgment. The fair values of financial instruments presented may not
always be indicative of amounts Fortress could realize upon the
disposition of the financial instruments.
Cash and cash equivalents and liabilities are carried at an amount
which, due to their nature, approximate fair value.
Comprehensive Income. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components. The statement requires a
separate statement to report the components of comprehensive income for
all periods reported. The provisions of this statement are effective
for fiscal years beginning after December 15, 1997. Management believes
that there are currently no items that would require presentation in a
separate statement of comprehensive income.
Recent Accounting Pronouncements. In June of 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that the Company recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge of the exposure
to changes in the fair value of a recognized asset or liability or a
hedge of the exposure to variable cash flows of a forecasted
transaction. The accounting for changes in the fair value of a
derivative (e.g., through earnings or outside earnings, through
comprehensive income) depends on the intended use of the derivative and
the resulting designation.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Company management is evaluating the impact that
this statement will have on its hedging strategies and use of
derivative instruments and is currently unable to predict the effect,
if any, it will have on the Company's financial statements.
3. MANAGEMENT AGREEMENT
Fortress has entered into the Management Agreement with the Manager,
which provides for an initial term of three years with automatic
one-year extensions, subject to certain termination rights. After the
initial three-year term, the Manager's performance will be reviewed
annually and the Management Agreement may be terminated by Fortress by
payment of a termination fee, as defined in the Management Agreement,
upon the affirmative vote of at least two-thirds of the independent
directors, or by a vote of the holders of common stock. Pursuant to the
Management Agreement, the Manager, under the supervision of Fortress'
board of directors, will formulate investment strategies, arrange for
the acquisition of assets, arrange for financing, monitor the
performance of Fortress' assets and provide certain advisory,
administrative and managerial services in connection with the
operations of Fortress. For performing these services, Fortress will
pay the Manager an annual Management Fee equal to 1.5% of the gross
equity of the Company, as defined, provided, however, that during the
remainder of 1998 following the First Closing Date, as defined, the
Manager will be paid the greater of (1) $6,000,000 or (2) the product
of (a) 1.5% of the Gross Equity of the Company and (b) a fraction, the
F-8
<PAGE> 112
numerator of which is the number of days in 1998 following the First
Closing Date and the denominator of which is 365.
Fortress will also pay the Manager, as incentive compensation, an
amount equal to 25% of the amount of funds from operations (before
incentive compensation) of the Company plus gains or losses, in excess
of the amount that would produce an annual return equal to a simple
interest rate of 10%, to the stockholders' of Fortress, per annum as
further described in the Management Agreement.
4. STOCK OPTION PLAN
In June 1998, Fortress (with the approval of the board of directors)
adopted a non-qualified stock option plan (the "Option Plan") for
non-employee directors and the Manager. For the purpose of compensating
the Manager for its successful efforts in raising capital for the
Company, the Manager will be granted options representing the right to
acquire shares of common stock (or, at the election of the Manager,
units in the Operating Partnership) in an amount equal to 10% of the
shares of common stock and units of the Company immediately upon the
closing of the Original Offering, at an exercise price per share of
Common Stock equal to $20, with such price subject to adjustment as
necessary to preserve the value of such options in connection with the
occurrence of certain events (including capital dividends and capital
distributions made by the Company). The grant of the options is
contingent upon the first effectiveness of a registration statement
filed with the Securities and Exchange commission. The options, once
granted, are not exercisable until the date (the "Option Effective
Date") that is the earlier to occur of (1) the date that a registration
statement filed by Fortress under the Securities Act, registering the
sale of any common stock of Fortress, is declared effective by the
Securities and Exchange Commission and (2) the first anniversary of the
closing date. From and after the Option Effective Date, one thirtieth
of the options will become exercisable on the first day of each of the
following thirty calendar months, or earlier upon the occurrence of
certain events, such as a change in control of the Company or the
termination of the Management Agreement. The options expire on the
tenth anniversary of the closing date. At June 30, 1998, none of the
options have been granted to the Manager.
In connection with the Initial Purchaser's exercise of the
over-allotment option in July 1998, Fortress is obligated to grant the
Manager additional options to purchase shares of common stock (or, at
the election of the Manager, Units) at $20 per share. (Note 7)
The fair value of the options Fortress is obligated to grant to the
Manager amounted to approximately $3.6 million. The Company estimated
this value by reference to the volatility and dividend yield of the
Morgan Stanley REIT Index which are approximately 15.4% and 7.1%,
respectively, together with an expected life assumption of 5 years
and a risk-free rate assumption of 4.88%. Since Fortress' common stock
is not publicly traded and the Option Plan has characteristics
significantly different from those of traded options, the actual value
of the options could vary materially from management's estimate.
5. COMMITMENTS AND CONTINGENCIES
(a) In connection with the Original Offering, Fortress entered into a
Registration Rights Agreement which, among other things, requires
Fortress to (1) file a Registration Statement (the "Registration
Statement") with respect to the resale of Common Stock issued in the
Offering within 90 days following the First Closing Date of the
Original Offering, (2) use its best efforts to cause such Registration
Statement to be declared effective by the Securities and Exchange
Commission, and (3) use its best efforts to cause such Registration
Statement to remain continuously effective until the second anniversary
of the First Closing Date.
(b) The Company has adopted a Stockholder Rights Agreement. Pursuant
to the terms of the Rights Agreement, the Company will attach to each
share of Common Stock one Preferred Stock Purchase Right (a "Right").
Each Right entitles the registered holder to purchase from the Company
a unit consisting of one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share at a purchase
F-9
<PAGE> 113
price of $80 per unit. Initially, the Rights are not exercisable and
are attached to and transfer and trade with, the outstanding shares of
Common Stock. The Rights will separate from the Common Stock and will
become exercisable upon the acquisition or tender offer to acquire a
15% beneficial ownership interest by an acquiring person. The effect of
the Rights Agreement will be to dilute the acquiring party's beneficial
interest. Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company.
6. RELATED PARTY TRANSACTIONS
At June 30, 1998, the Company has accrued expenses relating to fees
payable to the Manager of $857,160. Additionally, $730,295 of expenses
relating to the Offering and the startup of the Company were paid by
the Manager. Such expenses are reflected as Due to Manager in the June
30, 1998 consolidated financial statements.
7. SUBSEQUENT EVENTS
Issuance of Additional Common stock
In July 1998, the Initial Purchaser exercised the over-allotment option
and purchased an additional 559,001 shares of common stock. Also on
such date, certain employees of the Manager who were non-accredited
investors purchased 4,288 shares from Fortress. Fortress received
proceeds of $10,425,000, net of expenses, from the issuance of the
additional common stock.
Investments
In July 1998, the Company purchased from UBS for a purchase price of
approximately $277 million (i) nine properties (the "Initial GSA
Properties") leased to the General Services Administration of the U.S.
government (the "GSA") and (ii) rights to purchase three additional
properties leased to the GSA (the "Option GSA Properties") upon
completion of the related construction and the commencement of the
related GSA lease terms. The Company financed this purchase through the
Loan Facility discussed below. See "--Borrowings." One of the Option
GSA Properties has been completed and leased to the GSA and has been
acquired by the Company. The remaining approximately $16 million
balance for this property was financed through the Loan Facility. These
properties are generally office properties located throughout the U.S.
and are net leased to the GSA.
In August 1998, the Company purchased an office building in Houston,
Texas for approximately $14 million. The Houston property is
primarily leased to GSA.
In August 1998, the Company purchased an office building on E Street in
Washington, D.C. for approximately $36 million. The E Street property
is primarily leased to the GSA.
The Company purchased four mortgage loan pools during August 1998 for
approximately $179 million. As of June 30, 1998 the portfolio owned by
the Company and its partners is comprised of approximately 4,382 first
and junior residential and commercial mortgage loans and REO assets
with an unpaid principal balance of approximately $292 million. The
weighted average coupon of the portfolio is approximately 11.6% and the
weighted average maturity is approximately May 2003. The portfolio is
secured by assets located throughout North America.
In August 1998, the Company entered into an agreement to purchase from
a real estate company based in Canada a portfolio of seven office and
industrial buildings for a purchase price of approximately $53 million.
The closing is expected to occur on or about October 1, 1998. The
properties are located in southern Ontario.
The Company's revenues and the values of its properties may be affected
by a number of factors relating to the particular geographic areas in
which its properties are located. In particular, approximately 20% of
the
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<PAGE> 114
Company's assets relate to properties in California, approximately 12%
in Canada and approximately 5% in Virginia. Furthermore, the Company's
property in Burlington, N.J. represents approximately 10% of its total
assets and its participation interest in a mortgage loan secured by a
building located near Paris, France represents approximately 6% of its
total assets.
Financings
Subsequent to June 30, 1998, the Company has entered the following
funding agreements:
In August 1998, the Company entered into a $234 million financing
arrangement bearing interest on a floating rate basis, maturing in 2008
and secured by the Initial GSA Properties and the Concord, Houston and
E Street properties.
In August 1998, the Company entered into repurchase facilities for
approximately $105 million, $76 million and $81 million, respectively,
to finance the acquisition of certain investments. Each facility is
secured by the related investments, bears interest at a floating rate
and bears a maturity of between 6 and 12 months, with principal payable
prior to maturity to the extent of payoffs on the related investments.
As discussed in the debt agreements, certain facilities require that
the Company maintain in effect interest rate hedges and require the
Company to meet certain other requirements.
F-11
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fortress Investment Corp.
New York, NY
We have audited the accompanying combined statement of revenues and certain
expenses (the "Statement") of the properties known as the "Initial GSA
Properties" for the year ended December 31, 1997. This Statement is the
responsibility of the management of Fortress Investment Corp. (the "Company").
Our responsibility is to express an opinion on this 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 Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the Statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined Statement was prepared for the purpose of complying
with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of the Company as described
in Note 1 to the Statement and is not intended to be a complete presentation of
the Initial GSA Properties revenues and expenses.
In our opinion, such financial statement presents fairly, in all material
respects, the combined revenues and certain expenses of the properties known as
the "Initial GSA Properties" as described in Note 1 for the year ended December
31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
August 5, 1998
F-12
<PAGE> 116
THE PROPERTIES KNOWN AS THE "INITIAL GSA PROPERTIES"
COMBINED STATEMENT OF REVENUES
AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1997 June 30, 1998 (Unaudited)
----------------- -------------------------
<S> <C> <C>
REVENUES:
Rental income $29,793,566 $14,189,140
Other income 814,349 577,337
----------- -----------
Total 30,607,915 14,766,477
----------- -----------
CERTAIN EXPENSES:
Real estate taxes 2,249,896 1,144,791
Management fees 567,741 231,562
Other operating expenses 5,184,016 2,205,732
----------- -----------
Total 8,001,653 3,582,085
----------- -----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $22,606,262 $11,184,392
=========== ===========
</TABLE>
See notes to combined statement of revenues and certain expenses.
F-13
<PAGE> 117
THE PROPERTIES KNOWN AS THE "INITIAL GSA PROPERTIES"
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying historical combined statement includes the accounts of
the eight operating properties known as the "Initial GSA Properties"
(the "Properties"). The Properties consist of eight office buildings
located throughout the United States, which are leased primarily to the
General Services Administration ("GSA") of the U.S. Government. The
Properties have aggregate net rentable area of approximately 2.2
million square feet.
The accompanying combined financial statement is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, the combined financial statement is
not representative of the actual operations of the Properties for the
year ended December 31, 1997. Certain expenses which may not be
comparable to the expenses expected to be incurred in the future
operations of the acquired Properties have been excluded. Expenses
excluded consists of interest, depreciation, amortization and other
costs not directly related to the future operations of the Properties.
Management is not aware of any material factors relating to the
Properties which would cause the reported financial information not to
be necessarily indicative of future operating results.
The combined statement of revenues and certain expenses for the six
month period ended June 30, 1998 are unaudited, however, in the opinion
of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of this combined
statement of revenues and certain expenses for the interim period, on
the basis described above, have been included. The results of such
interim periods are not necessarily indicative of the results for an
entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting. The financial statement is prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
revenues and expenses reported during the period. Actual results could
differ from those estimates.
3. OPERATING LEASES
Future minimum rentals to be received by the Properties pursuant to
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998 $ 28,593,253
1999 28,596,053
2000 27,248,539
2001 26,428,342
2002 25,934,528
Thereafter 168,621,526
------------
Total $305,422,241
============
</TABLE>
F-14
<PAGE> 118
Major Tenant - The Properties are approximately 85% leased to the GSA.
4. SUBSEQUENT EVENTS
In July of 1998 Fortress Investment Corp. purchased from an unrelated
party, the eight properties included in this statement along with two
additional properties which were under construction at December 31,
1997. The seller of these properties purchased these properties from 9
unrelated parties between November of 1997 and April of 1998.
******
F-15
<PAGE> 119
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
PAGE
Offering Summary..................................... 2
Risk Factors......................................... 13
Investment Strategy.................................. 24
The Company.......................................... 29
The Manager and the Management Agreement............. 32
Management........................................... 45
Security Ownership of Certain Beneficial
Owners and Management........................... 51
Certain Relationships and Related Party
Transactions.................................... 52
Use of Proceeds...................................... 52
Distribution Policy.................................. 52
Price Range of Common stock.......................... 52
Consolidated Unaudited Pro Forma..................... 52
Financial Statements............................ 53
Management's Discussion and Analysis of
Financial Condition and Results of Operations... 59
Description of Securities............................ 60
Certain Provisions of Maryland Law and of
Fortress' Charter and Bylaws.................... 69
Common stock Available for Future Sale............... 72
Operating Partnership Agreement...................... 73
Federal Income Tax Considerations.................... 76
ERISA Considerations................................. 86
Selling Stockholders................................. 89
Plan of Distribution................................. 90
Legal Matters........................................ 90
Experts.............................................. 91
Glossary of Terms.................................... 92
Financial Statements................................. F-1
20,916,739 SHARES
FORTRESS INVESTMENT CORP.
COMMON STOCK
-------------
PROSPECTUS
-------------
, 1998
-----------
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses expected to be
incurred in connection with the sale and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $123,409
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Miscellaneous.................................................... *
--------
Total......................................................... $ *
========
</TABLE>
- ----------
*To be filed by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
On May 11, 1998, in connection with the Registrant's incorporation, the
Registrant issued 50 shares of Common stock to Fortress Principal Investment
Holdings LLC, a Delaware limited liability company, for $1,000. Such issuance
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
On June 1, 1998, the Registrant issued 2,680,960 shares of Common stock
to Fortress Principal Investment Holdings LLC, a Delaware limited liability
company, for approximately $50,000,000. Such issuance was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
On June 10, 1998, the Registrant issued an aggregate of 17,672,440
shares of Common stock to Qualified Institutional Buyers (as defined in Rule
144A under the Securities Act) in reliance on the exemption from the
registration requirements of the Securities Act provided by Rule 144A under the
Securities Act and to a limited number of "accredited investors" (as defined in
Rule 501 under the Securities Act) in reliance on the exemption from the
registration requirements of the Securities Act provided by Regulation D under
the Securities Act. The initial purchaser of such shares of Common stock was
NationsBanc Montgomery Securities LLC. The aggregate proceeds to the Registrant
from such offering and the aggregate initial purchaser's discount were
$329,591,006 and $20,408,992, respectively.
On July 1, 1998, the Registrant issued an aggregate of 559,001 shares
of Common stock pursuant to an option granted to NationsBanc Montgomery
Securities LLC in connection with the Original Offering, to Qualified
Institutional Buyers (as defined in Rule 144A under the Securities Act) in
reliance on the exemption from the registration requirements of the Securities
Act provided by Rule 144A under the Securities Act and to a limited number of
"accredited investors" (as defined in Rule 501 under the Securities Act) in
reliance on the exemption from the registration requirements of the Securities
Act provided by Regulation D under the Securities Act. The aggregate proceeds to
the Registrant from such offering and the aggregate initial purchaser's discount
were $10,425,368 and $738,670, respectively.
II-1
<PAGE> 121
On July 1, 1998, the Registrant issued an aggregate of 4,288 shares of
Common stock to employees of Fortress Investment Group LLC for $80,000.00. Such
issuance was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes Fortress, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of
Fortress and at the request of Fortress, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his or her status as a present or former director or
officer of Fortress. The Bylaws obligate Fortress, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, while a director of
Fortress and at the request of Fortress, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit Fortress to indemnify and advance expenses to any person
who served a predecessor of Fortress in any of the capacities described above
and to any employee or agent of Fortress or a predecessor of Fortress.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling Fortress pursuant to the
foregoing provisions, Fortress has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
II-2
<PAGE> 122
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
No portion of the proceeds of the sale of the shares of Common stock
being registered hereunder will be received by the Registrant.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements are being filed as part of this
Registration Statement:
1. June 30, 1998 Consolidated Financial Statement of the
Company
2. Combined Statements of Revenue and Certain Expenses
for the Properties Known as the Initial GSA
Properties for the Year Ended December 31, 1997
(b) The following is a list of exhibits filed as part of this
Registration Statement.
EXHIBIT
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------------
3.1 Articles of Amendment and Restatement of the Registrant
3.2 By-laws of the Registrant
4.1 Form of Certificate for Common Stock
4.2 Registration Rights Agreement, dated as of June 10, 1998, by and
between the Registrant and NationsBanc Montgomery Securities, Inc.
4.3 Registration Rights Agreement, dated as of June 10, 1998, by and
among the Registrant, Fortress Principal Investment Holdings LLC
and Additional Purchasers (as defined therein)
4.4 Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent
5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll LLP relating to the
legality of the Common Stock*
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 Management and Advisory Agreement, dated as of June 10, 1998, by
and among the Registrant, Fortress Partners, L.P. and Fortress
Investment Group LLC.
10.2 Agreement of Limited Partnership of Fortress Partners L.P., dated
as of June 10, 1998
10.3 Limited Liability Company Agreement of Fortress Investment Group
LLC
10.4 Asset Purchase Agreement, dated July 1, 1998, between UBS
Securities (SWAPS) Inc. and Fortress GSA Properties LLC
10.5 Loan Agreement, dated as of July 31, 1998, by and among the
borrowers listed on Schedule I thereto, Meridian Funding Company,
LLC, as the lender, and Bankers Trust Company as the collateral
agent
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ballard, Spahr, Andrews & Ingersoll LLP (contained in
Exhibit 5.1)*
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 8.1)*
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
- -------------
* To be filed by amendment.
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy
II-3
<PAGE> 123
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the law or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof."
(c) 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
II-4
<PAGE> 124
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 purposes 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 herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, on September 8, 1998.
Fortress Investment Corp.
By: /s/ Wesley R. Edens
-----------------------------------
Name: Wesley R. Edens
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
POWER OF ATTORNEY
EACH PERSON IN SO SIGNING, ALSO MAKES, CONSTITUTES AND APPOINTS WESLEY R. EDENS,
RANDAL A. NARDONE AND WAYNE OLSON AND EACH OF THEM ACTING ALONE, HIS TRUE AND
LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND CAUSE
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
REQUIREMENTS OF THE SECURITIES ACT, ANY AND ALL AMENDMENTS AND POST-EFFECTIVE
AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS THERETO AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, AND ANY RELATED REGISTRATION STATEMENT AND
ITS AMENDMENTS AND POST-EFFECTIVE AMENDMENTS FILED PURSUANT TO RULE 462(B) UNDER
THE ACT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND
HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Wesley R. Edens Chief Executive Officer and Chairman of the Board September 8, 1998
- -------------------
Wesley R. Edens
/s/ Robert I. Kauffman President and Director September 8, 1998
- ----------------------
Robert I. Kauffman
/s/ Randal A. Nardone Chief Operating Officer and Secretary September 8, 1998
- ---------------------
Randal A. Nardone
/s/ Erik P. Nygaard Chief Information Officer and Treasurer September 8, 1998
- -------------------
Erik P. Nygaard
/s/ Wayne C. Olson Chief Financial Officer September 8, 1998
- ------------------ (Principal Financial and Accounting Officer)
Wayne C. Olson
/s/ Mark. H. Burton Director September 8, 1998
- -------------------
Mark H. Burton
/s/ Douglas A. Jacobs Director September 8, 1998
- ---------------------
Douglas A. Jacobs
/s/ Stuart A. McFarland Director September 8, 1998
- -----------------------
Stuart A. McFarland
</TABLE>
II-6
<PAGE> 126
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------------
3.1 Articles of Amendment and Restatement of the Registrant
3.2 By-laws of the Registrant
4.1 Form of Certificate for Common Stock
4.2 Registration Rights Agreement, dated as of June 10, 1998, by and
between the Registrant and NationsBanc Montgomery Securities, Inc.
4.3 Registration Rights Agreement, dated as of June 10, 1998, by and
among the Registrant, Fortress Principal Investment Holdings LLC
and Additional Purchasers (as defined therein)
4.4 Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent
5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll LLP relating to the
legality of the Common Stock*
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 Management and Advisory Agreement, dated as of June 10, 1998, by
and among the Registrant, Fortress Partners, L.P. and Fortress
Investment Group LLC.
10.2 Agreement of Limited Partnership of Fortress Partners L.P., dated
as of June 10, 1998
10.3 Limited Liability Company Agreement of Fortress Investment Group
LLC
10.4 Asset Purchase Agreement, dated July 1, 1998, between UBS
Securities (SWAPS) Inc. and Fortress GSA Properties LLC
10.5 Loan Agreement, dated as of July 31, 1998, by and among the
borrowers listed on Schedule I thereto, Meridian Funding Company,
LLC, as the lender, and Bankers Trust Company as the collateral
agent
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ballard, Spahr, Andrews & Ingersoll LLP (contained in
Exhibit 5.1)*
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 8.1)*
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
- -------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
FORTRESS INVESTMENT CORP.
AMENDED ARTICLES OF INCORPORATION
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, Tracy A. Bacigalupo, whose address is
c/o Ballard Spahr Andrews & Ingersoll, LLP, 300 East Lombard Street, Baltimore,
Maryland 21202, being at least eighteen (18) years of age, being the sole
incorporator of Fortress Investment Corp., a corporation formed under the
general laws of the State of Maryland (the "Corporation"), and acting in that
capacity prior to the organization meeting of the Board of Directors of the
Corporation, hereby adopts Amended Articles of Incorporation of the Corporation.
SECOND: The following provisions are all the provisions of the
charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, Tracy A. Bacigalupo, whose address is c/o
Ballard Spahr Andrews & Ingersoll, LLP, 300 East Lombard Street, Baltimore,
Maryland 21202, being at least 18 years of age, does hereby form a corporation
under the general laws of the State of Maryland.
<PAGE> 2
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Fortress Investment Corp.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage
in any lawful act or activity (including, without limitation or obligation,
engaging in business as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, or any successor statute (the "Code")) for
which corporations may be organized under the general laws of the State of
Maryland as now or hereafter in force. For purposes of these Articles, "REIT"
means a real estate investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the
State of Maryland is c/o Ballard Spahr Andrews & Ingersoll, LLP, 300 East
Lombard Street, Baltimore, Maryland 21202, Attention: Tracy A. Bacigalupo. The
name of the resident agent of the Corporation in the State of Maryland is Tracy
A. Bacigalupo, whose post address is c/o Ballard Spahr Andrews &
2
<PAGE> 3
Ingersoll, LLP, 300 East Lombard Street, Baltimore, Maryland 21202. The resident
agent is a citizen of and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number and Classification of Directors. The
business and affairs of the Corporation shall be managed under the direction of
the Board of Directors. The number of directors of the Corporation initially
shall be five (5), which number may be increased or decreased pursuant to the
Bylaws, but shall never be less than the minimum number required by the Maryland
General Corporation Law. The names of the directors who shall serve until their
successors are duly elected and qualify are:
Mark H. Burton Class III
Wesley R. Edens Class III
Douglas A. Jacobs Class II
Robert I. Kauffman Class II
Stuart A. McFarland Class I
Notwithstanding anything herein to the contrary, at all times
(except during a period not to exceed sixty (60) days following the death,
resignation, incapacity or removal from office of a director prior to expiration
of the director's term
3
<PAGE> 4
of office), a majority of the Board of Directors shall be comprised of persons
("Independent Directors") who are not officers or employees of the Corporation
or "Affiliates" of (a) any advisor to the Corporation pursuant to an advisory
agreement, (b) any subsidiary of the Corporation or (c) any manager of the
Corporation's business or assets pursuant to a management agreement. The
foregoing provision may not be amended, altered, changed or repealed without the
affirmative vote of eighty five percent (85%) of the members of the Board of
Directors or the affirmative vote of two-thirds of the shares of stock of the
Corporation then outstanding and entitled to vote on such matter at a meeting of
stockholders.
For purposes of the foregoing subsection, "Affiliates" of a
person shall mean (a) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (b) any other person
that owns, beneficially, directly or indirectly, ten percent (10%) or more of
the outstanding shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or of any person
controlling, controlled by or under common control with such person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such person). The term "person" means and includes individuals,
corporations, general and limited partnerships, stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business
4
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trusts or other entities and governments and agencies and political subdivisions
thereof. For the purpose of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests.
The directors may increase the number of directors and may
fill any vacancy, whether resulting from an increase in the number of directors
or otherwise, on the Board of Directors occurring before the first annual
meeting of stockholders in the manner provided in the Bylaws.
The directors (other than any director elected solely by
holders of one or more classes or series of Preferred Stock) shall be
classified, with respect to the terms for which they severally hold office, into
three classes, as nearly equal in number as possible, the Class I directors to
hold office initially for a term expiring at the annual meeting of stockholders
in 1999, the Class II directors to hold office initially for a term expiring at
the annual meeting of stockholders in 2000 and the Class III directors to hold
office initially for a term expiring at the annual meeting of stockholders in
2001, with the members of each class to hold office until their successors are
duly elected and qualify. At
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each annual meeting of the stockholders, the successors to the class of
directors whose term expires at such meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors are duly elected
and qualify.
Section 5.2 Extraordinary Actions. Except as specifically
provided in Sections 5.1 (relating to amendment of the Independent Director
provisions) and 5.8 (relating to removal of directors), notwithstanding any
provision of law permitting or requiring any action to be taken or approved by
the affirmative vote of the holders of shares entitled to cast a greater number
of votes, any such action shall be effective and valid if taken or approved by
the affirmative vote of holders of shares entitled to cast a majority of all the
votes entitled to be cast on the matter.
Section 5.3 Authorization by Board of Stock Issuance. The
Board of Directors may authorize the issuance from time to time of shares of
stock of the Corporation of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable (or without consideration in the case
of a stock split or stock dividend), subject to such restrictions or
limitations, if any,
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as may be set forth in the charter of the Corporation (the "Charter") or the
Bylaws of the Corporation (the "Bylaws").
Section 5.4 Preemptive Rights. Except as may be provided by
the Board of Directors in setting the terms of classified or reclassified shares
of stock pursuant to Section 6.4, or as may otherwise be provided by contract,
no holder of shares of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any additional shares of stock of
the Corporation or any other security of the Corporation which it may issue or
sell.
Section 5.5 Indemnification. The Corporation shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to, (a) any individual
who is a present or former director or officer of the Corporation or (b) any
individual who, while a director of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee of
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim
or liability to which such person may become subject or which such person may
incur by reason of his status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of
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expenses to a person who served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to
any of the following matters, made in good faith by or pursuant to the direction
of the Board of Directors consistent with the Charter and in the absence of
actual receipt of an improper benefit in money, property or services or active
and deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: the amount of the net income of the Corporation for any period and the
amount of assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its stock; the
amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of profits
over losses on sales of assets; the amount, purpose, time of creation, increase
or decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining the
fair value, of any asset owned or held by the Corporation; any matter relating
to the acquisition, holding and disposition of
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any assets by the Corporation; or any matter relating to the business and
affairs of the Corporation.
Section 5.7 REIT Qualification. The Corporation shall seek
to elect and maintain status as a REIT under Sections 856-860 of the Code. The
Board of Directors shall use its reasonable best efforts to cause the
Corporation to satisfy the requirements for qualification as a REIT under the
Code, including, but not limited to, the ownership of its outstanding stock, the
nature of its assets, the sources of its income, and the amount and timing of
its distributions to its stockholders; however, if the Board of Directors
determines that it is no longer in the best interests of the Corporation to
continue to be qualified as a REIT, the Board of Directors may revoke or
otherwise terminate the Corporation's REIT election. The Board of Directors also
may determine that compliance with any restriction or limitation on stock
ownership and transfers set forth in Article VII is no longer required for REIT
qualification.
Section 5.8 Removal of Directors. Subject to the rights of
holders of one or more classes or series of Preferred Stock to elect or remove
one or more directors, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and then only by the
affirmative vote of at least two thirds of the votes entitled to be cast
generally in the election of directors. For the purpose of this paragraph,
"cause" shall mean, with respect to any particular director, a final judgment of
a court of competent jurisdiction holding that
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such director caused demonstrable, material harm to the Corporation through bad
faith or active and deliberate dishonesty.
Section 5.9 Advisor Agreements. Subject to such approval of
stockholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the Board of Directors may authorize the execution
and performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization (including, without limitation, any affiliate of the
Corporation and/or its directors) whereby, subject to the supervision and
control of the Board of Directors, any such other person, corporation,
association, company, trust, partnership (limited or general) or other
organization (including, without limitation, any affiliate of the Corporation
and/or its directors) shall render or make available to the Corporation
managerial, investment, advisory and/or related services, office space and other
services and facilities (including, if deemed advisable by the Board of
Directors, the management or supervision of the investments of the Corporation)
upon such terms and conditions as may be provided in such agreement or
agreements (including, if deemed fair and equitable by the Board of Directors,
the compensation payable thereunder by the Corporation).
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ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The Corporation has authority
to issue 600,000,000 shares of stock, consisting of 500,000,000 shares of Common
Stock, $0.01 par value per share ("Common Stock"), and 100,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock"). The aggregate
par value of all authorized shares of stock having par value is $6,000,000. If
shares of one class of stock are classified or reclassified into shares of
another class of stock pursuant to Sections 6.2, 6.3 or 6.4 of this Article VI,
the number of authorized shares of the former class shall be automatically
decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified,
so that the aggregate number of shares of stock of all classes that the
Corporation has authority to issue shall not be more than the total number of
shares of stock set forth in the first sentence of this paragraph.
Section 6.2 Common Stock. Subject to the provisions of Article
VII, each share of Common Stock shall entitle the holder thereof to one vote.
The Board of Directors may reclassify any unissued shares of Common Stock from
time to time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may
classify any unissued shares of Preferred Stock and reclassify any previously
classified but unissued shares of
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Preferred Stock of any series from time to time, in one or more classes or
series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to
issuance of classified or reclassified shares of any class or series, the Board
of Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation;
(b) specify the number of shares to be included in the class or series; (c) set
or change, subject to the provisions of Article VII and subject to the express
terms of any class or series of stock of the Corporation outstanding at the
time, the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each class or series; and (d) cause the Corporation
to file articles supplementary with the State Department of Assessments and
Taxation of Maryland ("SDAT"). Any of the terms of any class or series of stock
set or changed pursuant to clause (c) of this Section 6.4 may be made dependent
upon facts or events ascertainable outside the Charter (including determinations
by the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
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Section 6.5 Charter and Bylaws. All persons who shall acquire
stock in the Corporation shall acquire the same subject to the provisions of the
Charter and the Bylaws.
ARTICLE VII
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII,
the following terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock
Ownership Limit" shall mean not more than 9.8 percent of the aggregate value of
the outstanding shares of any class or series of Capital Stock. The value of the
outstanding shares of Capital Stock shall be determined by the Board of
Directors of the Corporation in good faith, which determination shall be
conclusive for all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall
mean ownership of Capital Stock by a Person, whether the interest in the shares
of Capital Stock is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
Business Day. The term "Business Day" shall mean any
day, other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which banking institutions in New York City
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are authorized or required by law, regulation or executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes
or series of stock of the Corporation, including, without limitation, Common
Stock and Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary"
shall mean one or more beneficiaries of a Trust as determined pursuant to
Section 7.3.6, provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.
Charter. The term "Charter" shall mean the charter of the
Corporation, as that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
Constructive Ownership. The term "Constructive Ownership"
shall mean ownership of Capital Stock by a Person, whether the interest in the
shares of Capital Stock is held directly or indirectly (including by a nominee),
and shall include interests that would be treated as owned through the
application of Section 318(a) of the Code, as modified by Section 856(d)(5) of
the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
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Excepted Holder. The term "Excepted Holder" shall mean a
stockholder of the Corporation for whom an Excepted Holder Limit is created by
these Articles or by the Board of Directors pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall
mean, provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 7.2.7,
and subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Directors for such Exempted Holder pursuant to
Section 7.2.7.
Initial Date. The term "Initial Date" shall mean the date upon
which the Amended Articles of Incorporation containing this Article VII are
filed with the SDAT.
Market Price. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on any
date shall mean the last sale price for such Capital Stock, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Capital Stock, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if such Capital Stock
is not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to
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securities listed on the principal national securities exchange on which such
Capital Stock is listed or admitted to trading or, if such Capital Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if such Capital Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such Capital Stock selected by the Board of
Directors of the Corporation or, in the event that no trading price is available
for such Capital Stock, the fair market value of the Capital Stock, as
determined in good faith by the Board of Directors of the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General
Corporation Law, as amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange,
Inc.
Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust qualified under
Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of
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Section 509(a) of the Code, joint stock company or other entity and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
Prohibited Owner. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the provisions of
Section 7.2.1, would Beneficially Own or Constructively Own shares of Capital
Stock, and if appropriate in the context, shall also mean any Person who would
have been the record owner of the shares that the Prohibited Owner would have so
owned.
REIT. The term "REIT" shall mean a real estate investment
trust within the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction
Termination Date" shall mean the first day after the Initial Date on which the
Corporation determines pursuant to Section 5.7 of the Charter that it is no
longer in the best interests of the Corporation to attempt to, or continue to,
qualify as a REIT or that compliance with the restrictions and limitations on
Beneficial Ownership, Constructive Ownership and Transfers of shares of Capital
Stock set forth herein is no longer required in order for the Corporation to
qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any other
event that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement
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to take any such actions or cause any such events, of Capital Stock or the right
to vote or receive dividends on Capital Stock, including (a) the granting or
exercise of any option (or any disposition of any option), (b) any disposition
of any securities or rights convertible into or exchangeable for Capital Stock
or any interest in Capital Stock or any exercise of any such conversion or
exchange right and (c) Transfers of interests in other entities that result in
changes in Beneficial or Constructive Ownership of Capital Stock; in each case,
whether voluntary or involuntary, whether owned of record, Constructively Owned
or Beneficially Owned and whether by operation of law or otherwise. The terms
"Transferring" and "Transferred" shall have the correlative meanings.
Trust. The term "Trust" shall mean any trust provided for in
Section 7.3.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated
with the Corporation and a Prohibited Owner that is appointed by the Corporation
to serve as trustee of a Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period
commencing on the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an
Excepted Holder, shall Beneficially Own or Constructively Own shares of Capital
Stock in excess of the Aggregate Stock
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Ownership Limit and (2) no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the Excepted Holder
Limit for such Excepted Holder.
(ii) No Person shall Beneficially or
Constructively Own shares of Capital Stock to the extent that such Beneficial or
Constructive Ownership of Capital Stock would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code (without regard
to whether the ownership interest is held during the last half of a taxable
year), or would otherwise result in the Corporation failing to qualify as a REIT
(including, but not limited to, Beneficial or Constructive Ownership that would
result in the Corporation owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would cause the Corporation to fail
to satisfy any of the gross income requirements of Section 856(c) of the Code).
(iii) Notwithstanding any other
provisions contained herein, any Transfer of shares of Capital Stock (whether or
not such Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system) that, if effective, would result in the Capital
Stock being beneficially owned by less than 100 Persons (determined under the
principles of Section 856(a)(5) of the
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Code) shall be void ab initio, and the intended transferee shall acquire no
rights in such shares of Capital Stock.
(b) Transfer in Trust. If any Transfer of
shares of Capital Stock (whether or not such Transfer is the result of a
transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system) occurs
which, if effective, would result in any Person Beneficially Owning or
Constructively Owning shares of Capital Stock in violation of Section
7.2.1(a)(i), (ii) or (iii),
(i) then that number of shares of the
Capital Stock the Beneficial or Constructive Ownership of which otherwise would
cause such Person to violate Section 7.2.1(a)(i), (ii) or (iii) (rounded to the
nearest whole share) shall be automatically transferred to a Trust for the
benefit of a Charitable Beneficiary, as described in Section 7.3, effective as
of the close of business on the Business Day prior to the date of such Transfer,
and such Person shall acquire no rights in such shares; or
(ii) if the transfer to the Trust
described in clause (i) of this sentence would not be effective for any reason
to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of
that number of shares of Capital Stock that otherwise would cause any Person to
violate Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the
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intended transferee shall acquire no rights in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board
of Directors of the Corporation or any duly authorized committee thereof shall
at any time determine in good faith that a Transfer or any other event has taken
place that results in a violation of Section 7.2.1 or that a Person intends to
acquire or has attempted to acquire Beneficial or Constructive Ownership of any
shares of Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee thereof shall take
such action as it deems advisable to refuse to give effect to or to prevent such
Transfer or other event, including, without limitation, causing the Corporation
to redeem shares, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfer or attempted Transfer or other event in
violation of Section 7.2.1 shall automatically result in the transfer to the
Trust described above, and, where applicable, such Transfer (or other event)
shall be void ab initio as provided above irrespective of any action (or
non-action) by the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer.
Any Person who acquires or attempts or intends to acquire Beneficial Ownership
or Constructive Ownership of shares of Capital Stock that will or may violate
Section 7.2.1(a) or any Person who would
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have owned shares of Capital Stock that resulted in a transfer to the Trust
pursuant to the provisions of Section 7.2.1(b) shall immediately give written
notice to the Corporation of such event, or in the case of such a proposed or
attempted transaction, give at least 15 days prior written notice, and shall
provide to the Corporation such other information as the Corporation may request
in order to determine the effect, if any, of such Transfer on the Corporation's
status as a REIT.
Section 7.2.4 Owners Required To Provide Information.
From the Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent
(or such lower percentage as required by the Code or the Treasury Regulations
promulgated thereunder) of the outstanding shares of Capital Stock, within 30
days after the end of each taxable year, shall give written notice to the
Corporation stating the name and address of such owner, the number of shares of
Capital Stock Beneficially Owned and a description of the manner in which such
shares are held. Each such owner shall provide to the Corporation such
additional information as the Corporation may request in order to determine the
effect, if any, of such Beneficial Ownership on the Corporation's status as a
REIT and to ensure compliance with the Aggregate Stock Ownership Limit; and
(b) each Person who is a Beneficial or
Constructive Owner of Capital Stock and each Person (including the stockholder
of record) who is holding Capital Stock for a
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Beneficial or Constructive Owner shall provide to the Corporation such
information as the Corporation may request, in good faith, in order to determine
the Corporation's status as a REIT and to comply with requirements of any taxing
authority or governmental authority or to determine such compliance.
Section 7.2.5 Remedies Not Limited. Subject to
Section 5.7 of the Charter, nothing contained in this Section 7.2 shall limit
the authority of the Board of Directors of the Corporation to take such other
action as it deems necessary or advisable to protect the Corporation and the
interests of its stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an
ambiguity in the application of any of the provisions of this Section 7.2,
Section 7.3 or any definition contained in Section 7.1, the Board of Directors
of the Corporation shall have the power to determine the application of the
provisions of this Section 7.2 or Section 7.3 or any such definition with
respect to any situation based on the facts known to it. In the event Section
7.2 or 7.3 requires an action by the Board of Directors and the Charter fails to
provide specific guidance with respect to such action, the Board of Directors
shall have the power to determine the action to be taken so long as such action
is not contrary to the provisions of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
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(a) Subject to Section 7.2.1(a)(ii), the
Board of Directors of the Corporation, in its sole discretion, may exempt a
Person from the Aggregate Stock Ownership Limit with respect to one or more
classes or series of Capital Stock and may establish or increase an Excepted
Holder Limit for such Person if:
(i) the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial or Constructive Ownership of such
shares of Capital Stock will violate Section 7.2.1(a)(ii) or otherwise adversely
affect the Corporation's ability to qualify as a REIT;
(ii) such Person does not and represents
that it will not own, actually or Constructively, an interest in a tenant of the
Corporation (or a tenant of any entity owned or controlled by the Corporation)
that would cause the Corporation to own, actually or Constructively, more than a
9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant
and the Board of Directors obtains such representations and undertakings from
such Person as are reasonably necessary to ascertain this fact (for this
purpose, a tenant from whom the Corporation (or an entity owned or controlled by
the Corporation) derives (and is expected to continue to derive) a sufficiently
small amount of revenue such that, in the opinion of the Board of Directors of
the Corporation, rent from such tenant would not adversely affect the
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Corporation's ability to qualify as a REIT, shall not be treated
as a tenant of the Corporation); and
(iii) such Person agrees that any
violation or attempted violation of such representations or undertakings (or
other action which is contrary to the restrictions contained in Sections 7.2.1
through 7.2.6) will result in such shares of Capital Stock being automatically
transferred to a Trust in accordance with Sections 7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant
to Section 7.2.7(a), the Board of Directors of the Corporation may require a
ruling from the Internal Revenue Service, or an opinion of counsel, in either
case in form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT. Notwithstanding the receipt of any
ruling or opinion, the Board of Directors may impose such conditions or
restrictions as it deems appropriate in connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an
underwriter which participates in a public offering or a private placement of
Capital Stock (or securities convertible into or exchangeable for Capital Stock)
may Beneficially Own or Constructively Own shares of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) in excess of the
Aggregate Stock Ownership Limit, but only to the extent
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necessary to facilitate such public offering or private
placement.
(d) The Board of Directors may only reduce
the Excepted Holder Limit for an Excepted Holder: (1) with the written consent
of such Excepted Holder at any time, or (2) pursuant to the terms and conditions
of the agreements and undertakings entered into with such Excepted Holder in
connection with the establishment of the Excepted Holder Limit for that Excepted
Holder. No Excepted Holder Limit with respect to a class or series of Capital
Stock shall be reduced to a percentage that is less than the Aggregate Stock
Ownership Limit.
Section 7.2.8 Legend. Each certificate for shares of
Capital Stock shall bear substantially the following legend:
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose of the Corporation's maintenance of
its status as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person
may Beneficially or Constructively Own shares of any class or
series of the Corporation's Capital Stock in excess of 9.8
percent of the aggregate value of the outstanding shares of
any such class or series of Capital Stock unless such Person
is an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable); (ii) no Person may Beneficially or
Constructively Own Capital Stock that would result in the
Corporation being "closely held" under Section 856(h) of the
Code or otherwise cause the Corporation to fail to qualify as
a REIT; and (iii) no Person may Transfer shares of Capital
Stock if such
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Transfer would result in the Capital Stock of the Corporation
being owned by fewer than 100 Persons. Any Person who
Beneficially or Constructively Owns or attempts to
Beneficially or Constructively Own shares of Capital Stock
which causes or will cause a Person to Beneficially or
Constructively Own shares of Capital Stock in excess or in
violation of the above limitations must immediately notify the
Corporation. If any of the restrictions on transfer or
ownership are violated, the shares of Capital Stock
represented hereby will be automatically transferred to a
Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain
events, attempted Transfers in violation of the restrictions
described above may be void ab initio. All capitalized terms
in this legend have the meanings defined in the charter of the
Corporation, as the same may be amended from time to time, a
copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Capital Stock
of the Corporation on request and without charge.
Instead of the foregoing legend, the certificate
may state that the Corporation will furnish a full statement about certain
restrictions on transferability to a stockholder on request and without charge.
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any
purported Transfer or other event described in Section 7.2.1(b) that would
result in a transfer of shares of Capital Stock to a Trust, such shares of
Capital Stock shall be deemed to have been transferred to a Trustee as trustee
of such Trust for the exclusive benefit of one or more Charitable Beneficiaries.
Such transfer to the Trustee shall be deemed to be effective as of the
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close of business on the Business Day prior to the purported Transfer or other
event that results in the transfer to the Trust pursuant to Section 7.2.1(b).
The Trustee shall be appointed by the Corporation and shall be a Person
unaffiliated with the Corporation and any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Corporation as provided in Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee.
Shares of Capital Stock held by the Trustee shall be issued and outstanding
shares of Capital Stock of the Corporation. The Prohibited Owner shall have no
rights in the shares held by the Trustee. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee
shall have all voting rights and rights to dividends or other distributions with
respect to shares of Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or other distribution paid prior to the discovery by the Corporation that the
shares of Capital Stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when due
to the Trustee. Any
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dividend or distribution so paid to the Trustee shall be held in trust for the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights with
respect to shares held in the Trust and, subject to Maryland law, effective as
of the date that the shares of Capital Stock have been transferred to the
Trustee, the Trustee shall have the authority (at the Trustee's sole discretion)
(i) to rescind as void any vote cast by a Prohibited Owner prior to the
discovery by the Corporation that the shares of Capital Stock have been
transferred to the Trustee and (ii) to recast such vote in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary;
provided, however, that if the Corporation has already taken irreversible
corporate action, then the Trustee shall not have the authority to rescind and
recast such vote. Notwithstanding the provisions of this Article VII, until the
Corporation has received notification that shares of Capital Stock have been
transferred into a Trust, the Corporation shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20
days of receiving notice from the Corporation that shares of Capital Stock have
been transferred to the Trust, the Trustee of the Trust shall sell the shares
held in the Trust to a person, designated by the Trustee, whose ownership of the
shares will not
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violate the ownership limitations set forth in Section 7.2.1(a) or otherwise
adversely affect the Corporation's ability to qualify as a REIT. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold shall terminate
and the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as provided in this Section 7.3.4. The
Prohibited Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did not give value
for the shares in connection with the event causing the shares to be held in the
Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be held
in the Trust and (2) the price per share received by the Trustee from the sale
or other disposition of the shares held in the Trust. Any net sales proceeds in
excess of the amount payable to the Prohibited Owner shall be immediately paid
to the Charitable Beneficiary. If, prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee, such shares
are sold by a Prohibited Owner, then (i) such shares shall be deemed to have
been sold on behalf of the Trust and (ii) to the extent that the Prohibited
Owner received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to this Section 7.3.4, such
excess shall be paid to the Trustee upon demand.
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Section 7.3.5 Purchase Right in Stock Transferred to
the Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed
to have been offered for sale to the Corporation, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
held in the Trust pursuant to Section 7.3.4. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner.
Section 7.3.6 Designation of Charitable
Beneficiaries. By written notice to the Trustee, the Corporation shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that (i) the shares of Capital Stock held in the
Trust would not violate the restrictions set forth in Section 7.2.1(a) in the
hands of such Charitable Beneficiary and (ii) each such organization must be
described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each of Sections 170(b)(1)(A),
2055 and 2522 of the Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII
shall preclude the settlement of any transaction
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entered into through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system. The fact that the
settlement of any transaction is so permitted shall not negate the effect of any
other provision of this Article VII and any transferee in such a transaction
shall be subject to all of the provisions and limitations set forth in this
Article VII.
Section 7.5 Enforcement. The Corporation is authorized
specifically to seek equitable relief, including injunctive relief, to enforce
the provisions of this Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.
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ARTICLE XVI
ERISA RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES
Section 8.1 Definitions. For the purpose of this Article VIII,
the following terms shall have the following meanings:
Benefit Plan Investor. The term "Benefit Plan Investor" shall
mean (i) an employee benefit plan (as defined by Section 3(3) of ERISA), whether
or not it is subject to Title I of ERISA; (ii) a plan as described in Section
4975 of the Code; (iii) an entity whose underlying assets include the assets of
any plan described in clause (i) or (ii) by reason of the plan's investment in
such entity (including but not limited to an insurance company general account);
or (iv) an entity that otherwise constitutes a "benefit plan investor" within
the meaning of the Plan Asset Regulation.
Capital Stock. The term "Capital Stock" shall mean all
classes or series of stock of the Corporation, including, without
limitation, Common Stock and Preferred Stock.
Code. The term "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
Fair Market Value. The term "Fair Market Value" shall mean the
fair market value as determined in good faith at the sole discretion of the
Chief Executive Officer or the Board of Directors of the Corporation.
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Initial Date. The term "Initial Date" shall mean the date upon
which the Amended Articles of Incorporation containing this Article VIII are
filed with the SDAT.
Plan Asset Regulation. The term "Plan Asset Regulation" shall
mean the plan asset regulation promulgated by the Department of Labor under
ERISA at 29 C.F.R. 2510.3-101.
Shares-in-Trust. The term "Shares-in-Trust" shall mean shares
of Capital Stock automatically transferred to a Trustee of a Trust for the
benefit of one or more Charitable Beneficiaries as set forth in Article VII of
the Charter.
25% Threshold. The term "25% Threshold" shall mean ownership
by Benefit Plan Investors, in the aggregate, of 25 percent or more of the value
of any class of equity interest in the Corporation (calculated by excluding the
value of any interest held by any person, other than a Benefit Plan Investor,
who has discretionary authority or control with respect to the assets of the
Corporation or any person who provides investment advice to the Corporation for
a fee (direct or indirect) with respect to such assets, or any affiliate of such
person).
Section 8.2 Ownership Limitations. Commencing on the Initial
Date and terminating as provided in Section 8.5, no Benefit Plan Investor may
acquire shares of Capital Stock without the Corporation's prior written consent
(which consent may be withheld in the Corporation's sole and absolute
discretion). Prior to shares of Capital Stock qualifying as a class of
"publicly-offered securities" or the availability of another
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exception to the "look-through" rule (i.e., the provisions of paragraph (a)(2)
of the Plan Asset Regulation), transfers of shares of Capital Stock to Benefit
Plan Investors that would increase aggregate Benefit Plan Investor ownership of
shares of Capital Stock to a level that would meet or exceed the 25% Threshold
will be void ab initio. In addition, in the event that the aggregate number of
shares of Capital Stock owned by Benefit Plan Investors, but for the operation
of this sentence, would meet or exceed the 25% Threshold, (i) shares of Capital
Stock held by Benefit Plan Investors shall be deemed to be Shares-in- Trust, pro
rata, to the extent necessary to reduce aggregate Benefit Plan Investor
ownership of shares of Capital Stock below the 25% Threshold, (ii) such number
of shares of Capital Stock (rounded up, in the case of each holder, to the
nearest whole share) shall be transferred automatically and by operation of law
to a Trust (as described in Article VII of the Charter) to be held in accordance
with this Article VIII and otherwise in accordance with applicable provisions of
Article VII of the Charter, provided that any references therein to ownership
limitations shall be deemed references to the ownership limitations set forth in
this Section 8.2, and (iii) the Benefit Plan Investors previously owning such
Shares-in-Trust shall submit such number of shares of Capital Stock for
registration in the name of the Trust. Such transfer to a Trust and the
designation of shares of Capital Stock as Shares-in-Trust shall be effective as
of the close of business on the business day
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prior to the date of the event that otherwise would have caused aggregate
Benefit Plan Investor ownership of shares of Capital Stock to meet or exceed the
25% Threshold.
Section 8.3 Transfers to Non-Benefit Plan Investors. During
the period prior to the discovery of the existence of the Trust, any transfer of
shares of Capital Stock by a Benefit Plan Investor to a non-Benefit Plan
Investor shall reduce the number of Shares-in-Trust on a one-for-one basis, and
to that extent such shares shall cease to be designated as Shares-in-Trust and
shall be returned, effective at exactly the time of the transfer to the
non-Benefit Plan Investor, automatically and without further action by the
Corporation or the Benefit Plan Investor, to all Benefit Plan Investors (or the
transferee, if applicable), pro rata, in accordance with the Benefit Plan
Investors' prior holdings. After the discovery of the existence of the Trust,
but prior to the redemption of all discovered Shares-in-Trust and/or the
submission of all discovered Shares-in-Trust for registration in the name of the
Trust, any transfer of shares of Capital Stock by a Benefit Plan Investor to a
non-Benefit Plan Investor shall reduce the number of Shares-in-Trust on a
one-for-one basis, and to that extent such shares shall cease to be designated
as Shares-in-Trust and shall be returned, automatically and without further
action by the Corporation or the Benefit Plan Investor, to the transferring
Benefit Plan Investor (or its transferee, if applicable).
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Section 8.4 Corporation's Right to Redeem Shares-in- Trust. In
the event that any shares of Capital Stock are deemed "Shares-in-Trust" pursuant
to this Article VIII, the holder shall cease to own any right or interest with
respect to such shares and the Corporation will have the right to redeem such
Shares-in- Trust for an amount equal to their Fair Market Value, which proceeds
shall be payable to the purported owner.
Section 8.5 Termination. This Article VIII shall cease to
apply and all Shares-in-Trust shall cease to be designated as Shares-in-Trust
and shall be returned, automatically and by operation of law, to their purported
owners, all of which shall occur at such time as shares of Capital Stock qualify
as a class of "publicly-offered securities" or if another exception to the
"look-through" rule under the Plan Asset Regulation applies.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make
any amendment to the Charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in the
Charter, of any shares of outstanding stock. All rights and powers conferred by
the Charter on stockholders, directors and officers are granted subject to this
reservation.
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ARTICLE X
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article IX, nor the adoption or amendment of any other provision
of the Charter or the Bylaws inconsistent with this Article IX, 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 WITNESS WHEREOF, I have signed these Amended Articles of
Incorporation and acknowledge the same to be my act on this 4th day of June,
1998.
/s/ Tracy A. Bacigalupo
----------------------------------
Tracy A. Bacigalupo
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Exhibit 3.2
FORTRESS INVESTMENT CORP.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the
Corporation shall be located at such place or places as the Board
of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have
additional offices at such places as the Board of Directors may
from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year.
Section 3. SPECIAL MEETINGS. The president, chief executive officer or
Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each
<PAGE> 2
stockholder not entitled to vote who is entitled to notice of the meeting
written or printed notice stating the time and place of the meeting and, in the
case of a special meeting or as otherwise may be required by any statute, the
purpose for which the meeting is called, either by mail or by presenting it to
such stockholder personally or by leaving it at his residence or usual place of
business. If mailed, such notice shall be deemed to be given when deposited in
the United States mail addressed to the stockholder at his post office address
as it appears on the records of the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the chairman
of the board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the chairman of the board, one of the following
officers present shall conduct the meeting in the order stated: the vice
chairman of the board, if there be one, the president, the vice presidents in
their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an assistant secretary, or in the absence of both
the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be
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elected and for whose election the share is entitled to be voted. A majority of
the votes cast at a meeting of stockholders duly called and at which a quorum is
present shall be sufficient to approve any other matter which may properly come
before the meeting, unless more than a majority of the votes cast is required by
statute or by the charter of the Corporation. Unless otherwise provided in the
charter, each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may cast the votes entitled to be
cast by the shares of the stock owned of record by him either in person or by
proxy executed in writing by the stockholder or by his duly authorized agent.
Such proxy shall be filed with the secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly
owned by it shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to be voted at any
given time, unless they are held by it in a fiduciary capacity, in which case
they may be voted and shall be counted in determining the total number of
outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by
which a stockholder may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder, subject to the transfer
restrictions set forth in the charter of the Corporation. The resolution shall
set forth the class of stockholders who may make the certification, the purpose
for which the certification may be made, the form of certification and the
information to be contained in it; if the certification is with respect to a
record date or closing of the stock transfer books, the time after the
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record date or closing of the stock transfer books within which the
certification must be received by the Corporation; and any other provisions with
respect to the procedure which the Board of Directors considers necessary or
desirable. On receipt of such certification and subject to the transfer
restrictions set forth in the charter of the Corporation, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the stockholder of record of the specified stock in place of the
stockholder who makes the certification.
Notwithstanding any other provision of the charter of the
Corporation or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of stock of
the Corporation. This section may be repealed, in whole or in part, at any time,
whether before or after an acquisition of control shares and, upon such repeal,
may, to the extent provided by any successor bylaw, apply to any prior or
subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. NOMINATIONS AND PROPOSALS BY STOCKHOLDERS.
(a) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors and the proposal of business to
be considered by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at
the direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record both at the time of giving of notice
provided for in this Section 12(a) and at the time of the annual meeting, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(a).
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(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 12, the stockholder must have given timely
notice thereof in writing to the secretary of the Corporation and such other
business must otherwise be a proper matter for action by stockholders. To be
timely, a stockholder's notice shall be delivered to the secretary at the
principal executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the close of business on the 90th day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date or
if the Corporation has not previously held an annual meeting, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of a postponement or adjournment of an annual meeting to a later
date or time commence a new time period for the giving of a stockholder's notice
as described above. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class of stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence
of paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement by the Corporation naming all of the nominees
for director
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or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 12(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(b). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position as specified in the Corporation's
notice of meeting, if the stockholder's notice containing the information
required by paragraph (a)(2) of this Section 12 shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of a postponement or adjournment of a special meeting to a
later date or time commence a new time period for the giving of a stockholder's
notice as described above.
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 12 shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 12. The chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures
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set forth in this Section 12 and, if any proposed nomination or business is not
in compliance with this Section 12, to declare that such nomination or proposal
shall be disregarded.
(2) For purposes of this Section 12, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of
this Section 12, a stockholder shall also comply with all applicable
requirements of state law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 12. Nothing in
this Section 12 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in, nor the rights of the Corporation to omit proposals
from, the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
stockholder shall demand that voting be by ballot.
I ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of
Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or
at any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board
of Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
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Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, president or by
a majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present
at a meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate
in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
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meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease
to be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, even if such majority is less than a quorum. Any
vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. Any
individual so elected as director shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the Board of Directors,
may receive compensation per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may be
reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of
the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected
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with regard to any act or failure to act in reliance in good faith upon the
books of account or other records of the Corporation, upon an opinion of
counsel or upon reports made to the Corporation by any of its officers or
employees or by the advisers, accountants, appraisers or other experts or
consultants selected by the Board of Directors or officers of the Corporation,
regardless of whether such counsel or expert may also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Except as the parties may otherwise agree, any
director or officer, employee or agent of the Corporation, in his personal
capacity or in a capacity as an affiliate, employee, or agent of any other
person, or otherwise, may have business interests and engage in business
activities similar to or in addition to or in competition with those of or
relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee
and other committees, composed of one or more directors, to serve at the
pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee (if there are at least two members of the
Committee) may fix the time and place of its meeting unless the Board shall
otherwise provide. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a quorum,
may appoint another director to act in the place of such absent member. Each
committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a
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conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
include one or more co-chief executive officers, one or more co-presidents, a
secretary and a treasurer and may include one or more co-chairmen of the board,
a vice chairman of the board, one or more vice presidents, a chief operating
officer, a chief financial officer, one or more assistant secretaries and one or
more assistant treasurers. In addition, the Board of Directors may from time to
time appoint such other officers with such powers and duties as they shall deem
necessary or desirable. The officers of the Corporation shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders, except that the chief
executive officer may appoint one or more vice presidents, assistant secretaries
and assistant treasurers. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as may be convenient.
Each officer shall hold office until his successor is elected and qualifies or
until his death, resignation or removal in the manner hereinafter provided. Any
two or more offices except president and vice president may be held by the same
person. In its discretion, the Board of Directors may leave unfilled any office
except that of president, treasurer and secretary. Election of an officer or
agent shall not of itself create contract rights between the Corporation and
such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be
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served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors, the chairman of the board, the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate one or more co-chief executive officers. In the absence of such
designation, the chairman of the board shall be the chief executive officer of
the Corporation. The chief executive officer shall have general responsibility
for implementation of the policies of the Corporation, as determined by the
Board of Directors, and for the management of the business and affairs of the
Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate one or more co-chairmen of the board. The chairman of the board shall
preside over the meetings of the Board of Directors and of the stockholders at
which he shall be present. The chairman of the board shall perform such other
duties as may be assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer, as the
case may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief operating
officer by the Board of Directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or
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shall be required by law to be otherwise executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the share transfer books of the Corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the president or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
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If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Corporation and such authority may be general
or confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the directors or by an authorized person
shall be valid and binding upon the Board of Directors and upon the Corporation
when authorized or ratified by action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
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ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to either a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation or an interest in a
global certificate or certificates, which interest will represent and certify
the number of shares of each class of stock held by him in the Corporation. Each
certificate shall be signed by the chief executive officer, the president or a
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if any,
of the Corporation. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Corporation shall, from
time to time, issue several classes of stock, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue
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a new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the charter of the Corporation
and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board
of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a determina-
tion of stockholders for any other proper purpose. Such date, in any case, shall
not be prior to the close of business on the day the record date is fixed and
shall be not more than 90 days and, in the case of a meeting of stockholders,
not less than ten days, before the date on which the meeting or particular
action requiring such determination of stockholders of record is to be held or
taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
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If no record date is fixed and the stock transfer books are
not closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
may issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to
time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
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DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation,
the Board of Directors may from time to time adopt, amend, revise or terminate
any policy or policies with respect to investments by the Corporation as it
shall deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.
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ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from
time to time, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or officer
of the Corporation and who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
charter of the Corporation or these Bylaws or pursuant to applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.
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ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to
adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.
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Exhibit 4.1
FORTRESS INVESTMENT CORP.
a Corporation Formed Under the Laws of the State of Maryland
Number ___ __________ Shares
SEE REVERSE FOR IMPORTANT NOTICE ON
TRANSFER RESTRICTIONS AND OTHER INFORMATION
CUSIP _______________
THIS CERTIFICATE IS TRANSFERABLE
IN THE CITY OF NEW YORK
THIS CERTIFIES THAT CEDE & CO., or its registered assigns, is the owner of
___________________ (___________) FULLY PAID AND NONASSESSABLE SHARES OF COMMON
STOCK, $.01 PAR VALUE PER SHARE, OF FORTRESS INVESTMENT CORP. (the
"Corporation") transferable on the books of the Corporation by the holder hereof
in person or by its duly authorized attorney, upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are issued
and shall be held subject to the laws of the State of Maryland and to all of the
provisions of the charter of the Corporation (the "Charter") and the Bylaws of
the Corporation and any amendments thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed on its behalf by its duly authorized officers.
DATED: ________________
________________________________
President
(SEAL)
________________________________
Secretary
<PAGE> 2
Countersigned and Registered:
Transfer Agent
and Registrar
By:___________________________
Authorized Signature
2
<PAGE> 3
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, ON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 2-211(B) OF THE
CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH
RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE
STOCK OF EACH CLASS WHICH THE CORPORATION HAS AUTHORITY TO ISSUE AND (I) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH
SERIES TO THE EXTENT SET, AND (II) THE AUTHORITY OF THE BOARD OF DIRECTORS TO
SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. THE FOREGOING SUMMARY DOES
NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE CHARTER OF THE CORPORATION (THE "CHARTER"), AS MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH WILL BE SENT WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS. SUCH REQUEST MUST BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL OFFICE OR TO THE TRANSFER AGENT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
("REIT") UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE").
SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CHARTER, (I) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF ANY
CLASS OR SERIES OF THE CORPORATION'S CAPITAL STOCK IN EXCESS OF 9.8 PERCENT OF
THE AGGREGATE VALUE OF THE OUTSTANDING SHARES OF ANY CLASS OR SERIES OF CAPITAL
STOCK OF THE CORPORATION UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE
THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (II) NO PERSON MAY BENEFICIALLY
OR CONSTRUCTIVELY OWN CAPITAL STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (III) NO PERSON MAY TRANSFER
SHARES OF CAPITAL STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF
THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK WHICH CAUSES OR WILL CAUSE A PERSON
TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK IN EXCESS OR IN
VIOLATION OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF
ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF
CAPITAL STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE
OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION,
UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE
RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS IN THIS LEGEND
HAVE THE MEANINGS DEFINED IN THE CHARTER, AS THE SAME MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP,
WILL BE FURNISHED TO EACH HOLDER OF CAPITAL STOCK OF THE CORPORATION ON REQUEST
AND WITHOUT CHARGE.
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<PAGE> 4
BY ITS ACQUISITION HEREOF, THE HOLDER AGREES (1) TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 10, 1998, BY
AND BETWEEN THE CORPORATION AND NATIONSBANC MONTGOMERY SECURITIES, LLC (THE
"REGISTRATION RIGHTS AGREEMENT") AND (2) THAT UPON RECEIPT OF NOTICE FROM THE
CORPORATION OF THE OCCURRENCE OF ANY EVENT WHICH MAKES A STATEMENT IN A
PROSPECTUS WHICH IS PART OF A REGISTRATION STATEMENT RELATING TO THIS SECURITY
UNTRUE IN ANY MATERIAL RESPECT OR WHICH REQUIRES THE MAKING OF ANY CHANGES IN
SUCH PROSPECTUS IN ORDER TO MAKE THE STATEMENT THEREIN NOT MISLEADING, OR OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, THE HOLDER
WILL SUSPEND THE SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE UNTIL THE CORPORATION HAS AMENDED OR SUPPLEMENTED SUCH PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE HOLDER OR THE CORPORATION HAS GIVEN NOTICE THAT
THE SALE OF COMMON STOCK MAY BE RESUMED.
PRIOR TO THE DATE (I) THE COMMON STOCK QUALIFIES AS A CLASS OF
"PUBLICLY-OFFERED SECURITIES," OR (II) THE CORPORATION COMPLIES WITH ANOTHER
AVAILABLE EXCEPTION UNDER THE PLAN ASSET REGULATIONS ISSUED BY THE DEPARTMENT OF
LABOR, THE CORPORATION WILL NOT APPROVE THE SALE, TRANSFER OR DISPOSITION OF THE
COMMON STOCK OR INTERESTS THEREIN UNLESS, FOLLOWING SUCH SALE, TRANSFER OR
DISPOSITION, LESS THAN TWENTY-FIVE PERCENT (25%) OF THE VALUE OF THE COMMON
STOCK OR ANY OTHER CLASS OF SECURITY THAT IS TREATED AS AN EQUITY INTEREST IN
THE CORPORATION FOR PURPOSES OF THE PLAN ASSET REGULATIONS IS HELD BY (I)
EMPLOYEE BENEFIT PLANS (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO
TITLE I OF ERISA); (II) PLANS DESCRIBED IN SECTION 4975 OF THE CODE; (III)
ENTITIES WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S
INVESTMENT IN SUCH ENTITIES; OR (IV) ENTITIES THAT OTHERWISE CONSTITUTE
"BENEFIT PLAN INVESTORS" WITHIN THE MEANING OF THE PLAN ASSET REGULATIONS
DETERMINED WITHOUT REGARD TO THE VALUE
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<PAGE> 5
OF ANY SUCH INTERESTS HELD BY AFFILIATES OF FORTRESS INVESTMENT GROUP LLC OR
OTHER PERSONS WITH AUTHORITY OR CONTROL WITH RESPECT TO THE ASSETS OF THE
CORPORATION.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN THE CORPORATION AND
AMERICAN STOCK TRANSFER & TRUST COMPANY (THE "RIGHTS AGENT"), DATED AS OF JUNE
4, 1998 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED
HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO
LONGER BE EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER
OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF
MAILING, WITHOUT CHARGE, PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO,
OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT _________ Custodian _________
TEN ENT - as tenants by the entireties (Custodian) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors Act of
of survivorship and not as tenants ____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _________________
5
<PAGE> 6
________________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
____________________________ (______________) shares of Common Stock of the
Corporation represented by this Certificate and do hereby irrevocably constitute
and appoint _____________________ attorney to transfer the said shares of Common
Stock on the books of the Corporation, with full power of substitution in the
premises.
Dated __________________ ____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
6
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and among
FORTRESS INVESTMENT CORP.,
FORTRESS PARTNERS, L.P.
and
NATIONSBANC MONTGOMERY SECURITIES LLC
dated June 10, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
(Fortress Investment Corp.)
June 10, 1998
INTRODUCTORY. This Registration Rights Agreement is made and entered
into as of June 10, 1998, by and among Fortress Investment Corp., a Maryland
corporation (the "Company"), Fortress Partners, L.P., a Delaware limited
partnership (the "Operating Partnership"), and NationsBanc Montgomery Securities
LLC (the "Initial Purchaser").
This Agreement is entered into pursuant to the purchase agreement (the
"Purchase Agreement"), dated June 5, 1998, by and among the Company, the
Operating Partnership and the Initial Purchaser. In order to induce the Initial
Purchaser to enter into the Purchase Agreement, the Company and the Operating
Partnership have agreed to provide the registration rights provided for in this
Agreement to the Initial Purchaser and its direct and indirect transferees. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
Affiliate: As to any specified Person, shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" have the meanings correlative to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
of this Agreement.
<PAGE> 3
Business Day: With respect to any act to be performed under this
Agreement, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in New York, New York, or other applicable
place where such act is to occur, are authorized or obligated by applicable law,
regulation or executive order to close.
Closing Date: June 10, 1998, or such other time or such other date as
the Initial Purchaser and the Company may agree.
Commission: The United States Securities and Exchange Commission.
Common Stock: Shares of common stock, $.01 par value per share, of the
Company.
Company: Fortress Investment Corp., Inc., a Maryland corporation, and
any successor corporation thereto.
Controlling Person: As defined in Section 7(a) of this Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
Holder: Each record owner of any Registrable Shares from time to time,
including the Initial Purchaser and its Affiliates.
Initial Purchaser: NationsBanc Montgomery Securities LLC.
NASD: National Association of Securities Dealers, Inc.
Manager: Fortress Investment Group, LLC, a Delaware limited liability
company.
Offering Memorandum: The Offering Memorandum of the Company dated June
5, 1998 pursuant to which the Shares are offered and sold.
Operating Partnership: Fortress Partners, L.P., a Delaware limited
partnership, for which the Company serves as sole general partner.
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<PAGE> 4
Person: An individual, partnership, corporation, trust, or
unincorporated organization, or government agency or political subdivision
thereof.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the Person subject thereto,
threatened.
Prospectus: The prospectus included in any Registration Statement,
including any preliminary prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
Purchase Agreement: As defined in the Introductory paragraph.
Register, registered and registration: Such terms refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
Registrable Shares: The Shares, upon original issuance thereof, and at
all times subsequent thereto, until the earliest to occur of (i) the second
annual anniversary of the latest date of original issuance of the Shares, (ii)
such time as all outstanding Shares have been sold pursuant to a Registration
Statement or have been transferred pursuant to Rule 144 or otherwise transferred
in a manner that results in the transferred security being delivered not being
subject to transfer restrictions under the Securities Act, (iii) such time as,
in the opinion of counsel to the Company, all of the Shares held by persons who
are not Affiliates of the Company may be resold without registration under the
Securities Act pursuant to Rule 144(k)(or any successor rule), and (iv) such
time as there are no longer any outstanding Shares.
Registration Expenses: Any and all expenses incident to the performance
of or compliance with this Agreement, including, without limitation: (i) all
Commission, stock exchange, NASD registration, listing, inclusion and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
international, federal or state securities or blue sky laws (including, without
limitation, any registration, listing and filing fees and reasonable fees and
disbursements of counsel in connection with blue sky qualification of any of the
Registrable Shares and the preparation of a Blue Sky Memorandum and compliance
with the rules of the NASD), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, duplicating,
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<PAGE> 5
printing, delivering and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements, certificates and other documents relating to the
performance of and compliance with this Agreement, (iv) all fees and expenses
incurred in connection with the listing or including of any of the Registrable
Shares on any securities exchange or The Nasdaq Stock Market pursuant to Section
5(k) of this Agreement, (v) the fees and disbursements of counsel for the
Company and of the independent public accountants (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance) of the Company (provided that
Registration Expenses shall not include the fees and expenses of any counsel to
the Holders) and (vi) any fees and disbursements customarily paid by issues or
sales of securities (including the fees and expenses of any experts retained by
the Company in connection with any Registration Statement), but excluding
brokers' commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Shares by a Holder.
Registration Statement: Any registration statement of the Company that
covers the resale of the Registrable Shares pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre-effective and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 158: Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
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<PAGE> 6
Rule 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Shares: The shares of Common Stock being offered and sold pursuant to
the terms and conditions of the Purchase Agreement.
Underwritten Offering: A sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.
SECTION 2. SHELF REGISTRATION. As set forth in Section 5 hereof, the
Company agrees to file with the Commission as soon as reasonably practicable,
but in no event later than ninety (90) days after the date of this Agreement,
one or more shelf Registration Statements with respect to the sale from time to
time by the Holders of any and all Registrable Shares. The Company shall use its
best efforts to cause such Registration Statement to be declared effective by
the Commission as soon as practicable but, in any event, not later than the
effective date of any other registration statement of the Company filed with the
Commission under the Securities Act.
SECTION 3. EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration of the Registrable Shares pursuant to this
Agreement. The Holder or Holders shall pay all broker's commissions and transfer
taxes, if any, and any other expense not specifically allocated to the Company
pursuant to this Agreement (in all cases, which relate to the sale or
disposition of such Holder's Registrable Shares pursuant to any Registration
Statement).
SECTION 4. REPORTS. The Company shall file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner,
and, prior to the effectiveness of the Registration Statement, if it is not
required to file such reports, will make available other information as required
by, and so long as necessary to permit sales of the Registrable Shares pursuant
to, Rule 144A.
SECTION 5. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to any registration pursuant to this Agreement, the
Company shall use its best efforts to effect or cause to be effected the
registration of the
5
<PAGE> 7
Registrable Shares under the Securities Act to permit the sale of such
Registrable Shares by the Holder or Holders in accordance with customary methods
of sale or distribution, including through brokers' transactions and block
trades, as well as any other intended method or methods of distribution
reasonably requested by the Initial Purchaser or any Holder by notice to the
Company prior to the filing of the Registration Statement, and the Company
shall:
(a) prepare and file with the Commission, as specified in this
Agreement, a Registration Statement, which Registration Statement shall comply
as to form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such registration statement to
become effective as soon as possible after filing but, in any event, not later
than the effective date of any other Registration Statement of the Company or
the Operating Partnership, and remain effective, subject to Section 6 of this
Agreement, until such time, as none of the Shares are Registrable Shares.
(b) subject to Section 5(h), (i) prepare and file with the Commission
such amendments and post-effective amendments to each such Registration
Statement as may be necessary to keep such Registration Statement effective for
the period described in Section 5(a), (ii) cause each such Prospectus contained
therein to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 or any similar rule that may be
adopted under the Securities Act, and (iii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holder thereof;
(c) furnish to any Holder named in any Prospectus, without charge, as
many copies of such Prospectus, and any amendment or supplement thereto and such
other documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Shares; the Company
consents to the use of any such Prospectus by such Holder in connection with the
offering and sale of the Registrable Shares covered by any such Prospectus;
(d) use reasonable efforts to register or qualify, or obtain exemption
from registration or qualification for, all Registrable Shares by the time the
applicable Registration Statement is declared effective by the Commission under
all applicable state securities or "blue sky" laws or Canadian securities laws
of such jurisdictions as
6
<PAGE> 8
the Initial Purchaser or any Holder shall reasonably request in writing; keep
each such registration or qualification or exemption effective during the period
such Registration Statement is required to be kept effective pursuant to Section
5(a); and do any and all other acts which may be reasonably necessary or
advisable to enable each Holder to consummate the disposition of such
Registrable Shares owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify or register but for this Section
5(d), (ii) subject itself to taxation in any such jurisdiction, or (iii) submit
to the general service of process in any such jurisdiction;
(e) notify the Initial Purchaser and each Holder promptly and, if
requested by the Initial Purchaser or any Holder, confirm such information in
writing: (i) of the date and time that a Registration Statement has become
effective and the date and time any post-effective amendments and supplements
thereto become effective; (ii) of the issuance by the Commission or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iii) of any request by the Commission or any other federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information; and (iv) of the happening
of any event during the period a Registration Statement is effective as a result
of which such Registration Statement or the related Prospectus or any document
incorporated by reference therein 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, in light of the circumstances under
which they were made, not misleading (which information shall be accompanied by
an instruction to suspend the use of the Prospectus until the requisite changes
have been made);
(f) during the period of time referred to in Section 5(a), use all
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of, any order enjoining or suspending the use or effectiveness of a
Registration Statement or suspending the qualification (or exemption from
qualification) of any of the Registrable Shares for sale in any jurisdiction,
promptly;
(g) upon request, furnish to each requesting Holder, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment or supplement thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
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<PAGE> 9
(h) except as provided in Section 6, upon the occurrence of any event
contemplated by Section 5(e)(iv), use its best efforts to promptly prepare a
supplement or post-effective amendment to a Registration Statement or the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Shares, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(i) if requested by the representative underwriters, if any, or any
Holders of Registrable Shares being sold in connection with an Underwritten
Offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the representative of the underwriters, if any, or
such Holders indicate relates to them or otherwise reasonably request be
included therein, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(j) in connection with an Underwritten Offering of Registrable Shares,
make available for inspection by representatives of the Holders and the
representative of any underwriters participating in any disposition pursuant to
a Registration Statement and any special counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent corporate
documents and properties of the Company and the Operating Partnership and cause
their respective officers, directors and employees to supply all information
reasonably requested by any such representatives, the representative of the
underwriters, counsel thereto or accountants in connection with a Registration
Statement; provided, however, that such records, documents or information which
the Company determines, in good faith, to be confidential and notifies such
representatives, representative of the underwriters, counsel thereto or
accountants are confidential shall be kept confidential and shall not be
disclosed by the representatives, representative of the underwriters, counsel
thereto or accountants unless (i) subject to the provisions hereof, the
disclosure of such records, documents or information is necessary to avoid or
correct a misstatement or omission in a Registration Statement or Prospectus,
(ii) the release of such records, documents or information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, or (iii)
such records, documents or information have been generally made available to the
public; provided, however, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be coordinated on behalf
8
<PAGE> 10
of the Holders and the other parties entitled thereto by one counsel designated
by and on behalf of such Holders;
(k) use its best efforts (including, without limitation, seeking to
cure any deficiencies cited by the exchange or market in the Company's listing
or inclusion application) to list or include all Registrable Shares on a
securities exchange or The Nasdaq Stock Market;
(l) prepare and file in a timely manner all documents and reports
required by the Exchange Act which are incorporated by reference into any
Registration Statement;
(m) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement;
(n) use all reasonable efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable, earnings statements which
cover at least twelve (12) months and which satisfy the provisions of Section
11(a) under the Securities Act and Rule 158 (or any similar rule promulgated
under the Securities Act) thereunder, no later than forty-five (45) days after
the end of each fiscal year of the Company;
(o) from and after a date not later than the effective date of such
Registration Statement, provide and cause to be maintained a transfer agent for
all Registrable Shares covered by any Registration Statement;
(p) in connection with any sale or transfer of the Registrable Shares
(whether or not pursuant to a Registration Statement) that will result in the
security being delivered not being subject to transfer restrictions under the
Securities Act, cooperate with the Holders and the representative of the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Shares to be sold, which certificates
shall not bear any transfer restrictive legend (other than the legend with
respect to the restrictions on ownership and transfer under the Company's
charter), and to enable such Registrable Shares to be in such denominations and
registered in such names as the representative of the underwriters, if any, or
Holders may request at least two (2) Business Days prior to any sale of the
Registrable Shares; and
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<PAGE> 11
(q) upon effectiveness of the first Registration Statement filed under
this Agreement, the Company will take such actions and make such filings as are
necessary to effect the registration of the Common Stock under the Exchange Act
simultaneously with or immediately following the effectiveness of the
Registration Statement.
The Company may require each Holder to furnish to the Company such
information regarding the proposed distribution by such Holder of Registrable
Shares as the Company may from time to time reasonably request in writing and no
Holder shall be entitled to be named as a selling securityholder in any
Registration Statement and no Holder shall be entitled to use the Prospectus
forming a part thereof if such Holder does not provide such information to the
Company.
Upon receipt of written notice from the Company of the happening of any
event of the kind described in Section 5(e)(iii) or 5(e)(iv), the Holders will
immediately discontinue disposition of Registrable Shares pursuant to a
Registration Statement until the Holders' receipt of the copies of a
supplemented or amended Prospectus. If so requested by the Company, the Holders
will deliver to the Company (at the expense of the Company) all copies in their
possession, other than permanent file copies then in the Holders' possession, of
the Prospectus covering such Registrable Shares at the time of receipt of such
notice.
SECTION 6. BLACK-OUT-PERIOD. Subject to the provision of this Section 6
and a good faith determination by a majority of the Board of Directors of the
Company that it is in the best interests of the Company to suspend the use of
the Registration Statement, following the effectiveness of a Registration
Statement (and the filings with any international, federal or state securities
commissions), the Company, by written notice to the Initial Purchaser and to the
Holders, may direct the Holders to suspend sales of the Registrable Shares
pursuant to the Registration Statement, if any of the following events shall
occur: (i) an Underwritten Offering by the Company where the Company is advised
by the representative of underwriters for such Underwritten Offering that the
sale of Registrable Shares pursuant to the Registration Statement would have a
material adverse effect on the Company's primary offering; (ii) pending
negotiations relating to, or the consummation of, a transaction or the
occurrence of an event that requires additional disclosure of material
information by the Company in the Registration Statement and which has not been
so disclosed; (iii) a material corporate transaction is pending or has occurred,
the disclosure of which should be set forth in the Registration Statement and
the Board of Directors of the Company shall have determined in good faith would
not be in the best interests of the
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<PAGE> 12
Company and its stockholders; or (iv) the Board of Directors of the Company
shall have determined in good faith that it is in the best interests of the
Company to suspend the use of the Registration Statement. Upon the occurrence of
any such suspension, the Company shall use its best efforts to cause the
Registration Statement to become effective or to promptly amend or supplement
the Registration Statement on a post-effective basis or to take such action as
is necessary to make resumed use of the Registration Statement compatible with
the Company's best interests, as applicable, so as to permit the Holders to
resume sales of the Registrable Shares as soon as possible.
In the case of an event which causes the Company to suspend the
effectiveness of a Registration Statement (a "Suspension Event"), the Company
shall give written notice (a "Suspension Notice") to the Holders at the
addresses set forth in the stock transfer records of the Company and to the
Initial Purchaser (Nationsbanc Montgomery Securities, 600 Montgomery Street, San
Francisco, CA 94111, Attn: Mr. Jack R. Berquist) and its counsel (O'Melveny &
Myers LLP, 275 Battery Street, San Francisco, California 94111, Attn: Peter T.
Healy, Esq.) to suspend sales of the Registrable Shares and such notice shall
state that such suspension shall continue only for so long as the Suspension
Event or its effect is continuing and the Company is taking all reasonable steps
to terminate suspension of the effectiveness of the Registration Statement as
promptly as possible. The Holders shall not effect any sales of the Registrable
Shares pursuant to such Registration Statement at any time after receipt of a
Suspension Notice from the Company and prior to receipt of an End of Suspension
Notice (defined below). If so requested by the Company, the Holders will deliver
to the Company (at the expense of the Company) all copies in their possession,
other than permanent file copies then in the Holders' possession, of the
Prospectus covering such Registrable Shares at the time of receipt of the
Suspension Notice. The Holders may recommence effecting sales of the Registrable
Shares pursuant to the Registration Statement (or such filings) following
further notice to such effect (an "End of Suspension Notice") from the Company,
which End of Suspension Notice shall be given by the Company to the Holders and
the Initial Purchaser in the manner described above promptly following the
conclusion of any Suspension Event.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company and the Operating Partnership. The
Company and the Operating Partnership agree to indemnify and hold harmless (i)
the Initial Purchaser, (ii) each Holder, (iii) each Person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) any of the foregoing (any of the Persons referred to in this
clause (iii) being hereinafter
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<PAGE> 13
referred to as a "controlling person"), and (iv) the respective officers,
directors, partners, employees, representatives and agents of the Initial
Purchaser and each Holder or any controlling person as follows:
(i) from and against any and all loss, claim, liability and damage
whatsoever, as incurred, (a) arising out of any untrue or alleged untrue
statement of a material fact contained in any Registration Statement (or any
supplement or amendment thereto) pursuant to which Registrable Shares were
registered under the Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (b) arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment or
supplement thereto), including all documents incorporated therein by reference,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that such indemnity with respect to any Registration Statement or
Prospectus shall not inure to the benefit of any Holder or the Initial Purchaser
(or any controlling person, agent, employee, officer, director, partner or
representative thereof) to the extent that any such loss, claim, liability,
damage or expense arises out of such indemnified person's failure to send or
give a copy of the revised Registration Statement or final Prospectus, as the
same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Shares to such
Person if such statement or omission was corrected in such revised Registration
Statement or such final Prospectus and the Company shall have delivered to such
indemnified person a sufficient number of copies of such revised Registration
Statement or such final Prospectus in a timely manner so as to permit such
Holder or the Initial Purchaser to send or give a copy of the revised
Registration Statement or such final Prospectus containing such correction prior
to the written confirmation of the purchase and sale of such Registrable Shares;
(ii) from and against any and all loss, liability, claim and damage
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, if such settlement is effected with the
written consent of the Company (which consent shall not be unreasonably withheld
or delayed); and
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<PAGE> 14
(iii) from and against any and all expense reasonably incurred
(including reasonable fees and disbursements of counsel) in investigating,
preparing or defending against any litigation, or investigation or proceeding by
any governmental agency or body commenced or threatened, in each case whether or
not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any
Holder or agent thereof with respect to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
a Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) Indemnification by Holders. Each Holder, on a pro rata basis,
agrees to indemnify and hold harmless the Company, and directors, officers,
partners, employees, representatives and agents (including each officer of the
Company who signed the Registration Statement), and each Person, if any, who
controls the Company, within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any and all loss, liability, claim,
damage and expenses described in the indemnity contained in Section 7(a) hereof
(provided, however, that any settlement described in Section 7(a)(ii) hereof is
effected with the written consent of such Holder), as incurred, but only with
respect to such untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Holder
expressly for use in such Registration Statement (or any amendment thereto) or
such Prospectus (or any amendment or supplement thereto), and provided, further,
that no Holder shall be liable for any amount in excess of the net proceeds
received by such Holder from the sale of such Holder's Registrable Shares
pursuant to a Registration Statement or a Prospectus, as the case may be.
(c) Conduct of Indemnification Proceedings. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve it
from any liability which it may have under this indemnity agreement except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. If the
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<PAGE> 15
indemnifying party so elects within a reasonable time after receipt of such
notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by the
indemnifying party and approved by the indemnified parties in such action or
proceeding, which approval shall not be unreasonably withheld or delayed;
provided, however, that, if such indemnified party or parties reasonably
determines that a conflict of interest exists where it is advisable for such
indemnified party or parties to be represented by separate counsel or that, upon
advice of counsel, there may be legal defenses available to them which are
different from or in addition to those available to the indemnifying party, then
the indemnifying party shall not be entitled to assume such defense and the
indemnified party or parties shall be entitled to select one separate counsel
(and any necessary local counsel) at the indemnifying party's expense. If an
indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, such
indemnifying party's counsel shall be entitled to conduct such indemnifying
party's defense and counsel for the indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties, it being
understood that both such counsel will cooperate with each other to conduct the
defense of such action or proceeding as efficiently as possible. If an
indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party or parties will pay
the reasonable fees and expenses of not more than one counsel (and any necessary
local counsel) for the indemnified party or parties. In such event, however, no
indemnifying party will be liable for any settlement effected without the
written consent of such indemnifying party, which consent shall not be
unreasonably withheld or delayed. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
a settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. If an indemnifying party is
entitled to assume, and assumes, the defense of such action or proceeding in
accordance with this paragraph, such indemnifying party shall not be liable for
any fees and expenses for separate counsel for the indemnified parties incurred
thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 7 is for any reason held to be unenforceable, unavailable or
insufficient although applicable in accordance with it terms, the Company, the
Operating Partnership and a Holder shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement
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<PAGE> 16
incurred by the Company, the Operating Partnership and the Holder in such
proportion as is appropriate to reflect the relative fault of the Company and
the Operating Partnership, on the one hand, and the Holder, on the other, 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. Relative fault shall be determined by reference to,
among other things, whether an untrue or alleged untrue statement of a material
fact or an omission or alleged omission of a material fact relates to
information supplied by or available to the Company and the Operating
Partnership, on the one hand, or the Holder, on the other hand, and by the
parties relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the foregoing, no
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. No Holder shall be
liable for any amount in excess of the net proceeds received by such Holder from
the sale of such Holder's Registrable Shares pursuant to a Registration
Statement or a Prospectus, as the case may be. For purposes of this Section 7,
each Person, if any, who controls a Holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such Holder, and each director of the Company and each
officer of the Company who signed the Registration Statement and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act and each partner, employee, representative
or agent of the Company and the Operating Partnership shall have the same rights
to contribution as the Company and the Operating Partnership. Each party
entitled to contribution agrees that upon the service of a summons or other
initial legal process upon it in any action instituted against it in respect of
which contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise unless failure to provide such notice actually
and materially prejudices such party of parties.
SECTION 8. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company, the Operating
Partnership or by a Holder of any of their obligations under this Agreement, the
Company, the Operating Partnership and each Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. It
is acknowledged and agreed
15
<PAGE> 17
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, the parties shall waive the defense that a remedy at law
would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company, the Operating Partnership and
Holders beneficially owning not less than fifty percent (50%) of the then
outstanding Registrable Shares; provided, however, that, for the purposes of
this Agreement, Registrable Shares that are owned, directly or indirectly, by
the Company, the Operating Partnership or an Affiliate of the Company or the
Operating Partnership shall not be deemed to be outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of a Holder whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of any other Holder may be given by such Holder;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) Notices. All notices and other communications provided for this
Agreement shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopy;
(i) if to the Company or the Operating Partnership, as provided
in the Purchase Agreement,
(ii) if to the Initial Purchaser, as provided in the Purchase
Agreement, or
(iii) if to any Holder, to the address of such Holder as it
appears in the Common Stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when (v) delivered by hand, if
personally delivered, (w) one (1) Business Day after being timely delivered to a
next-day air courier, (x) five (5) Business Days after being deposited in the
mail, postage prepaid,
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<PAGE> 18
if mailed, (y) when answered back, if telexed or (z) when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. Each Holder shall be
deemed a third party beneficiary of this Agreement. Neither the Company nor the
Operating Partnership may assign its rights or obligations hereunder without the
prior written consent of each Holder. Notwithstanding the foregoing, no assignee
of the Company or the Operating Partnership shall have any of the rights granted
under this Agreement until such assignee shall acknowledge its rights and
obligations hereunder by a signed written agreement pursuant to which such
assignee accepts such rights and obligations.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York without regard to principles of
conflicts of law.
(g) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth in this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the provisions of this
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<PAGE> 19
Agreement. All references made in this Agreement to "Section" refer to such
Section of this Agreement, unless expressly stated otherwise.
(i) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
[Signature page follows.]
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<PAGE> 20
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
FORTRESS INVESTMENT CORP.,
a Maryland corporation
By: /s/ Wesley R. Edens
-------------------------
Wesley R. Edens
Chief Executive Officer
FORTRESS PARTNERS, L.P.,
a Delaware limited partnership
By: Fortress Investment Corp.
Its: General Partner
By: /s/ Wesley R. Edens
-------------------------
Wesley R. Edens
Chief Executive Officer
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<PAGE> 21
The foregoing Agreement
is hereby confirmed and accepted
as of the date first
above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Karl L. Matthies
-------------------------
Karl L. Matthies
Senior Managing Director
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<PAGE> 1
EXHIBIT 4.3
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and among
FORTRESS INVESTMENT CORP.,
FORTRESS PARTNERS, L.P.
and
FORTRESS PRINCIPAL INVESTMENT HOLDINGS LLC AND
THE ADDITIONAL PURCHASERS
dated as of June 10, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
Fortress Investment Corp.
INTRODUCTORY. This Registration Rights Agreement is made and entered
into as of June 10, 1998, by and among Fortress Investment Corp., a Maryland
corporation (the "Company"), Fortress Partners, L.P., a Delaware limited
partnership (the "Operating Partnership"), Fortress Principal Investment
Holdings LLC, a Delaware limited liability company (the "Purchaser"), and the
Additional Purchasers (as defined herein).
This Agreement is entered into pursuant to the subscription agreement
(the "Subscription Agreement"), dated June 1, 1998, by and among the Company and
the Purchaser and pursuant to additional subscription agreements (the
"Additional Subscription Agreements"; the Subscription Agreement and the
Additional Subscription Agreements shall be referred to herein collectively as
the "Subscription Agreements") to be entered into prior to July 10, 1998 by and
among the Company and additional purchasers (the "Additional Purchasers"; the
Purchaser and the Additional Purchasers shall be referred to herein collectively
as the "Purchasers"). In order to induce the Purchasers to enter into the
Subscription Agreements, the Company has agreed to provide the registration
rights provided for in this Agreement to the Purchasers and their direct and
indirect transferees.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
Additional Purchasers: The purchasers who enter into a subscription
agreement (in identical or similar form to the Subscription Agreement) named on
Schedule 1 hereto.
Affiliate: As to any specified Person, shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" have the meanings correlative to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
of this Agreement.
Business Day: With respect to any act to be performed under this
Agreement, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in New York, New York, or other applicable
place where such act is to occur, are authorized or obligated by applicable law,
regulation or executive order to close.
Commission: The United States Securities and Exchange Commission.
Common Stock: Shares of common stock, $.01 par value per share, of the
Company.
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<PAGE> 3
Company: Fortress Investment Corp., Inc., a Maryland corporation, and
any successor corporation thereto.
Controlling Person: As defined in Section 7(a) of this Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
Holder: Each record owner of any Registrable Shares from time to time,
including the Purchasers and their Affiliates.
Purchaser: Fortress Principal Investment Holdings LLC.
Purchasers: The Purchaser and the Additional Purchasers.
NASD: National Association of Securities Dealers, Inc.
Offering Memorandum: The Offering Memorandum of the Company dated June
5, 1998.
Operating Partnership: Fortress Partners, L.P., a Delaware limited
partnership, for which the Company serves as sole general partner.
Person: An individual, partnership, corporation, trust, or
unincorporated organization, or government agency or political subdivision
thereof.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the Person subject thereto,
threatened.
Prospectus: The prospectus included in any Registration Statement,
including any preliminary prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
Subscription Agreement; Subscription Agreements: As defined in the
Introductory paragraph.
Redemption Shares: Shares of Common Stock issuable upon redemption of
Units.
Register, registered and registration: Such terms refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
Registrable Shares: The Shares and the Redemption Shares, upon original
issuance thereof, and at all times subsequent thereto, until the earliest to
occur of (i) the second annual anniversary of the latest date of original
issuance of the Shares and the Redemption Shares, (ii) such time as all
outstanding Shares and Redemption Shares have been sold pursuant to a
Registration
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<PAGE> 4
Statement or have been transferred pursuant to Rule 144 or otherwise transferred
in a manner that results in the transferred security being delivered not being
subject to transfer restrictions under the Securities Act, (iii) such time as,
in the opinion of counsel to the Company, all of the Shares and Redemption
Shares held by persons who are not Affiliates of the Company may be resold
without registration under the Securities Act pursuant to Rule 144(k)(or any
successor rule), and (iv) such time as there are no longer any outstanding
Shares and Redemption Shares.
Registration Expenses: Any and all expenses incident to the performance
of or compliance with this Agreement, including, without limitation: (i) all
Commission, stock exchange, NASD registration, listing, inclusion and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
international, federal or state securities or blue sky laws (including, without
limitation, any registration, listing and filing fees and reasonable fees and
disbursements of counsel in connection with blue sky qualification of any of the
Registrable Shares and the preparation of a Blue Sky Memorandum and compliance
with the rules of the NASD), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, duplicating, printing, delivering and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with the
listing or including of any of the Registrable Shares on any securities exchange
or The Nasdaq Stock Market pursuant to Section 5(k) of this Agreement, (v) the
fees and disbursements of counsel for the Company and of the independent public
accountants (including, without limitation, the expenses of any special audit
and "cold comfort" letters required by or incident to such performance) of the
Company (provided that Registration Expenses shall not include the fees and
expenses of any counsel to the Holders) and (vi) any fees and disbursements
customarily paid by issues or sales of securities (including the fees and
expenses of any experts retained by the Company in connection with any
Registration Statement), but excluding brokers' commissions and transfer taxes,
if any, relating to the sale or disposition of Registrable Shares by a Holder.
Registration Statement: Any registration statement of the Company that
covers the resale of the Registrable Shares pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre-effective and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 158: Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
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<PAGE> 5
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Shares: The shares of Common Stock being offered and sold pursuant to
the terms and conditions of the Subscription Agreements.
Underwritten Offering: A sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.
Units: Units of limited partnership interest in the Operating
Partnership.
SECTION 2. SHELF REGISTRATION. As set forth in Section 5 hereof, the
Company agrees to file with the Commission as soon as reasonably practicable,
but in no event later than ninety (90) days after the date of this Agreement,
one or more shelf Registration Statements with respect to the sale from time to
time by the Holders of any and all Registrable Shares. The Company shall use its
best efforts to cause such Registration Statement to be declared effective by
the Commission as soon as practicable but, in any event, not later than the
effective date of any other registration statement of the Company filed with the
Commission under the Securities Act.
SECTION 3. EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration of the Registrable Shares pursuant to this
Agreement. The Holder or Holders shall pay all broker's commissions and transfer
taxes, if any, and any other expense not specifically allocated to the Company
pursuant to this Agreement (in all cases, which relate to the sale or
disposition of such Holder's Registrable Shares pursuant to any Registration
Statement).
SECTION 4. REPORTS. The Company shall file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner,
and, prior to the effectiveness of the Registration Statement, if it is not
required to file such reports, will make available other information as required
by, and so long as necessary to permit sales of the Registrable Shares pursuant
to, Rule 144A.
SECTION 5. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to any registration pursuant to this Agreement, the
Company shall use its best efforts to effect or cause to be effected the
registration of the Registrable Shares under the Securities Act to permit the
sale of such Registrable Shares by the Holder or Holders in accordance with
customary methods of sale or distribution, including through brokers'
transactions and block trades, as well as any other intended method or methods
of distribution reasonably requested by the Purchasers or any Holder by notice
to the Company prior to the filing of the Registration Statement, and the
Company shall:
(a) prepare and file with the Commission, as specified in this
Agreement, a Registration Statement, which Registration Statement shall comply
as to form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such registration statement to
become effective as soon as possible after filing but, in any event, not later
than the effective date of any other Registration Statement of the Company or
the Operating Partnership, and remain effective, subject to Section 6 of this
Agreement, until such time, as none of the Shares or Redemption Shares are
Registrable Shares.
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<PAGE> 6
(b) subject to Section 5(h), (i) prepare and file with the Commission
such amendments and post-effective amendments to each such Registration
Statement as may be necessary to keep such Registration Statement effective for
the period described in Section 5(a), (ii) cause each such Prospectus contained
therein to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 or any similar rule that may be
adopted under the Securities Act, and (iii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holder thereof;
(c) furnish to any Holder named in any Prospectus, without charge, as
many copies of such Prospectus, and any amendment or supplement thereto and such
other documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Shares; the Company
consents to the use of any such Prospectus by such Holder in connection with the
offering and sale of the Registrable Shares covered by any such Prospectus;
(d) use reasonable efforts to register or qualify, or obtain exemption
from registration or qualification for, all Registrable Shares by the time the
applicable Registration Statement is declared effective by the Commission under
all applicable state securities or "blue sky" laws or Canadian securities laws
of such jurisdictions as any Holder shall reasonably request in writing; keep
each such registration or qualification or exemption effective during the period
such Registration Statement is required to be kept effective pursuant to Section
5(a); and do any and all other acts which may be reasonably necessary or
advisable to enable each Holder to consummate the disposition of such
Registrable Shares owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify or register but for this Section
5(d), (ii) subject itself to taxation in any such jurisdiction, or (iii) submit
to the general service of process in any such jurisdiction;
(e) notify each Holder promptly and, if requested by any Holder,
confirm such information in writing: (i) of the date and time that a
Registration Statement has become effective and the date and time any
post-effective amendments and supplements thereto become effective; (ii) of the
issuance by the Commission or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) of any request by the Commission or any
other federal or state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional information; and
(iv) of the happening of any event during the period a Registration Statement is
effective as a result of which such Registration Statement or the related
Prospectus or any document incorporated by reference therein 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, in light of the
circumstances under which they were made, not misleading (which information
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made);
(f) during the period of time referred to in Section 5(a), use all
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of, any order enjoining or suspending the use or effectiveness of a
Registration Statement or suspending the qualification (or exemption from
qualification) of any of the Registrable Shares for sale in any jurisdiction,
promptly;
5
<PAGE> 7
(g) upon request, furnish to each requesting Holder, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment or supplement thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
(h) except as provided in Section 6, upon the occurrence of any event
contemplated by Section 5(e)(iv), use its best efforts to promptly prepare a
supplement or post-effective amendment to a Registration Statement or the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Shares, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(i) if requested by the representative underwriters, if any, or any
Holders of Registrable Shares being sold in connection with an Underwritten
Offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the representative of the underwriters, if any, or
such Holders indicate relates to them or otherwise reasonably request be
included therein, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(j) in connection with an Underwritten Offering of Registrable Shares,
make available for inspection by representatives of the Holders and the
representative of any underwriters participating in any disposition pursuant to
a Registration Statement and any special counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent corporate
documents and properties of the Company and the Operating Partnership and cause
their respective officers, directors and employees to supply all information
reasonably requested by any such representatives, the representative of the
underwriters, counsel thereto or accountants in connection with a Registration
Statement; provided, however, that such records, documents or information which
the Company determines, in good faith, to be confidential and notifies such
representatives, representative of the underwriters, counsel thereto or
accountants are confidential shall be kept confidential and shall not be
disclosed by the representatives, representative of the underwriters, counsel
thereto or accountants unless (i) subject to the provisions hereof, the
disclosure of such records, documents or information is necessary to avoid or
correct a misstatement or omission in a Registration Statement or Prospectus,
(ii) the release of such records, documents or information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, or (iii)
such records, documents or information have been generally made available to the
public; provided, however, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be coordinated on behalf of
the Holders and the other parties entitled thereto by one counsel designated by
and on behalf of such Holders;
(k) use its best efforts (including, without limitation, seeking to
cure any deficiencies cited by the exchange or market in the Company's listing
or inclusion application) to list or include all Registrable Shares on a
securities exchange or The Nasdaq Stock Market;
(l) prepare and file in a timely manner all documents and reports
required by the Exchange Act which are incorporated by reference into any
Registration Statement;
(m) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement;
6
<PAGE> 8
(n) use all reasonable efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable, earnings statements which
cover at least twelve (12) months and which satisfy the provisions of Section
11(a) under the Securities Act and Rule 158 (or any similar rule promulgated
under the Securities Act) thereunder, no later than forty-five (45) days after
the end of each fiscal year of the Company;
(o) from and after a date not later than the effective date of such
Registration Statement, provide and cause to be maintained a transfer agent for
all Registrable Shares covered by any Registration Statement;
(p) in connection with any sale or transfer of the Registrable Shares
(whether or not pursuant to a Registration Statement) that will result in the
security being delivered not being subject to transfer restrictions under the
Securities Act, cooperate with the Holders and the representative of the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Shares to be sold, which certificates
shall not bear any transfer restrictive legend (other than the legend with
respect to the restrictions on ownership and transfer under the Company's
charter), and to enable such Registrable Shares to be in such denominations and
registered in such names as the representative of the underwriters, if any, or
Holders may request at least two (2) Business Days prior to any sale of the
Registrable Shares; and
(q) upon effectiveness of the first Registration Statement filed under
this Agreement, the Company will take such actions and make such filings as are
necessary to effect the registration of the Common Stock under the Exchange Act
simultaneously with or immediately following the effectiveness of the
Registration Statement.
The Company may require each Holder to furnish to the Company such
information regarding the proposed distribution by such Holder of Registrable
Shares as the Company may from time to time reasonably request in writing and no
Holder shall be entitled to be named as a selling securityholder in any
Registration Statement and no Holder shall be entitled to use the Prospectus
forming a part thereof if such Holder does not provide such information to the
Company.
Upon receipt of written notice from the Company of the happening of any
event of the kind described in Section 5(e)(iii) or 5(e)(iv), the Holders will
immediately discontinue disposition of Registrable Shares pursuant to a
Registration Statement until the Holders' receipt of the copies of a
supplemented or amended Prospectus. If so requested by the Company, the Holders
will deliver to the Company (at the expense of the Company) all copies in their
possession, other than permanent file copies then in the Holders' possession, of
the Prospectus covering such Registrable Shares at the time of receipt of such
notice.
SECTION 6. BLACK-OUT-PERIOD. Subject to the provision of this Section 6
and a good faith determination by a majority of the Board of Directors of the
Company that it is in the best interests of the Company to suspend the use of
the Registration Statement, following the effectiveness of a Registration
Statement (and the filings with any international, federal or state securities
commissions), the Company, by written notice to the Holders, may direct the
Holders to suspend sales of the Registrable Shares pursuant to the Registration
Statement, if any of the following events shall occur: (i) an Underwritten
Offering by the Company where the Company is advised by the representative of
underwriters for such Underwritten Offering that the sale of Registrable Shares
pursuant to the Registration Statement would have a material adverse effect on
the Company's
7
<PAGE> 9
primary offering; (ii) pending negotiations relating to, or the consummation of,
a transaction or the occurrence of an event that requires additional disclosure
of material information by the Company in the Registration Statement and which
has not been so disclosed; (iii) a material corporate transaction is pending or
has occurred, the disclosure of which should be set forth in the Registration
Statement and the Board of Directors of the Company shall have determined in
good faith would not be in the best interests of the Company and its
stockholders; or (iv) the Board of Directors of the Company shall have
determined in good faith that it is in the best interests of the Company to
suspend the use of the Registration Statement. Upon the occurrence of any such
suspension, the Company shall use its best efforts to cause the Registration
Statement to become effective or to promptly amend or supplement the
Registration Statement on a post-effective basis or to take such action as is
necessary to make resumed use of the Registration Statement compatible with the
Company's best interests, as applicable, so as to permit the Holders to resume
sales of the Registrable Shares as soon as possible.
In the case of an event which causes the Company to suspend the
effectiveness of a Registration Statement (a "Suspension Event"), the Company
shall give written notice (a "Suspension Notice") to each of the Holders at the
addresses set forth in the stock transfer records of the Company to suspend
sales of the Registrable Shares and such notice shall state that such suspension
shall continue only for so long as the Suspension Event or its effect is
continuing and the Company is taking all reasonable steps to terminate
suspension of the effectiveness of the Registration Statement as promptly as
possible. The Holders shall not effect any sales of the Registrable Shares
pursuant to such Registration Statement at any time after receipt of a
Suspension Notice from the Company and prior to receipt of an End of Suspension
Notice (defined below). If so requested by the Company, the Holders will deliver
to the Company (at the expense of the Company) all copies in their possession,
other than permanent file copies then in the Holders' possession, of the
Prospectus covering such Registrable Shares at the time of receipt of the
Suspension Notice. The Holders may recommence effecting sales of the Registrable
Shares pursuant to the Registration Statement (or such filings) following
further notice to such effect (an "End of Suspension Notice") from the Company,
which End of Suspension Notice shall be given by the Company to the Holders and
the Purchaser in the manner described above promptly following the conclusion of
any Suspension Event.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company and the Operating Partnership. The
Company and the Operating Partnership agree to indemnify and hold harmless (i)
each Holder, (ii) each Person, if any, who controls (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the
foregoing (any of the Persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person"), and (iii) the respective officers,
directors, partners, employees, representatives and agents of each Holder or any
controlling person as follows:
(i) from and against any and all loss, claim, liability and damage
whatsoever, as incurred, (a) arising out of any untrue or alleged untrue
statement of a material fact contained in any Registration Statement (or any
supplement or amendment thereto) pursuant to which Registrable Shares were
registered under the Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (b) arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment or
supplement thereto), including all documents incorporated therein by reference,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary in order to make
8
<PAGE> 10
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that such indemnity with respect to any
Registration Statement or Prospectus shall not inure to the benefit of any
Holder or the Purchaser (or any controlling person, agent, employee, officer,
director, partner or representative thereof) to the extent that any such loss,
claim, liability, damage or expense arises out of such indemnified person's
failure to send or give a copy of the revised Registration Statement or final
Prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Shares to such Person if such statement or omission was corrected in such
revised Registration Statement or such final Prospectus and the Company shall
have delivered to such indemnified person a sufficient number of copies of such
revised Registration Statement or such final Prospectus in a timely manner so as
to permit such Holder to send or give a copy of the revised Registration
Statement or such final Prospectus containing such correction prior to the
written confirmation of the purchase and sale of such Registrable Shares;
(ii) from and against any and all loss, liability, claim and damage
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, if such settlement is effected with the
written consent of the Company (which consent shall not be unreasonably withheld
or delayed); and
(iii) from and against any and all expense reasonably incurred
(including reasonable fees and disbursements of counsel) in investigating,
preparing or defending against any litigation, or investigation or proceeding by
any governmental agency or body commenced or threatened, in each case whether or
not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any
Holder or agent thereof with respect to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
a Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) Indemnification by Holders. Each Holder, on a pro rata basis,
agrees to indemnify and hold harmless the Company, and directors, officers,
partners, employees, representatives and agents (including each officer of the
Company who signed the Registration Statement), and each Person, if any, who
controls the Company, within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any and all loss, liability, claim,
damage and expenses described in the indemnity contained in Section 7(a) hereof
(provided, however, that any settlement described in Section 7(a)(ii) hereof is
effected with the written consent of such Holder), as incurred, but only with
respect to such untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Holder
expressly for use in such Registration Statement (or any amendment thereto) or
such Prospectus (or any amendment or supplement thereto), and provided, further,
that no Holder shall be liable for any amount in excess of the net proceeds
received
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<PAGE> 11
by such Holder from the sale of such Holder's Registrable Shares pursuant to a
Registration Statement or a Prospectus, as the case may be.
(c) Conduct of Indemnification Proceedings. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve it
from any liability which it may have under this indemnity agreement except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. If the indemnifying party so elects within a reasonable time after
receipt of such notice, the indemnifying party may assume the defense of such
action or proceeding at such indemnifying party's own expense with counsel
chosen by the indemnifying party and approved by the indemnified parties in such
action or proceeding, which approval shall not be unreasonably withheld or
delayed; provided, however, that, if such indemnified party or parties
reasonably determines that a conflict of interest exists where it is advisable
for such indemnified party or parties to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to them
which are different from or in addition to those available to the indemnifying
party, then the indemnifying party shall not be entitled to assume such defense
and the indemnified party or parties shall be entitled to select one separate
counsel (and any necessary local counsel) at the indemnifying party's expense.
If an indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, such
indemnifying party's counsel shall be entitled to conduct such indemnifying
party's defense and counsel for the indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties, it being
understood that both such counsel will cooperate with each other to conduct the
defense of such action or proceeding as efficiently as possible. If an
indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party or parties will pay
the reasonable fees and expenses of not more than one counsel (and any necessary
local counsel) for the indemnified party or parties. In such event, however, no
indemnifying party will be liable for any settlement effected without the
written consent of such indemnifying party, which consent shall not be
unreasonably withheld or delayed. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
a settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. If an indemnifying party is
entitled to assume, and assumes, the defense of such action or proceeding in
accordance with this paragraph, such indemnifying party shall not be liable for
any fees and expenses for separate counsel for the indemnified parties incurred
thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 7 is for any reason held to be unenforceable, unavailable or
insufficient although applicable in accordance with it terms, the Company, the
Operating Partnership and a Holder shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company, the Operating Partnership and the
Holder in such proportion as is appropriate to reflect the relative fault of the
Company and the Operating Partnership, on the one hand, and the Holder, on the
other, 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. Relative fault shall be determined by reference to,
among other things, whether an untrue or alleged untrue statement of a material
fact or an omission or alleged omission of a material fact relates to
information supplied by or available to the Company and the Operating
Partnership, on the one hand,
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<PAGE> 12
or the Holder, on the other hand, and by the parties relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. No Holder shall be liable for any amount in excess
of the net proceeds received by such Holder from the sale of such Holder's
Registrable Shares pursuant to a Registration Statement or a Prospectus, as the
case may be. For purposes of this Section 7, each Person, if any, who controls a
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as such Holder, and
each director of the Company and each officer of the Company who signed the
Registration Statement and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act and each partner, employee, representative or agent of the Company and the
Operating Partnership shall have the same rights to contribution as the Company
and the Operating Partnership. Each party entitled to contribution agrees that
upon the service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be sought, it
shall promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise unless
failure to provide such notice actually and materially prejudices such party of
parties.
SECTION 8. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company, the Operating
Partnership or by a Holder of any of their obligations under this Agreement, the
Company, the Operating Partnership and each Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. It
is acknowledged and agreed that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, the parties shall
waive the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company, the Operating Partnership and
Holders beneficially owning not less than fifty percent (50%) of the then
outstanding Registrable Shares; provided, however, that, for the purposes of
this Agreement, Registrable Shares that are owned, directly or indirectly, by
the Company, the Operating Partnership or an Affiliate of the Company or the
Operating Partnership shall not be deemed to be outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of a Holder whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of any other Holder may be given by such Holder;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) Notices. All notices and other communications provided for this
Agreement shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopy;
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<PAGE> 13
(i) if to the Company or the Operating Partnership, as provided
in the Subscription Agreements,
(ii) if to the Purchasers, as provided in the Subscription
Agreements, or
(iii) if to any Holder, to the address of such Holder as it
appears in the Common Stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when (v) delivered by hand, if
personally delivered, (w) one (1) Business Day after being timely delivered to a
next-day air courier, (x) five (5) Business Days after being deposited in the
mail, postage prepaid, if mailed, (y) when answered back, if telexed or (z) when
receipt is acknowledged by the recipient's telecopier machine, if telecopied.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. Each Holder shall be
deemed a third party beneficiary of this Agreement. Neither the Company nor the
Operating Partnership may assign its rights or obligations hereunder without the
prior written consent of each Holder. Notwithstanding the foregoing, no assignee
of the Company or the Operating Partnership shall have any of the rights granted
under this Agreement until such assignee shall acknowledge its rights and
obligations hereunder by a signed written agreement pursuant to which such
assignee accepts such rights and obligations.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York without regard to principles of
conflicts of law.
(g) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth in this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the provisions of this
Agreement. All references made in this Agreement to "Section" refer to such
Section of this Agreement, unless expressly stated otherwise.
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<PAGE> 14
(i) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
[Signature page follows.]
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<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
FORTRESS INVESTMENT CORP.,
a Maryland corporation
By: /s/ Wesley R. Edens
-------------------------------
Wesley R. Edens
Chief Executive Officer
FORTRESS PARTNERS, L.P.,
a Delaware limited partnership
By: Fortress Investment Corp.
Its: General Partner
By: /s/ Wesley R. Edens
-------------------------------
Wesley R. Edens
Chief Executive Officer
The foregoing Agreement
is hereby confirmed and accepted
as of the date first above written.
FORTRESS PRINCIPAL INVESTMENT HOLDINGS LLC
By: /s/ Randal A. Nardone
---------------------------------------
Name: Randal A. Nardone
------------------------------------
Title: Member
------------------------------------
<PAGE> 16
Schedule 1
Additional Purchasers
The foregoing Agreement is hereby confirmed and accepted in all respects by the
following:
Name Number of Shares Signature
- ---- ---------------- ---------
Barry Edinburg 2,680 shares /s/ Barry Edinburg
Richard G. Hansen, Jr. 536 shares /s/ Richard G. Hansen, Jr.
Sang Yu 1,072 shares /s/ Sang Yu
Accepted and agreed to as of
the date first above written by:
FORTRESS INVESTMENT CORP.,
a Maryland corporation
By: /s/ Wesley R. Edens
----------------------------------
Name: Wesley R. Edens
Title: Chief Executive Officer
FORTRESS PARTNERS, L.P.,
a Delaware limited partnership
By: Fortress Investment Corp.
Its: General Partner
By: /s/ Wesley R. Edens
----------------------------------
Name: Wesley R. Edens
Title: Chief Executive Officer
<PAGE> 1
Exhibit 4.4
- --------------------------------------------------------------------------------
RIGHTS AGREEMENT
BETWEEN
FORTRESS INVESTMENT CORP.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
AS RIGHTS AGENT
DATED AS OF JUNE 4, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Section 1. Certain Definitions......................................1
Section 2. Appointment of Rights Agent..............................8
Section 3. Issuance of Rights Certificates..........................8
Section 4. Form of Rights Certificates.............................10
Section 5. Countersignature and Registration ......................11
Section 6. Transfer, Split-Up, Combination and Exchange
of Rights Certificates; Mutilated, De-
stroyed, Lost or Stolen Rights
Certificates............................................12
Section 7. Exercise of Rights; Purchase Price; Expira-
tion Date of Rights.....................................14
Section 8. Cancellation and Destruction of Rights Cer-
tificates...............................................17
Section 9. Reservation and Availability of Capital
Stock...................................................17
Section 10. Preferred Stock Record Date.............................19
Section 11. Adjustment of Purchase Price, Number and
Kind of Shares or Number of Rights......................20
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares........................................32
Section 13. Consolidation, Merger or Sale or Transfer of
Assets Cash Flow or Earning Power.......................33
Section 14. Fractional Rights and Fractional Shares.................37
Section 15. Rights of Action........................................38
Section 16. Agreement of Rights Holders.............................39
Section 17. Rights Certificate Holder Not Deemed a
Stockholder.............................................40
Section 18. Concerning the Rights Agent.............................40
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Section 19. Merger or Consolidation or Change of Name of
Rights Agent............................................41
Section 20. Duties of Rights Agent..................................42
Section 21. Change of Rights Agent..................................45
Section 22. Issuance of New Rights Certificates.....................46
Section 23. Redemption and Termination..............................47
Section 24. Exchange................................................48
Section 25. Notice of Certain Events................................50
Section 26. Notices.................................................51
Section 27. Supplements and Amendments..............................52
Section 28. Successors..............................................52
Section 29. Determinations and Actions by the Board of
Directors, etc..........................................53
Section 30. Benefits of this Agreement..............................53
Section 31. Severability............................................53
Section 32. Governing Law...........................................54
Section 33. Counterparts............................................54
Section 34. Descriptive Headings....................................54
EXHIBITS
Exhibit A -- Form of Articles Supplementary of
Series A Junior Participating Pre-
ferred Stock
Exhibit B -- Form of Rights Certificates
Exhibit C -- Form of Summary of Rights
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RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of June 4, 1998 (the "Agreement"),
between Fortress Investment Corp., a Maryland corporation (the "Company"), and
American Stock Transfer & Trust Company, a New York corporation (the
"Rights Agent").
W I T N E S S E T H
WHEREAS, on June 4, 1998 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of common
stock, par value $.01 per share, of the Company (the "Common Stock") outstanding
at the close of business on June __, 1998(1) (the "Record Date"), and has
authorized the issuance of one Right (as such number may hereinafter be adjusted
pursuant to the provisions of Section 11(p) hereof) for each share of Common
Stock of the Company issued between the Record Date (whether originally issued
or delivered from the Company's treasury) and the Distribution Date (as
hereinafter defined) each Right initially representing the right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company (the "Preferred Stock") having the rights, powers and preferences set
forth in the form of Articles Supplementary of Series A Junior Participating
Preferred Stock attached hereto as Exhibit A, upon the terms and subject to the
conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be, at any
time after
- ----------
(1) Offering Closing Date.
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the Record Date, the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding, but shall not include (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan of the Company, or of
any Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan, or
(iv) any Person who becomes the Beneficial Owner of fifteen percent (15%) or
more of the shares of Common Stock then outstanding as a result of a reduction
in the number of shares of Common Stock outstanding due to the repurchase of
shares of Common Stock by the Company unless and until such Person, after
becoming aware that such Person has become the Beneficial Owner of fifteen
percent (15%) or more of the then outstanding shares of Common Stock, acquires
beneficial ownership of additional shares of Common Stock representing one
percent (1%) or more of the shares of Common Stock then outstanding, (v) any
such Person who has reported or is required to report such ownership (but less
than 20%) on Schedule 13G under the Securities and Exchange Act of 1934, as
amended and in effect on the date of the Agreement (the "Exchange Act") (or any
comparable or successor report) or on Schedule 13D under the Exchange Act (or
any comparable or successor report) which Schedule 13D does not state any inten-
tion to or reserve the right to control or influence the management or policies
of the Company or engage in any of the actions specified in Item 4 of such
schedule (other than the disposition of the Common Stock) and, within 10
Business Days of being requested by the Company to advise it regarding the same,
certifies to the Company that such Person acquired shares of Common Stock in
excess of 14.9% inadvertently or without knowledge of the terms of the Rights
and who, together with all Affiliates and Associates, thereafter does not
acquire additional shares of Common Stock while the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding; provided, however, that if
the Person requested to so certify fails to do so within 10 Business Days, then
such Person shall become an Acquiring Person immediately after such 10-
Business-Day period, or (vi) any of the Exempt Persons.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in
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Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (A) securities tendered
pursuant to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, (B)
securities issuable upon exercise of Rights at any time prior
to the occurrence of a Triggering Event (as hereinafter
defined), or (C) securities issuable upon exercise of Rights
from and after the occurrence of a Triggering Event which
Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date (as
hereinafter defined) or pursuant to Section 3(a) or Section 22
hereof (the "Original Rights") or pursuant to Section 11(i)
hereof in connection with an adjustment made with respect to
any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not
in writing; provided, however, that a Person shall not be
deemed the "Beneficial Owner"
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of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement,
arrangement or understanding: (A) arises solely from a revo-
cable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not reportable by such
Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to subparagraph (ii) of
this paragraph (d)) or disposing of any voting securities of
the Company; provided, however, that nothing in this
paragraph (d) shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date
of such acquisition, and then only if such securities continue
to be owned by such Person at such expiration of forty days
and provided further, however, that any stockholder of the
Company, with affiliate(s), associate(s) or other person(s)
who may be deemed representatives of it serving as director(s)
of the Company, shall not be deemed to beneficially own
securities held by other Persons as a result of (i) persons
affiliated or otherwise associated with such stockholder
serving as directors or taking any action in connection
therewith, (ii) discussing the status of its shares with the
Company or other stockholders of the Company similarly
situated or (iii) voting or acting in a manner similar to
other
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stockholders similarly situated, absent a specific finding by
the Board of Directors of an express agreement among such
stockholders to act in concert with one another as
stockholders so as to cause, in the good faith judgment of the
Board of Directors, each such stockholder to be the Beneficial
Owner of the shares held by the other stockholder(s).
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or
executive order to close.
(f) "Close of business" on any given date shall mean
5:00 P.M., New York City time, on such date; provided,
however, that if such date is not a Business Day, it shall
mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(g) "Common Stock" shall mean the common stock, par
value $.01 per share, of the Company, except that "Common
Stock" when used with reference to any Person other than the
Company shall mean the capital stock of such Person with the
greatest voting power, or the equity securities or other
equity interest having power to control or direct the
management, of such Person.
(h) "Common Stock Equivalents" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(i) "Current Market Price" shall have the meaning set
forth in Section 11(d)(i) hereof.
(j) "Current Value" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(k) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
(l) "Equivalent Preferred Stock" shall have the meaning
set forth in Section 11(b) hereof.
(m) "Exchange Act" shall mean the Securities and
Exchange Act of 1934.
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(n) "Exchange Ratio" shall have the meaning set forth
in Section 24 hereof.
(o) "Exempt Persons", shall mean Fortress Investment
Group LLC, Fortress Principal Investment Holdings LLC and
Fortress Principal Investment Group LLC, each a Delaware
limited liability company, or any of the holders of the equity
interests of such entities, including but not limited to
Wesley R. Edens, Robert I. Kauffman, Randal A. Nardone and
Erik P. Nygaard (including any person who shall receive
interests from any of them pursuant to the laws of descent and
distribution).
(p) "Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(q) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(r) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(s) "Preferred Stock" shall mean shares of Series A
Junior Participating Preferred Stock, par value $.01 per
share, of the Company, and, to the extent that there are not a
sufficient number of shares of Series A Junior Participating
Preferred Stock authorized to permit the full exercise of the
Rights, any other series of preferred stock of the Company
designated for such purpose containing terms substantially
similar to the terms of the Series A Junior Participating
Preferred Stock.
(t) "Principal Party" shall have the meaning set forth
in Section 13(b) hereof.
(u) "Purchase Price" shall have the meaning set forth
in Section 4(a)(ii) hereof.
(v) "Qualified Offer" shall have the meaning set forth
in Section 11(a)(ii) hereof.
(w) "Record Date" shall have the meaning set forth in
the WHEREAS clause at the beginning of this Agreement.
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(x) "Rights" shall have the meaning set forth in the
WHEREAS clause at the beginning of this Agreement.
(y) "Rights Agent" shall have the meaning set forth in
the parties clause at the beginning of this Agreement.
(z) "Rights Certificate" shall have the meaning set
forth in Section 3(a) hereof.
(aa) "Rights Dividend Declaration Date" shall have the
meaning set forth in the WHEREAS clause at the beginning of
this Agreement.
(bb) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) hereof.
(cc) "Section 13 Event" shall mean any event described
in clauses (x), (y) or (z) of Section 13(a) hereof.
((dd)) "Spread" shall have the meaning set forth in
Section 11(a)(iii) hereof.
((ee)) "Stock Acquisition Date" shall mean the first
date of public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed
or amended pursuant to Section 13(d) under the Exchange Act)
by the Company or an Acquiring Person that an Acquiring Person
has become such other than pursuant to a Qualified Offer.
((ff)) "Subsidiary" shall mean, with reference to any
Person, any corporation of which an amount of voting
securities sufficient to elect at least a majority of the
directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by
such Person.
((gg)) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(hh) "Summary of Rights" shall have the meaning set
forth in Section 3(b) hereof.
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(ii) "Trading Day" shall have the meaning set forth in
Section 11(d)(i) hereof.
(jj) "Triggering Event" shall mean any Section
11(a)(ii) Event or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-rights agents as
it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the close of business on
the tenth Business Day after the Stock Acquisition Date, or (ii) the close of
business on the tenth Business Day (or such later date as the Board shall
determine) after the date that a tender or exchange offer by any Person is first
published or sent or given within the meaning of Rule 14d-2(a) of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof, such
Person would become an Acquiring Person, in either instance other than pursuant
to a Qualified Offer (the earlier of (i) and (ii) being herein referred to as
the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be trans-
ferable only in connection with the transfer of the underlying shares of Common
Stock (including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured,
postage-prepaid mail, to each record holder of the Common Stock as of the close
of business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more right certificates, in substantially the
form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for
each share of Common Stock so held, subject to ad-
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justment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(p) hereof,
at the time of distribution of the Rights Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) The Company will make available, as promptly as
practicable following the Record Date, a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights")
to any holder Rights who may so request from time to time prior to the
Expiration Date. With respect to certificates for the Common Stock outstanding
as of the Record Date, or issued subsequent to the Record Date, unless and until
the Distribution Date shall occur, the Rights will be evidenced by such
certificates for the Common Stock and the registered holders of the Common Stock
shall also be the registered holders of the associated Rights. Until the earlier
of the Distribution Date or the Expiration Date (as such term is defined in
Section 7(a) hereof), the transfer of any certificates representing shares of
Common Stock in respect of which Rights have been issued shall also constitute
the transfer of the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of
Common Stock which are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear the
following legend if such certificates are issued after the Record Date but
prior to the earlier of the Distribution Date or the Expiration Date:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Rights Agreement between
Fortress Investment Corp. (the "Company") and the Rights Agent
thereunder (the "Rights Agreement"), the
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terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal offices of the Company. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company or the Rights Agent will
mail to the holder of this certificate a copy of the Rights Agreement,
as in effect on the date of mailing, without charge, promptly after
receipt of a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election
to purchase and of assignment to be printed on the reverse thereof) shall each
be substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22
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hereof, the Rights Certificates, whenever distributed, shall be dated as of the
Record Date and on their face shall entitle the holders thereof to purchase such
number of one one-hundredths of a share of Preferred Stock as shall be set forth
therein at the price set forth therein (such exercise price per one
one-hundredth of a share, the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section
3(a), Section 11(i) or Section 22 hereof that represents Rights beneficially
owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
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(a) The Rights Certificates shall be executed on behalf
of the Company by its Chairman of the Board, its President or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Rights Certificates shall be countersigned by the
Rights Agent, either manually or by facsimile signature and shall not be valid
for any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Rights Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep, or cause to be kept, at its principal office or offices designated
as the appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section
7(e) and Section 14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on the Expiration
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Date, any Rights Certificate or Certificates (other than Rights Certificates
representing Rights that may have been exchanged pursuant to Section 24 hereof)
may be transferred, split up, combined or exchanged for another Rights
Certificate or Certificates, entitling the registered holder to purchase a like
number of one one-hundredths of a share of Preferred Stock (or, following a
Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Certificates surrendered then
entitles such holder (or former holder in the case of a transfer) to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Certificates
to be transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated for such purpose. Neither the Rights
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Rights Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e), Section 14 hereof and Section 24 hereof, countersign and
deliver to the Person entitled thereto a Rights Certificate or Rights Certifi-
cates, as the case may be, as so requested. The Company may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the
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Rights Agent for countersignature and delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.
(a) Subject to Section 7(e) hereof, at any time after
the Distribution Date the registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisability set forth in
Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part
upon surrender of the Rights Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City time, on
June 4, 2008, or such later date as may be established by the Board of Directors
prior to the expiration of the Rights (such date, as it may be extended by the
Board, the ("Final Expiration Date"), or (ii) the time at which the Rights are
redeemed or exchanged as provided in Section 23 and Section 24 hereof (the
earlier of (i) and (ii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a
share of Preferred Stock pursuant to the exercise of a Right shall initially be
$80, and shall be subject to adjustment from time to time as provided in Section
11 and Section 13(a) hereof and shall be payable in accordance with paragraph
(c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-hundredth of a share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable
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transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of one one-hundredths of a share of
Preferred Stock to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company shall
have elected to deposit the total number of shares of Preferred Stock issuable
upon exercise of the Rights hereunder with a depositary agent, requisition from
the depositary agent depositary receipts representing such number of one
one-hundredths of a share of Preferred Stock as are to be purchased (in which
case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or,
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder, and (iv) after
receipt thereof, deliver such cash, if any, to or upon the order of the
registered holder of such Rights Certificate. The payment of the Purchase Price
(as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be
made in cash or by certified bank check or bank draft payable to the order of
the Company. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.
((d)) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining unexer-
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<PAGE> 19
cised shall be issued by the Rights Agent and delivered to, or upon the order
of, the registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, subject to the provisions of Section
14 hereof.
((e)) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company have determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or any other Person
as a result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and
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<PAGE> 20
(ii) provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split-up, combination or exchange shall, if surrendered to the
Company or any of its agents, be delivered to the Rights Agent for cancellation
or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled
by it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause
to be reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) issuable and deliverable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use its best
efforts to cause, from and after such time
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<PAGE> 21
as the Rights become exercisable, all shares reserved for such issuance to be
listed on such exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the consideration to be deliv-
ered by the Company upon exercise of the Rights has been determined in
accordance with Section 11(a)(iii) hereof, a registration statement under the
Act, with respect to the securities purchasable upon exercise of the Rights on
an appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension has been rescinded. In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law, or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take
all such action as may be necessary to
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<PAGE> 22
ensure that all one one-hundredths of a share of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such shares (subject to payment of the Purchase Price),
be duly and validly authorized and issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Rights Certificates and of any certificates for a number of one one-hundredths
of a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Rights Certificates to a Person other than, or the issuance or
delivery of a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name
other than that of the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in
whose name any certificate for a number of one one-hundredths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of such fractional shares of Preferred Stock (or
Common Stock and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and all applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment
19
<PAGE> 23
is a date upon which the Preferred Stock (or Common Stock and/or other
securities, as the case may be) transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock and/or
other securities, as the case may be) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred
Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to
20
<PAGE> 24
receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event: any Person shall, at any time after
the Record Date, become an Acquiring Person, unless the event causing
the Person to become an Acquiring Person is a transaction set forth in
Section 13(a) hereof, or is an acquisition of shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding
shares of Common Stock at a price and on terms determined by at least a
majority of the members of the Board of Directors who are not officers
of the Company and who are not representatives, nominees, Affiliates
or Associates of an Acquiring Person after receiving advice from one or
more investment banking firms, to be (a) at a price which is fair and
not inadequate (taking into account all factors which such members of
the Board deem relevant, including, without limitation, prices which
could reasonably be achieved if the Company or its assets were sold on
an orderly basis designed to realize maximum value) and (b) otherwise
in the best interests of the Company and its stockholders (a "Qualified
Offer"),
then, promptly following the occurrence of such event, proper provision shall be
made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall thereafter have the right to receive, upon
21
<PAGE> 25
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, in lieu of a number of one one-hundredths of a share of
Preferred Stock, such number of shares of Common Stock of the Company as shall
equal the result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such first
occurrence, shall thereafter be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by 50% of the Current Market
Price (determined pursuant to Section 11(d) hereof) per share of Common Stock on
the date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common
Stock which are authorized by the Company's Restated Articles of
Incorporation, but which are not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights, are not sufficient
to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii) of this Section 11(a), the Company shall
(A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value"), and (B) with respect to
each Right (subject to Section 7(e) hereof), make adequate provision to
substitute for the Adjustment Shares, upon the exercise of a Right and
payment of the applicable Purchase Price, (1) cash, (2) a reduction in
the Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, which the Board has
deemed to have essentially the same value or economic rights as shares
of Common Stock (such shares of preferred stock being referred to as
"Common Stock Equivalents")), (4) debt securities of the Company, (5)
other assets, or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value (less the amount of any re-
duction in the Purchase Price), where such
22
<PAGE> 26
aggregate value has been determined by the Board based upon the advice
of a nationally recognized investment banking firm selected by the
Board; provided, however, that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a
Section 11(a)(ii) Event and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. For purposes of the preceding sentence, the term
"Spread" shall mean the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board determines in good faith that it is likely
that sufficient additional shares of Common Stock could be authorized
for issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek shareholder approval for the
authorization of such additional shares (such thirty (30) day period,
as it may be extended, is herein called the "Substitution Period"). To
the extent that action is to be taken pursuant to the first and/or
third sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek such shareholder approval for such
authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension,
23
<PAGE> 27
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the current market price per share of the
Common Stock on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any Common Stock Equivalent shall be deemed to equal
the current market price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred
Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or
per share of Equivalent Preferred Stock (or having a conversion price per
share, if a security convertible into Preferred Stock or Equivalent Preferred
Stock) less than the Current Market Price (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a frac-
tion, the numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock and/or Equivalent Preferred Stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such Current Market Price, and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or Equivalent Preferred Stock
to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consider-
24
<PAGE> 28
ation, part or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent and the holders of
the Rights. Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is fixed,
and in the event that such rights or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation), cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other than a
dividend payable in Preferred Stock, but including any dividend payable in stock
other than Preferred Stock) or evidences of indebtedness, or of subscription
rights or warrants (excluding those referred to in Section 11(b) hereof), the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the Current Market Price (as
determined pursuant to Section 11(d) hereof) per share of Preferred Stock on
such record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Preferred Stock, and the denominator of which
shall be such Current Market Price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
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<PAGE> 29
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided, however,
that in the event that the Current Market Price per share of the Common Stock is
determined during a period following the announcement by the issuer of such
Common Stock of (A) a dividend or distribution on such Common Stock payable in
shares of such Common Stock or securities convertible into shares of such Common
Stock (other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or such other
system
26
<PAGE> 30
then in use, or, if on any such date the shares of Common Stock are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board. If on any such date no market maker is making a market in
the Common Stock, the fair value of such shares on such date as determined in
good faith by the Board shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, Current Market Price per share shall
mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
Current Market Price per share of Preferred Stock shall be determined
in the same manner as set forth above for the Common Stock in clause
(i) of this Section 11(d) (other than the last sentence thereof). If
the Current Market Price per share of Preferred Stock cannot be
determined in the manner provided above or if the Preferred Stock is
not publicly held or listed or traded in a manner described in clause
(i) of this Section 11(d), the Current Market Price per share of
Preferred Stock shall be conclusively deemed to be an amount equal to
100 (as such number may be appropriately adjusted for such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by
the Current Market Price per share of the Common Stock. If neither the
Common Stock nor the Preferred Stock is publicly held or so listed or
traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Board,
whose determination shall be described in a statement filed with the
Rights Agent and
27
<PAGE> 31
shall be conclusive for all purposes. For all purposes of this
Agreement, the Current Market Price of a Unit shall be equal to the
Current Market Price of one share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one-millionth of a share of Preferred Stock, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three (3) years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock other
than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provi-
sions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one one-hundredths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
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<PAGE> 32
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths
of a share covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at
29
<PAGE> 33
the option of the Company, shall cause to be distributed to such holders of
record in substitution and replacement for the Rights Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof, if required
by the Company, new Rights Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredth of a share which
were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any, of
the number of one one-hundredths of a share of Preferred Stock issuable upon
exercise of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable such number of one
one-hundredths of a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-hundredths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in
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<PAGE> 34
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional or otherwise)
or securities upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of any shares of Preferred Stock at less than the Current Market Price,
(iii) issuance wholly for cash of shares of Preferred Stock or securities which
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at
any time after the Distribution Date, (i) consolidate with any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets, cash
flow or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the share-
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<PAGE> 35
holders of the Person who constitutes, or would constitute, the "Principal
Party" for purposes of Section 13(a) hereof shall have received a distribution
of Rights previously owned by such Person or any of its Affiliates and
Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event shall equal
the result obtained by multiplying the number of Rights associated with each
share of Common Stock immediately prior to such event by a fraction the
numerator which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 and Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate
and (c) if a Distribution Date has occurred,
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<PAGE> 36
mail a brief summary thereof to each holder of a Rights Certificate (or, if
prior to the Distribution Date, to each holder of a Certificate representing
shares of Common Stock) in accordance with Section 27 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets Cash Flow or Earning Power.
(a) In the event that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) here of), and the
Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the assets, cash
flow or earning power of the Company and its Subsidiaries (taken as a whole) to
any Person or Persons (other than the Company or any Subsidiary of the Company
in one or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case (except as may be contemplated by Section 13(d)
hereof), proper provision shall be made so that: (i) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, non-assessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiply-
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<PAGE> 37
ing the then current Purchase Price by the number of one one-hundredths of a
share of Preferred Stock for which a Right is exercisable immediately prior to
the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has
occurred prior to the first occurrence of a Section 13 Event, multiplying the
number of such one one-hundredths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by the
Purchase Price in effect immediately prior to such first occurrence), and
dividing that product (which, following the first occurrence of a Section 13
Event, shall be referred to as the "Purchase Price" for each Right and for all
purposes of this Agreement) by (2) 50% of the Current Market Price (determined
pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such
Principal Party on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a), the Person that is
the issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
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<PAGE> 38
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets, cash flow or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable after
the date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration statement under
the Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
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<PAGE> 39
(ii) take such all such other action as may be
necessary to enable the Principal Party to issue the securities
purchasable upon exercise of the Rights, including but not limited to
the registration or qualification of such securities under all
requisite securities laws of jurisdictions of the various states and
the listing of such securities on such exchanges and trading markets
as may be necessary or appropriate; and
(iii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consum-
mated with a Person or Persons who acquired shares of Common Stock pursuant to a
tender offer or exchange offer for all outstanding shares of Common Stock which
is a Qualified Offer as such term is defined in Section 11(a)(ii)(B) hereof (or
a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose shares
were purchased pursuant to such tender offer or exchange offer and (iii) the
form of consideration being offered to the remaining holders of shares of Common
Stock pursuant to such transaction is the same as the form of consideration
paid pursuant to such tender offer or exchange offer. Upon consummation of any
such transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
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<PAGE> 40
Section 14. Fractional Rights and Fractional
Shares.
(a) The Company shall not be required to issue fractions
of Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, the Company shall pay to the registered
holders of the Rights Certificates with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated transac-
tion reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Rights are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights, selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions
of shares of Preferred Stock (other than fractions which are integral multiples
of one one-hun-
37
<PAGE> 41
dredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common Stock. For
purposes of this Section 14(c), the current market value of one share of Common
Stock shall be the closing price of one share of Common Stock (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect
of this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution
38
<PAGE> 42
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or, prior to the Distribution Date, of
the Common Stock), may, in his own behalf and for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last
39
<PAGE> 43
sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its
best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
one one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented there by, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or with hold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and disbursements and other disbursements
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<PAGE> 44
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer powers or performance of the
shareholder services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; but only if such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Rights Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature
of a predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case
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<PAGE> 45
at that time any of the Rights Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Rights Certificates either in
the name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersigna-
ture under its prior name and deliver Rights Certificates so countersigned; and
in case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person
and the determination of Current Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or
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<PAGE> 46
any Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Agreement or in
the Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11, Section 13 or Section 24 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Rights Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares
of Common Stock or Preferred Stock will, when so issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carry-
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<PAGE> 47
ing out or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reason ably assured to it.
(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or
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<PAGE> 48
transfer, the certificate attached to the form of assignment or form of
election to purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent
shall not take any further action with respect to such requested exercise or
transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and
to each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and, if such resignation occurs after the Distribution Date, to
the registered holders of the Rights Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such removal occurs
after the Distribution Date, to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by the Company),
then any registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a legal business entity organized and doing business under the laws of the
United States or one of the United States, in good standing, having a principal
office in the State of New York, which is authorized under such laws to exercise
corporate trust or stock transfer powers or perform shareholder services and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and sur-
plus of at least $10,000,000 or (b) an affiliate of a
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<PAGE> 49
legal business entity described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and, if such appointment occurs after the Distribution Date,
mail a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates evi-
dencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of
the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any employee
plan or arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such
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<PAGE> 50
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Rights Certificate would be issued, and
(ii) no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business on the
tenth Business Day following the Stock Acquisition Date (or, if the Stock
Acquisition Date shall have occurred prior to the Record Date, the close of
business on the tenth Business Day following the Record Date), or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"). Notwithstanding anything contained in
this Agreement to the contrary, the Rights shall not be exercisable after the
first occurrence of a Section 11(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option, pay
the Redemption Price in cash, shares of Common Stock (based on the Current
Market Price, as defined in Section 11(d)(i) hereof, of the Common Stock at the
time of redemption) or any other form of consideration deemed appropriate by
the Board of Directors.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Rights, evidence of which shall
have been filed with the Rights Agent and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution
47
<PAGE> 51
Date, on the registry books of the transfer agent for the Common Stock. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Stock for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last ad dresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the
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<PAGE> 52
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Stock for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the
Company, at its option, may substitute Preferred Stock (or Equivalent Preferred
Stock, as such term is defined in paragraph (b) of Section 11 hereof) for Common
Stock exchangeable for Rights, at the initial rate of one one-hundredth of a
share of Preferred Stock (or Equivalent Preferred Stock) for each share of
Common Stock, as appropriately adjusted to reflect stock splits, stock dividends
and other similar transactions after the date hereof.
(d) In the event that there shall not be sufficient shares
of Common Stock issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
shares of Company shall take all such actions as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions
of shares of Common Stock or to distribute certificates which evidence
fractional shares of Common Stock. In lieu of such fractional shares of Common
Stock, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional shares of Common Stock would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole share of Common Stock. For the purposes of this subsection (e),
the current market value of a whole share of Common Stock shall be the closing
price of a share of Common Stock (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
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<PAGE> 53
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after
the Distribution Date, (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the holders
of Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the holders
of Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or to
effect any sale or other transfer (or to permit one or more of its Subsidiaries
to effect any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets, cash flow or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), or (v) to effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock whichever
shall be the earlier.
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<PAGE> 54
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as
soon as practicable thereafter give to each holder of a Rights Certificate, to
the extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing by the Rights Agent with the Company) as follows:
Fortress Investment Corp.
One Penn Plaza
250 West 34th Street
Suite 3600
New York, New York 10119
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Rights Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any Rights Certificate
(or, if prior to the Distribution Date, to the holder of certificates repre-
senting shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage pre-
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<PAGE> 55
paid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distri-
bution Date, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement without the approval of any
holders of certificates representing shares of Common Stock. From and after the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (iii) to shorten or lengthen any time period
hereunder, or (iv) to change or supplement the provisions hereunder in any
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Rights Certificates (other than
an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, this Agreement may not be supplemented or amended to lengthen
any time period hereunder, pursuant to clause (iii) of this sentence, (A) a
time period relating to when the Rights may be redeemed at such time as the
Rights are not then redeemable, or (B) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment unless the
Rights Agent shall have determined in good faith that such supplement or
amendment would increase its duties or obligations or limit its rights or
benefits under this Agreement. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock. Notwithstanding anything herein to the contrary, this
Agreement may not be amended at a time when the Rights are not redeemable.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the
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<PAGE> 56
benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement. All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board, or any of the directors on the
Board to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction or
other authority
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<PAGE> 57
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if any
such term, provision, covenant or restriction is held by such court or authority
to be invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth Business Day following
the date of such determination by the Board of Directors. Without limiting the
foregoing, if any provision requiring the approval of certain members of the
Board of Directors of the Company is held to by any court of competent juris-
diction or other authority to be invalid, void or unenforceable, such
determination shall then be made by the Board of Directors of the Company in
accordance with applicable law and the Company's Restated Articles of
Incorporation and By-laws.
Section 32. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Maryland and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State, except that the rights and
obligations of the Rights Agent shall be governed by the laws of the State of
New York.
Section 33. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of
the several sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provi-
sions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
Attest: FORTRESS INVESTMENT CORP.
By /s/ Erik P. Nygaard By /s/ Randal A. Nardone
--------------------------- ------------------------------
Name: Erik P. Nygaard Name: Randal A. Nardone
Title: Chief Investment Title: Chief Operating
Officer & Treasurer Officer and Secretary
Attest: AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ Susan Silber By /s/ Herbert J.Lemmer
--------------------------- ------------------------------
Name: Susan Silber Name: Herbert J. Lemmer
Title: Assistant Secretary Title: Vice President
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<PAGE> 59
Exhibit A
FORM OF
ARTICLES SUPPLEMENTARY OF SERIES A
JUNIOR PARTICIPATING PREFERRED STOCK
of
FORTRESS INVESTMENT CORP.
ARTICLES SUPPLEMENTARY
Fortress Investment Corp., a Maryland corporation (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Under a power contained in Article VI of the charter of the
Corporation (the "Charter"), the Board of Directors of the Corporation (the
"Board of Directors"), by [resolution duly adopted at a meeting duly called held
on] [unanimous written consent dated] __________, 1998, classified and
designated 1,000,000 shares (the "Shares") of Preferred Stock (as defined in the
Charter) as shares of Series A Junior Participating Preferred Stock, with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption as set forth below.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if authorized and declared by the
<PAGE> 60
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the 1st day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after June __, 1998 (the "Rights Record
Date") (i) authorize and declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall authorize and declare a dividend or
distribution on the Series A Junior Participating Preferred Stock as provided in
Paragraph (A) above immediately after it authorizes and declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares of
Common Stock); provided that, in the event no dividend or distribution shall
have been authorized and declared on the Common Stock during the period between
any Quarterly Dividend Payment Date
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and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per
share on the Series A Junior Participating Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares
of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution authorized and declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Record Date (i) authorize and declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide
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<PAGE> 62
the outstanding Common Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein, the holders of shares of
Series A Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been authorized
and declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders of
any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of directors
4
<PAGE> 63
shall such voting right shall not be exercised unless the holders of
ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right, voting as
a class, to elect directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2) directors or, if
such right is exercised at an annual meeting, to elect two (2)
directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of
directors as shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall have
exercised their right to elect directors in any default period and
during the continuance of such period, the number of directors shall
not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each
5
<PAGE> 64
holder of record of Preferred Stock by mailing a copy of such notice to
him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
20 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this Paragraph (C)(iii),
no such special meeting shall be called during the period within 60
days immediately preceding the date or the first day of the period, as
the case may be, fixed by the Bylaws of the Corporation for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue
to be entitled to elect the whole number of directors until the holders
of Preferred Stock shall have exercised their right to elect two (2)
directors voting as a class, after the exercise of which right (x) the
directors so elected by the holders of Preferred Stock shall continue
in office until their successors shall have been elected by such
holders or until the expiration of the default period, whichever
happens first, and (y) any vacancy in the Board of Directors may
(except as provided in Paragraph (C)(ii) of this Section 3) be filled
by vote of a majority of the remaining directors theretofore elected by
the holders of the class of stock which elected the director whose
office shall have become vacant. References in this Paragraph (C) to
directors elected by the holders of a particular class of stock shall
include directors elected by such directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
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<PAGE> 65
directors shall cease, (y) the term of any directors elected by the
holders of Preferred Stock as a class shall terminate, and (z) the
number of directors shall be such number as may be provided for in the
charter or Bylaws irrespective of any increase made pursuant to the
provisions of Paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or
in the charter or Bylaws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not authorized or declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not
(i) authorize or declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(ii) authorize or declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Series A
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<PAGE> 66
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon
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<PAGE> 67
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $100 per share of Series A Participating
Preferred Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not authorized or declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively. The merger or consolidation of the Corporation,
regardless of whether the Corporation is the surviving entity in such merger or
consolidation, shall not be deemed to be the liquidation, dissolution or winding
up of the Corporation.
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<PAGE> 68
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Record Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. If the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Record Date (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares
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<PAGE> 69
of Series A Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. (a) The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred Stock
as to the payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
(b) The liquidation preference of the outstanding shares of Series A
Junior Participating Preferred Stock will not be added to the liabilities of the
Corporation for the purpose of determining whether under the Maryland General
Corporation Law a distribution may be made to stockholders of the Corporation
whose preferential rights upon dissolution of the Corporation are junior to
those of holders of Series A Junior Participating Preferred Stock.
Section 10. Amendment. At any time when any shares of Series A Junior
Participating Preferred Stock are outstanding, neither the charter nor these
Articles Supplementary shall be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class;
provided that none of (i) the creation or issuance of (A) additional shares of
Series A Junior Participating Preferred Stock or (B) shares of any class or
series of Preferred Stock ranking junior to or on parity with the Series A
Junior Participating Preferred Stock as to the payment of dividends and the
distribution of assets, (ii) a merger or consolidation in which the Corporation
is the surviving entity and the Series A Junior Participating Preferred Stock
remains outstanding with no material
11
<PAGE> 70
adverse change in its powers, preferences and special rights, or (iii) a merger
or consolidation in which the Corporation is not the surviving entity and the
holders of the Series A Junior Participating Preferred Stock receive in exchange
therefor a substantially identical security of the surviving entity, shall be
considered to materially adversely alter or change the powers, preferences or
special powers of the Series A Junior Participating Preferred Stock.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
SECOND: The Shares have been classified and designated by the Board of
Directors under authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned Chairman of the Board of the Corporation
acknowledges these Articles Supplementary to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under oath,
the undersigned Chairman of the Board acknowledges that to the best of his
knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
President and attested to by its Secretary on this ____ of __________, 1998.
ATTEST: FORTRESS INVESTMENT CORP.
_______________________________ By:__________________________(SEAL)
Randal A. Nardone, Wesley K. Edens, Chairman
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<PAGE> 71
Secretary of the Board of Directors
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<PAGE> 72
Exhibit B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER JUNE 4 2008 UNLESS EXTENDED PRIOR THERETO BY THE BOARD OF
DIRECTORS OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT)
AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.(2)
Rights Certificate
FORTRESS INVESTMENT CORP.
This certifies that , or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of June 4, 1998 (the "Rights
Agreement"), between Fortress Investment Corp., a Maryland corporation (the
"Company"), and
(2) The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 73
American Stock Transfer & Trust Company, a New York corporation (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 P.M. (New York
City time) on June 4, 2008 (unless such date is extended prior thereto by the
Board of Directors) at the office or offices of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one one-hundredth of a fully
paid, non-assessable share of Series A Junior Participating Preferred Stock (the
"Preferred Stock") of the Company, at a purchase price of $80 per one
one-hundredth of a share (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the Form of Election to Purchase and
related Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of June 4, 1998, based on the Preferred Stock
as constituted at such date. The Company reserves the right to require prior to
the occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
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<PAGE> 74
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the close
of business on (i) the tenth Business Day following the Stock Acquisition Date
(as such time period may be extended pursuant to the Rights Agreement), and (ii)
the Final Expiration Date. In addition, under certain circumstances following
the Stock Acquisition Date, the Rights may be exchanged, in whole or in part,
for shares of the Common Stock, or shares of preferred stock of the Company
having essentially the same value or economic rights as such shares. Immediately
upon the action of the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the Rights (other than
Rights which are not subject to such exchange) will terminate and the Rights
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<PAGE> 75
will only enable holders to receive the shares issuable upon such exchange.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement. The Company, at its election, may require that a number of Rights be
exercised so that only whole shares of Preferred Stock would be issued.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give consent to or withhold consent from any corporate
action, or, to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
4
<PAGE> 76
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of _________ __, ____.
ATTEST: FORTRESS INVESTMENT CORP.
___________________________ By___________________________
Secretary Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By___________________________
Authorized Signature
5
<PAGE> 77
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED_____________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Rights Certificate on the books of the within named
Company, with full power of substitution.
Dated: __________________, _______
___________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: __________________, _______ ___________________________________
Signature
Signature Guaranteed:
<PAGE> 78
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 79
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: FORTRESS INVESTMENT CORP.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: _______________,____
___________________________________
Signature
Signature Guaranteed:
<PAGE> 80
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ______________,____ ___________________________________
Signature
Signature Guaranteed:
<PAGE> 81
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE> 82
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On June 4, 1998, the Board of Directors of Fortress Investment Corp.
(the "Company") declared a dividend distribution of one Right for each
outstanding share of Company Common Stock to stockholders of record at the close
of business on June , 1998 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Stock") at a Purchase Price of
$80 per Unit, subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company and
American Stock Transfer & Trust Company, as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. Subject to certain exceptions specified in the Rights Agreement,
the Rights will separate from the Common Stock and a Distribution Date will
occur upon the earlier of (i) 10 business days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding shares of Common Stock (the "Stock Acquisition
Date"), other than as a result of repurchases of stock by the Company or certain
inadvertent actions by institutional or certain other stockholders or (ii) 10
business days (or such later date as the Board shall determine) following the
commencement of a tender offer or exchange offer that would result in a person
or group becoming an Acquiring Person. Until the Distribution Date, (i) the
Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new Common
Stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the occurrence of a Trig-
<PAGE> 83
gering Event (as defined below) that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will
expire at 5:00 P.M. (New York City time) on June 4, 2008, unless earlier
redeemed or exchanged by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that a Person becomes an Acquiring Person, except pursuant
to an offer for all outstanding shares of Common Stock which the independent
directors determine to be at a price which is fair and not inadequate and to
otherwise be in the best interests of the Company and its stockholders, after
receiving advice from one or more investment banking firms (a "Qualified
Offer"), each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the Right. The Exercise Price is the Purchase Price times the number of
shares of Common Stock associated with each Right. Notwithstanding any of the
foregoing, following the occurrence of the event set forth in this paragraph,
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable following the occurrence of the event
set forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
For example, at an exercise price of $80 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase $160
worth of Common Stock (or other consideration, as noted above) for $80.
Assuming that the Common Stock had a per share value of $20 at such time, the
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<PAGE> 84
holder of each valid Right would be entitled to purchase 8 shares of Common
Stock for $80.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company engages in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than with an entity
which acquired the shares pursuant to a Qualified Offer), (ii) the Company
engages in a merger or other business combination transaction in which the
Company is the surviving corporation and the Common Stock of the Company is
changed or exchanged, or (iii) 50% or more of the Company's assets or cash flow
is sold or transferred, each holder of a Right (except Rights which have
previously been voided as set forth above) shall thereafter have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right. The events set forth in this
paragraph and in the second preceding paragraph are referred to as the
"Triggering Events."
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of fifty percent (50%) or more of the
outstanding Common Stock, the Board may exchange the Rights (other than Rights
owned by such person or group which have become void), in whole or in part, at
an exchange ratio of one share of Common Stock, or one one-hundredth of a share
of Preferred Stock (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
At any time until ten business days following the Stock Acquisition
Date, the Company may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors). Immediately upon the action of the Board
of Directors ordering redemption of the Rights, the Rights will terminate and
the only right of the holders of Rights will be to receive the $.01 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the
3
<PAGE> 85
Company, stockholders may, depending upon the circumstances, recognize taxable
income in the event that the Rights become exercisable for Common Stock (or
other consideration) of the Company or for common stock of the acquiring company
or in the event of the redemption of the Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights, or to shorten or lengthen any time
period under the Rights Agreement. The foregoing not withstanding, no amendment
may be made at such time as the Rights are not redeemable.
A copy of the Rights Agreement is available free of charge from the
Rights Agent. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is incorporated herein by reference.
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Exhibit 10.1
MANAGEMENT AND ADVISORY AGREEMENT
THIS MANAGEMENT AND ADVISORY AGREEMENT, is made as of June 10, 1998
(the "Agreement") by and among FORTRESS INVESTMENT CORP. , a Maryland
corporation (the "REIT"), FORTRESS PARTNERS, L. P., a Delaware limited
partnership (the "Operating Partnership," and, collectively with the REIT, the
"Company"), and FORTRESS INVESTMENT GROUP LLC, a Delaware limited liability
company (together with its permitted assignees, the "Manager").
W I T N E S S E T H :
WHEREAS, the REIT expects to qualify for the tax benefits
accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, the REIT is the sole general partner of the Operating
Partnership and has contributed (or will contribute on the Closing Date) to the
Operating Partnership all of its assets (including, without limitation, all of
the proceeds of the offering of the Shares of the REIT, as further described in
the Offering Memorandum) and will conduct substantially all of its operations
through the Operating Partnership;
WHEREAS, the Company desires to avail itself of the
experience, sources of information, advice, assistance and certain facilities of
or available to the Manager and to have the Manager undertake the duties and
responsibilities hereinafter set forth, on behalf of the Company and subject to
the supervision of the REIT, as provided in this Agreement; and
WHEREAS, the Manager is willing to undertake to render such
services, subject to the supervision of the REIT, on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the respective meanings assigned them in the Offering Memorandum of
<PAGE> 2
the REIT dated June 5, 1998 (the "Offering Memorandum"). In addition, the
following terms have the meanings assigned them:
(a) "Agreement" means this Management and
Advisory Agreement, as amended from time to time.
(b) "Board of Directors" means the Board of
Directors of the REIT.
(c) "Closing Date" means the date of initial
closing of the REIT's private placement of common stock identified in the
Offering Memorandum.
(d) "Code" means the Internal Revenue Code of
1986, as amended.
(e) "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(f) "Governing Instruments" means, with regard
to any entity, the articles of incorporation and bylaws in the case of a
corporation, certificate of limited partnership (if applicable) and the
partnership agreement in the case of a general or limited partnership or the
articles of formation and the operating agreement in the case of a limited
liability company.
(g) "Partnership Agreement" means the Agreement
of Limited Partnership of the Operating Partnership, dated as of June 10, 1998.
(h) "Preferred Stock Affiliate" means any
preferred stock affiliate (whether a corporation, partnership, limited liability
company or other entity), as described in the Offering Memorandum.
(i) "REIT Investments" means the assets of the
Company.
(j) "Sister Corp." means any sister company
(whether a corporation, partnership, limited liability company or other entity),
as described in the Offering Memorandum.
(k) "Special Limited Partner" has the meaning
ascribed thereto in the Partnership Agreement.
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(l) "Subsidiary" means any subsidiary of the
REIT and any partnership, the general partner of which is the REIT or any
subsidiary of the REIT and any limited liability company, the managing member of
which is the REIT or any subsidiary of the REIT.
SECTION 2. APPOINTMENT AND DUTIES OF THE MANAGER.
(a) The REIT and the Operating Partnership hereby appoint
the Manager to manage the assets of the Company subject to the further terms and
conditions set forth in this Agreement and the Manager shall use its
commercially reasonable efforts to perform each of the duties set forth herein.
The appointment of the Manager shall be exclusive to the Manager except to the
extent that the Manager otherwise agrees, in its sole and absolute discretion,
and except to the extent that the Manager elects, pursuant to the terms of this
Agreement, to cause the duties of the Manager hereunder to be provided by third
parties.
(b) The Manager, in its capacity as manager of the assets
of the Company, at all times will be subject to the supervision of the REIT's
Board of Directors and will have only such functions and authority as the
Company may delegate to it including, without limitation, the functions and
authority identified herein and delegated to the Manager hereby. The Manager
will be responsible for the day-to-day operations of the Company and will
perform (or cause to be performed) such services and activities relating to the
assets and operations of the Company as may be appropriate, including, without
limitation:
(i) serving as the Company's consultant with
respect to formulation of investment criteria and preparation of
parameters for the Company's investments, borrowings and operations
for approval by a majority of the independent members of the Board of
Directors (such approved policy guidelines, the "Guidelines") and other
policies for approval by the Board of Directors;
(ii) investigation and selection of possible
investment opportunities and acquisitions, property and investment
analysis, market and economic surveys, on-site physical inspections,
review and projection of income and construction, reno-
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<PAGE> 4
vation and/or operating expenses and supervising and negotiating the
arrangement of financing;
(iii) conducting negotiations with real estate
brokers, owners of property and their agents and representatives,
investment bankers and owners of privately and publicly held real
estate companies;
(iv) engaging and supervising, on behalf of the
Company and at the Company's expense, independent contractors which
provide real estate brokerage, investment banking and leasing services,
mortgage brokerage and other financial services and such other services
as may be required relating to the Company's investments;
(v) negotiating on behalf of the Company for the
sale, exchange or other disposition of any of the Company's
investments;
(vi) coordinating and managing operations of any
joint venture or co-investment interests held by the Company and
conducting all matters with the joint venture or co-investment
partners;
(vii) coordinating and supervising, on behalf of
the Company and at the Company's expense, all property managers,
leasing agents and developers for the administration, leasing,
management and/or development of any of the Company's investments;
(viii) providing executive and administrative
personnel, office space and office services required in rendering
services to the Company;
(ix) administering the day-to-day operations of
the Company and performing and supervising the performance of such
other administrative functions necessary in the management of the
Company as may be agreed upon by the Manager and the Board of
Directors, including, without limitation, the collec-
4
<PAGE> 5
tion of revenues and the payment of the Company's debts and obligations
and maintenance of appropriate computer services to perform such
administrative functions;
(x) communicating on behalf of the Company with
the holders of any equity or debt securities of the Company as required
to satisfy the reporting and other requirements of any governmental
bodies or agencies or trading markets and to maintain effective
relations with such holders;
(xi) counseling the Company in connection with
policy decisions to be made by the Board of Directors;
(xii) evaluating and recommending overall hedging
strategies to the Board of Directors and, upon approval by the Board
of Directors of such overall hedging strategies, engaging in hedging
activities on behalf of the Company, consistent with the Company's
status as a real estate investment trust, such approved overall hedging
strategies and the Guidelines;
(xiii) counseling the REIT regarding the
maintenance of its status as a real estate investment trust and
monitoring compliance with the various real estate investment trust
qualification tests and other rules set out in the Code and Treasury
Regulations thereunder;
(xiv) counseling the Company regarding the
maintenance of its exemption from the Investment Company Act and
monitoring compliance with the requirements for maintaining an
exemption from that Act;
(xv) assisting the Company in developing
criteria for asset purchase commitments that are specifically tailored
to the Company's investment objectives and making available to the
Company its knowledge and experience with respect to mortgage loans,
real estate and other real estate-related assets;
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<PAGE> 6
(xvi) representing and making recommendations to
the Company in connection with asset privatization, investments in
operating companies, loan origination (including on a portfolio basis)
and the purchase and finance, and commitment to purchase and finance,
mortgage loans (including on a portfolio basis), real estate and other
real estate-related assets, and the sale and commitment to sell such
assets;
(xvii) monitoring the operating performance of the
Company's investments and providing periodic reports with respect
thereto to the Board of Directors, including comparative information
with respect to such operating and performance and budgeted or
projected operating results;
(xviii) investing and re-investing any moneys and
securities of the Company (including investing in short-term
investments pending investment in REIT Investments, payment of fees,
costs and expenses, or payments of dividends or distributions to
stockholders and partners of the Company) and advising the Company as
to its capital structure and capital raising;
(xix) causing the Company to retain qualified
accountants and legal counsel, as applicable, to assist in developing
appropriate accounting procedures, compliance procedures and testing
systems with respect to financial reporting obligations and compliance
with the provisions of the Code applicable to real estate investment
trusts and to conduct quarterly compliance reviews with respect
thereto;
(xx) causing the Company to qualify to do
business in all applicable jurisdictions and to obtain and maintain all
appropriate licenses;
(xxi) assisting the Company in complying with all
regulatory requirements applicable to the Company in respect of its
business activities, including preparing or causing to be prepared all
financial statements required under applicable regulations and
contractual undertakings and all reports and documents, if any,
required under the Exchange Act;
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<PAGE> 7
(xxii) taking all necessary actions to enable the
Company to make required tax filings and reports, including soliciting
stockholders for required information to the extent provided by the
provisions of the Code applicable to real estate investment trusts;
(xxiii) handling and resolving all claims, disputes
or controversies (including all litigation, arbitration, settlement or
other proceedings or negotiations) in which the Company may be involved
or to which the Company may be subject arising out of the Company's
day-to-day operations, subject to such limitations or parameters as may
be imposed from time to time by the Board of Directors;
(xxiv) using commercially reasonable efforts to
cause expenses incurred by or on behalf of the Company to be reasonable
or customary and within any budgeted parameters or Guidelines set by
the Board of Directors from time to time;
(xxv) performing such other services as may be
required from time to time for management and other activities relating
to the assets of the Company as the Board of Directors shall
reasonably request or the Manager shall deem appropriate under the
particular circumstances; and
(xxvi) using commercially reasonable efforts to
cause the Company to comply with all applicable laws.
Without limiting the foregoing, the Manager will perform portfolio management
services (the "Portfolio Management Services") on behalf of the Company with
respect to the Company's investments. Such services will include, but not be
limited to, consulting with the Company on the purchase and sale of, and other
investment opportunities in connection with, the Company's portfolio of assets;
the collection of information and the submission of reports pertaining to the
Company's assets, interest rates and general economic conditions; periodic
review and evaluation of the performance of the Company's portfolio of assets;
acting as liaison between the Company and banking, mortgage banking, investment
banking and other parties with respect to the purchase, financing and
disposition of assets; and other customary
7
<PAGE> 8
functions related to portfolio management. Additionally, the Manager will
perform monitoring services (the "Monitoring Services") on behalf of the Company
with respect to any loan servicing activities provided by third parties. Such
monitoring services will include, but not be limited to, negotiating servicing
agreements; acting as a liaison between the servicers of the assets and the
Company; review of servicers' delinquency, foreclosure and other reports on
assets; supervising claims filed under any insurance policies; and enforcing the
obligation of any servicer to repurchase assets.
(c) The Manager may enter into agreements with other parties,
including its affiliates, for the purpose of engaging one or more property
and/or asset managers for and on behalf, and at the sole cost and expense, of
the Company to provide property management, asset management, leasing,
development and/or similar services to the Company (including, without
limitation, Portfolio Management Services and Monitoring Services) with respect
to the REIT Investments, pursuant to property management agreement(s) and/or
asset management agreement(s) with terms which are then customary for agreements
regarding the management of assets similar in type, quality and value to the
assets of the Company; provided, that (i) any such agreements entered into with
affiliates of the Manager shall be (A) on terms no more favorable to such
affiliate then would be obtained from a third party on an arms'-length basis and
(B) to the extent the same do not fall within the provisions of the Guidelines,
approved by a majority of the independent members of the Board of Directors of
the Company, (ii) with respect to Portfolio Management Services, (A) any such
agreements shall be subject to the Company's prior written approval and (B) the
Manager shall remain liable for the performance of such Portfolio Management
Services, and (iii) with respect to Monitoring Services, any such agreements
shall be subject to the Company's prior written approval.
(d) The Manager may retain, for and on behalf, and at the sole
cost and expense, of the Company, such services of accountants, legal counsel,
appraisers, insurers, brokers, transfer agents, registrars, developers,
investment banks, financial advisors, banks and other lenders and others as the
Manager deems necessary or advisable in connection with the management and
operations of the Company. Notwithstanding anything contained herein to the
contrary, the Manager shall have the right to cause any such services to be
rendered by its employees or affiliates. The Company shall pay or reimburse the
Manager or its affiliates performing such services for the cost thereof;
provided, that such costs and reimbursements are no greater than those which
would be payable to outside professionals or consul-
8
<PAGE> 9
tants engaged to perform such services pursuant to agreements negotiated on an
arm's-length basis.
(e) As frequently as the Manager may deem necessary or
advisable, or at the direction of the Board of Directors, the Manager shall, at
the sole cost and expense of the Company, prepare, or cause to be prepared, with
respect to any of the REIT Investments (i) an appraisal prepared by an
independent real estate appraiser, (ii) reports and information on the Company's
operations and asset performance and (iii) other information reasonably
requested by the Company.
(f) The Manager shall prepare, or cause to be prepared, at the
sole cost and expense of the Company, all reports, financial or otherwise, with
respect to the Company reasonably required by the Board of Directors in order
for the Company to comply with its Governing Instruments or any other materials
required to be filed with any governmental body or agency, and shall prepare, or
cause to be prepared, all materials and data necessary to complete such reports
and other materials including, without limitation, an annual audit of the
Company's books of account by a nationally recognized independent accounting
firm.
(g) The Manager shall prepare regular reports for the Board of
Directors of the REIT to enable such Board of Directors to review the Company's
acquisitions, portfolio composition and characteristics, credit quality,
performance and compliance with the Guidelines and policies approved by such
Board of Directors.
(h) Notwithstanding anything contained in this Agreement to
the contrary, except to the extent that the payment of additional monies is
proven by the Company to have been required as a direct result of the Manager's
acts or omissions which result in the right of the Company to terminate this
Agreement pursuant to Section 15 of this Agreement, the Manager shall not be
required to expend money ("Excess Funds") in excess of that contained in any
applicable Company Account (as herein defined) or otherwise made available by
the Company to be expended by the Manager hereunder. Failure of the Manager to
expend Excess Funds out-of-pocket shall not give rise or be a contributing
factor to the right of the Company under Section 13(a) of this Agreement to
terminate this Agreement due to the Manager's unsatisfactory performance.
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<PAGE> 10
(i) In performing its duties under this Section 2, the Manager
shall be entitled to rely reasonably on qualified experts hired by the Manager.
SECTION 3. ADDITIONAL ACTIVITIES OF MANAGER.
(a) The Manager hereby agrees that it shall not engage in
business with or render services to others that compete with the Company until
an amount equal to 95% of the Company's Total Equity has been invested (other
than in short-term temporary investments) by the Company (and for these purposes
contributions to a Sister Corp. or Preferred Stock Affiliate shall be deemed to
be "investments" of the Company's Total Equity). As used herein, the term
"Total Equity" shall mean the total equity capital raised by the Company,
including, without limitation, the net proceeds of the offering contemplated by
the Offering Memorandum and the net proceeds of any subsequent offering of
Common Stock or Preferred Stock by the REIT. Notwithstanding the foregoing, the
Manager and its affiliates will be permitted at any time (i) to manage the
Sister Corp., (ii) to manage Blackrock Asset Investors together with its
affiliated funds and (iii) to manage and make investments related to "Excluded
Investments." As used herein, the term "Excluded Investments" shall mean (1)
investments made, or committed to be made, by Messrs. Wesley R. Edens, Robert I.
Kauffman, Randal A. Nardone and Erik P. Nygaard (collectively, the
"Principals"), the Manager and/or their respective affiliates prior to the
Closing Date, (2) investments in all of the GPF Assets that are not Option
Assets (as each term is defined in the Offering Memorandum) and all of the
Option Assets not acquired by the Company, (3) any investment as to which the
equity contributed by the Principals, the Manager or their affiliates is equal
to or less than $3,000,000 and (4) any investments made during any period of
time that the exclusivity provisions of this Agreement are not in effect (i.e.
during any period of time in which 95% or more of the Total Equity of the
Company has been invested), in each of the foregoing cases, together with any
investments relating to the foregoing investments.
(b) Except to the extent set forth in clause (a) above,
nothing herein shall prevent the Manager or any of its affiliates from engaging
in other businesses or from rendering services of any kind to any other person
or entity, including investment in, or advisory service to others investing in,
any type of real estate investment, including investments which meet the
principal investment objectives of the Company.
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<PAGE> 11
(c) Managers, members, partners, officers, employees and
agents of the Manager or affiliates of the Manager may serve as directors,
officers, employees, agents, nominees or signatories for the REIT, the Operating
Partnership or any other Subsidiary, to the extent permitted by their Governing
Instruments, as from time to time amended, or by any resolutions duly adopted by
the Board of Directors pursuant to the REIT's Governing Instruments. When
executing documents or otherwise acting in such capacities for the REIT, such
persons shall use their respective titles in the REIT.
SECTION 4. AGENCY. The Manager shall act as agent of the Company in
making, acquiring, financing and disposing of investments, disbursing and
collecting the Company's funds, paying the debts and fulfilling the obligations
of the Company, supervising the performance of professionals engaged by or on
behalf of the Company and handling, prosecuting and settling any claims of or
against the Company, the Board of Directors, holders of the Company's securities
or the Company's representatives or properties.
SECTION 5. BANK ACCOUNTS. At the direction of the Board of Directors,
the Manager may establish and maintain one or more bank accounts in the name of
the REIT, the Operating Partnership, or any other Subsidiary (any such account,
a "Company Account"), and may collect and deposit funds into any such Company
Account or Company Accounts, and disburse funds from any such Company Account or
Company Accounts, under such terms and conditions as the Board of Directors may
approve; and the Manager shall from time to time render appropriate accountings
of such collections and payments to the Board of Directors and, upon request, to
the auditors of the REIT, the Operating Partnership or any other Subsidiary.
SECTION 6. RECORDS; CONFIDENTIALITY. The Manager shall maintain
appropriate books of accounts and records relating to services performed under
this Agreement, and such books of account and records shall be accessible for
inspection by representatives of the REIT, the Operating Partnership, or any
other Subsidiary at any time during normal business hours upon one (1) business
day's advance written notice. The Manager shall keep confidential any and all
information obtained in connection with the services rendered under this
Agreement and shall not disclose any such information to nonaffiliated third
parties except with the prior written consent of the Board of Directors.
SECTION 7. OBLIGATIONS OF MANAGER; RESTRICTIONS.
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<PAGE> 12
(a) The Manager shall require each seller or transferor of
REIT Investments to the Company to make such representations and warranties
regarding such REIT Investments as may, in the judgment of the Manager, be
necessary and appropriate. In addition, the Manager shall take such other action
as it deems necessary or appropriate with regard to the protection of the
Company's investments.
(b) The Manager shall refrain from any action that, in its
sole judgment made in good faith, (i) is not in compliance with the Guidelines
or (ii) would adversely affect the status of the REIT as a real estate
investment trust under the Code or that, in its sole judgment made in good
faith, would violate any law, rule or regulation of any governmental body or
agency having jurisdiction over the REIT, the Operating Partnership, or any
Subsidiary or that would otherwise not be permitted by such entity's Governing
Instruments. If the Manager is ordered to take any such action by the Board of
Directors, the Manager shall promptly notify the Board of Directors of the
Manager's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Governing Instruments.
Notwithstanding the foregoing, the Manager, its directors, officers,
stockholders and employees shall not be liable to the REIT, the Operating
Partnership or any other Subsidiary, the Independent Directors, or the REIT's or
the Operating Partnership's stockholders or partners for any act or omission by
the Manager, its directors, officers, stockholders or employees except as
provided in Section 11 of this Agreement.
(c) The Manager shall not consummate any transaction which
would involve the acquisition by the Company of property in which the Manager or
any affiliate thereof has an ownership interest or the sale by the Company of
property to the Manager or any affiliate thereof, unless such transaction is
approved by a majority of the Independent Directors.
(d) The Company shall not invest in joint ventures with the
Manager or any affiliate thereof, unless (i) such investment is made in
accordance with the Guidelines or (ii) such investment is approved in advance by
a majority of the Independent Directors.
(e) The Independent Directors will review the transactions of
the Company quarterly. If the Independent Directors determine in their periodic
review of transactions that a particular transaction does not comply with the
Guide lines, then the Independent Directors will consider what corrective
action, if any, can
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<PAGE> 13
be taken. If the transaction involved the acquisition of an asset from the
Manager or an affiliate of the Manager that was not approved in advance by a
majority of the Independent Directors, then the Manager may be required to
repurchase the asset at the purchase price (plus closing costs) to the Company.
(f) The Manager shall at all times during the term of this
Agreement (including the Initial Term and any renewal term) maintain a tangible
net worth equal to or greater than $1,000,000. Additionally, during such period
the Manager shall maintain "errors and omissions" insurance coverage and other
insurance coverage which is customarily carried by property and asset managers
performing functions similar to those of the Manager under this Agreement with
respect to assets similar to the assets of the Company ("Similar Assets"), in an
amount which is comparable to that customarily maintained by other managers or
servicers of Similar Assets.
SECTION 8. COMPENSATION.
(a) Commencing on the Closing Date, the Manager will receive
an annual management fee (the "Management Fee") equal to 1.50% of the Company's
"Gross Equity;" provided, however, that during remainder of 1998 following the
Closing Date, the Manager shall receive a Management Fee equal to the greater of
(i) $6,000,000 and (ii) the product of (a) 1.50% of the Company's Gross Equity
and (b) a fraction, the numerator of which is the number of days in 1998
following the Closing Date and the denominator of which is 365. The Management
Fee shall be calculated and paid monthly in arrears based upon the weighted
daily average of the Gross Equity of the Company for such month (except during
the remainder of 1998 following the Closing Date, during which period such
monthly amount is to be calculated and paid based on the terms of the proviso
set forth in the sentence immediately preceding). The term "Gross Equity" for
any period means (A) the sum of (i) the Total Equity, plus (ii) the value of
contributions made by partners other than the REIT, from time to time, to the
capital of the Operating Partnership or any other Subsidiary (reduced
proportionately in the case of a Subsidiary to the extent that the Operating
Partnership owns, directly or indirectly, less than 100% of the equity interests
in such Subsidiary), less (B) any capital dividends or capital distributions
made by the REIT to its stockholders or, without duplication, by the Operating
Partnership to its partners. The Manager will not receive any Management Fee for
the period prior to the Closing Date.
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(b) The Manager shall compute each installment of the
Management Fee within 15 days after the end of the calendar month with respect
to which such installment is payable. A copy of the computations made by the
Manager to calculate such installment shall thereafter, for informational
purposes only and subject in any event to Section 13(a) of this Agreement,
promptly be delivered to the Board of Directors and, upon such delivery, payment
of such installment of the Management Fee shown therein shall be due and payable
no later than the earlier to occur of (i) the date which is 20 days after the
end of the calendar month with respect to which such installment is payable and
(ii) the date which is two (2) business days after the date of delivery to the
Board of Directors of such computations.
(c) The Management Fee is subject to adjustment pursuant to
and in accordance with the provisions of Section 13(a) of this Agreement.
SECTION 9. EXPENSES OF THE COMPANY. The Company shall pay all of its
expenses and shall reimburse the Manager for documented expenses of the Manager
incurred on its behalf (collectively, the "Expenses"). Expenses include all
costs and expenses which are expressly designated elsewhere in this Agreement as
the Company's, together with the following:
(a) expenses in connection with the issuance and transaction
costs incident to the acquisitions, disposition and financing of investments;
(b) travel and other out-of-pocket expenses incurred by
managers, officers, employees and agents of the Manager in connection with the
purchase, financing, refinancing, sale or other disposition of a REIT
Investment;
(c) costs of legal, accounting, tax, auditing, administrative
and other similar services rendered for the Company by providers retained by the
Manager or, if provided by the Manager's employees, in amounts which are no
greater than those which would be payable to outside professionals or
consultants engaged to perform such services pursuant to agreements negotiated
on an arm's-length basis;
(d) the compensation and expenses of the Independent Directors
and the cost of liability insurance to indemnify the Company's directors and
officers;
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(e) compensation and expenses of the Company's custodian and
transfer agent, if any;
(f) costs associated with the establishment and maintenance
of any credit facilities and other indebtedness of the Company (including
commitment fees, legal fees, closing and other costs) or any securities
offerings of the Company;
(g) costs associated with any computer software or hardware
that is used solely for the Company;
(h) costs and expenses incurred in contracting with third
parties, including affiliates of the Manager, for the servicing and special
servicing of assets of the Company;
(i) all other costs and expenses relating to the Company's
business and investment operations, including, without limitation, the costs and
expenses of acquiring, owning, protecting, maintaining, developing and disposing
of the Company's investments, including appraisal, reporting, audit and legal
fees;
(j) all insurance costs incurred in connection with the
operation of the Company's business except for the sots attributable to the
insurance that the Manager elects to carry for itself and its employees;
(k) expenses relating to any office or office facilities
maintained for the Company or the REIT Investments separate from the office or
offices of the Manager;
(l) expenses connected with the payments of interest,
dividends or distributions in cash or any other form made or caused to be made
by the Board of Directors to or on account of the holders of securities or Units
of the Company, including, without limitation, in connection with any dividend
reinvestment plan;
(m) expenses connected with communications to holders of
securities or Units of the Company and other bookkeeping and clerical work
necessary in maintaining relations with holders of securities or Units and in
complying with the continuous reporting and other requirements of governmental
bodies or agencies, including, without limitation, all costs of preparing and
filing required
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reports with the Securities and Exchange Commission, the costs payable by the
Company to any transfer agent and registrar in connection with the listing
and/or trading of the REIT's stock on any exchange, the fees payable by the REIT
to any such exchange in connection with its listing, costs of preparing,
printing and mailing the REIT's annual report to its shareholders and proxy
materials with respect to any meeting of the shareholders of the REIT; and
(n) all other expenses actually incurred by the Manager which
are reasonably necessary for the performance by the Manager of its duties and
functions under this Agreement.
Without regard to the amount of compensation received under this
Agreement by the Manager, the Manager shall bear the following expenses: (i)
wages and salaries of the Manager's officers and employees; (ii) rent
attributable to the space occupied by the Manager; and (iii) all other
"overhead" expenses of the Manager.
SECTION 10. CALCULATIONS OF EXPENSES. The Manager shall prepare a
statement documenting the Expenses of the Company and the Expenses incurred by
the Manager on behalf of the Company during each calendar month, and shall
deliver such statement to the Company within 20 days after the end of each
calendar month. Expenses incurred by the Manager on behalf of the Company shall
be reimbursed monthly to the Manager on the first business day of the month
immediately following the date of delivery of such statement.
SECTION 11. LIMITS OF MANAGER RESPONSIBILITY; INDEMNIFICATION. (a) The
Manager assumes no responsibility under this Agreement other than to render the
services called for under this Agreement in good faith and shall not be
responsible for any action of the Board of Directors in following or declining
to follow any advice or recommendations of the Manager, including as set forth
in Section 7(b) of this Agreement. The Manager, its members, managers, officers
and employees will not be liable to the REIT, the Operating Partnership or any
other Subsidiary, to the Independent Directors, or the REIT's, the Operating
Partnership's or any Subsidiary's stockholders or partners for any acts or
omissions by the Manager, its members, managers, officers or employees, pursuant
to or in accordance with this Agreement, except by reason of acts constituting
bad faith, willful misconduct, gross negligence or reckless disregard of the
Manager's duties under this Agreement. The REIT and/or the Operating Partnership
shall, to the full extent lawful, reimburse, indemnify and hold the Manager, its
members, managers, officers and employees and each other Person, if any,
controlling the Manager (each, an "Indemnified Party"),
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<PAGE> 17
harmless of and from any and all expenses, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever (including attorneys' fees)
in respect of or arising from any acts or omissions of such Indemnified Party
made in good faith in the performance of the Manager's duties under this
Agreement and not constituting such Indemnified Party's bad faith, willful
misconduct, gross negligence or reckless disregard of the Manager's duties under
this Agreement.
(b) The Manager shall, to the full extent lawful, reimburse,
indemnify and hold the Company, its shareholders, directors, officers and
employees and each other Person, if any, controlling the Company (each, a
"Company Indemnified Party"), harmless of and from any and all expenses,
losses, damages, liabilities, demands, charges and claims of any nature
whatsoever (including attorneys' fees) in respect of or arising from the
Manager's bad faith, willful misconduct, gross negligence or reckless disregard
of its duties under this Agreement.
SECTION 12. NO JOINT VENTURE. Nothing in this Agreement shall be
construed to make the Company and the Manager partners or joint venturers or
impose any liability as such on either of them.
SECTION 13. TERM; TERMINATION.
(a) The term of this Agreement shall commence on the Closing
Date and this Agreement shall continue in force until the third anniversary of
the Closing Date (such three-year period, the "Initial Term"). Thereafter, until
this Agreement is terminated in accordance with its terms, this Agreement shall
be deemed renewed automatically each year for an additional one-year period
unless (i) a majority consisting of at least two-thirds of the Independent
Directors or a simple majority of the holders of outstanding shares of Common
Stock of the REIT, agree that there has been unsatisfactory performance that is
materially detrimental to the Company or (ii) a simple majority of the
Independent Directors agree that the Management Fee payable to the Manager is
unfair; provided, that the Company shall not have the right to terminate this
Agreement under clause (ii) foregoing if the Manager agrees to continue to
provide the services under this Agreement at a fee that the Independent
Directors have determined to be fair. If the Company elects not to renew this
Agreement at the expiration of the Initial Term or any extended term as set
forth above, the REIT shall deliver to the Manager prior written notice (the
"Termination Notice") of the Company's intention not to renew this Agreement
based upon the terms set forth in this Section 13(a) of this Agreement not less
than 60 days prior to the expiration of the then existing term. If the Company
so elects
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<PAGE> 18
not to renew this Agreement, the Company shall designate the date (the
"Effective Termination Date"), not less than 60 days from the date of the
notice, on which the Manager shall cease to provide services under this
Agreement and this Agreement shall terminate on such date; provided, however,
that in the event that such Termination Notice is given in connection with a
determination that the compensation payable to the Manager is unfair, the
Manager shall have the right to renegotiate the Management Fee by delivering to
the Company, no fewer than forty-five (45) days prior to the prospective
Effective Termination Date, written notice (any such notice, a "Notice of
Proposal to Negotiate") of its intention to renegotiate its compensation under
this Agreement. Thereupon, the Company and the Manager shall endeavor to
negotiate in good faith the revised compensation payable to the Manager under
this Agreement. Provided that the Manager and the Company agree to a revised
Management Fee (or other compensation structure) within 45 days following the
receipt of the Notice of Proposal to Negotiate, the Termination Notice shall be
deemed of no force and effect and this Agreement shall continue in full force
and effect on the terms stated in this Agreement, except that the Management Fee
shall be the revised Management Fee (or other compensation structure) then
agreed upon by the parties to this Agreement. The REIT and the Manager agree to
execute and deliver an amendment to this Agreement setting forth such revised
Management Fee promptly upon reaching an agreement regarding same. In the event
that the Company and the Manager are unable to agree to a revised Management Fee
during such 30 day period, this Agreement shall terminate, such termination to
be effective on the date which is the later of (A) ten (10) days following the
end of such 30 day period and (B) the Effective Termination Date originally set
forth in the Termination Notice.
(b) In the event that this Agreement is terminated in
accordance with the provisions of Section 13(a) of this Agreement, the Company
shall pay to the Manager, on the date on which such termination is effective, a
termination fee (the "Termination Fee") equal to the amount of the Management
Fee earned by the Manager during the period consisting of the twelve (12) full,
consecutive calendar months immediately preceding such termination. The
obligation of the Company to pay the Termination Fee shall survive the
termination of this Agreement.
(c) No later than 60 days prior to the third or any subsequent
anniversary of the Closing Date, the Manager may deliver written notice to the
REIT informing it of the Manager's intention not to renew the Term, whereupon
the Term of this Agreement shall
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<PAGE> 19
not be renewed and extended and this Agreement shall terminate effective on the
anniversary of the Closing Date next following the delivery of such notice.
(d) If this Agreement is terminated pursuant to this Section
13, such termination shall be without any further liability or obligation of
either party to the other, except as provided in Section 13(b) and Section 16 of
this Agreement. In addition, Section 11 of this Agreement shall survive
termination of this Agreement.
SECTION 14. ASSIGNMENT.
(a) Except as set forth in Section 14(b) of this Agreement,
this Agreement shall terminate automatically in the event of its assignment, in
whole or in part, by the Manager, unless such assignment is consented to in
writing by the REIT with the consent of a majority of the Independent Directors;
provided, however, that no such consent shall be required in the case of an
assignment by the Manager to an entity whose day-to-day business and operations
are managed and supervised jointly by the Principals. Any such permitted
assignment shall bind the assignee under this Agreement in the same manner as
the Manager is bound, and the Manager shall be liable to the Company for all
errors or omissions of the assignee under any such assignment. In addition, the
assignee shall execute and deliver to the REIT a counter part of this Agreement
naming such assignee as Manager. This Agreement shall not be assigned by the
REIT without the prior written consent of the Manager, except in the case of
assignment by the REIT to another REIT or other organization which is a
successor (by merger, consolidation or purchase of assets) to the REIT, in which
case such successor organization shall be bound under this Agreement and by the
terms of such assignment in the same manner as the REIT is bound under this
Agreement.
(b) Notwithstanding any provision of this Agreement, the
Manager may subcontract and assign any or all of its responsibilities under
Sections 2(b), 2(c) and 2(d) of this Agreement to any of its affiliates in
accordance with the terms of this Agreement applicable to any such subcontract
or assignment, and the REIT hereby consents to any such assignment and
subcontracting. In addition, provided that the Manager provides prior written
notice to the Company for informational purposes only, nothing contained in
this Agreement shall preclude any pledge, hypothecation or other transfer of any
amounts payable to the Manager under this Agreement.
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<PAGE> 20
SECTION 15. TERMINATION FOR CAUSE.
(a) The Company may terminate this Agreement effective upon
sixty (60) days prior written notice of termination from the Company to the
Manager, without payment of any Termination Fee, if any act of fraud,
misappropriation of funds, or embezzlement against the Company or other willful
violation of this Agreement by the Manager in its corporate capacity (as
distinguished from the acts of any employees of the Manager which are taken
without the complicity of any of the Principals) under this Agreement or in the
event of any gross negligence on the part of the Manager in the performance of
its duties under this Agreement.
(b) The Manager may terminate this Agreement effective upon
sixty (60) days prior written notice of termination to the Company in the event
that the Company shall default in the performance or observance of any material
term, condition or covenant contained in this Agreement and such default shall
continue for a period of 30 days after written notice thereof specifying such
default and requesting that the same be remedied in such 30 day period.
SECTION 16. ACTION UPON TERMINATION. (a) From and after the effective
date of termination of this Agreement, pursuant to Sections 13, 14, or 15 of
this Agreement, the Manager shall not be entitled to compensation for further
services under this Agreement, but shall be paid all compensation accruing to
the date of termination and, if terminated pursuant to Section 13, the
applicable Termination Fee. Upon such termination, the Manager shall forthwith:
(i) after deducting any accrued compensation and reimbursement
for its expenses to which it is then entitled, pay over to the Company or a
Subsidiary all money collected and held for the account of the Company or a
Subsidiary pursuant to this Agreement;
(ii) deliver to the Board of Directors a full accounting,
including a statement showing all payments collected by it and a statement of
all money held by it, covering the period following the date of the last
accounting furnished to the Board of Directors with respect to the Company or a
Subsidiary; and
(iii) deliver to the Board of Directors all property and
documents of the Company or any Subsidiary then in the custody of the Manager.
20
<PAGE> 21
(b) In the event that this Agreement is terminated, the REIT
shall have the option, to be exercised by written notice to the Manager within
ten (10) days following such termination, to purchase from the Special Limited
Partner the right of the Special Limited Partner under the Partnership
Agreement, to receive certain preferred distributions (the "Preferred Incentive
Return") pursuant to Section 5.7 of the Partnership Agreement. In exchange
therefor the REIT will be obligated to pay the Special Limited Partner a cash
purchase price (the "Cash Price") equal to the amount of the Preferred Incentive
Return that would be distributed to the Special Limited Partner under the
Operating Partnership if all of the Company's assets were sold for cash at their
then current fair market value (taking into account, among other things,
expected future performance of the underlying investments, the "Fair Market
Value"). In the event that the REIT does not elect to exercise such option to
purchase the Preferred Incentive Return, the Special Limited Partner shall have
the right to require the REIT to do so at the Cash Price by delivering to the
REIT written notice within twenty (20) days following such termination. The Fair
Market Value shall be determined by independent appraisal to be conducted by a
nationally recognized appraisal firm mutually agreed upon by the REIT and the
Special Limited Partner. If the REIT and the Special Limited Partner are unable
to agree upon an appraisal firm, then each of the REIT and the Special Limited
Partner shall choose an independent appraisal firm to conduct an appraisal. In
such event, (i) if the appraisals prepared by the two appraisers so selected are
the same or differ by an amount that does not exceed 20% of the higher of the
two appraisals, the Fair Market Value will be deemed to be the average of such
appraisals, and (ii) if the two appraisals differ by more than 20% of the higher
of the two appraisals, the two appraisers together shall select a third
nationally recognized appraisal firm to conduct an appraisal. If the two
appraisers are unable to agree as to the identity of such third appraiser,
either of the Special Limited Partner and the REIT may request that the American
Arbitration Association ("AAA") select the third appraiser, which shall then be
selected by the AAA. The Fair Market Value will then be deemed to be the amount
determined by such third appraiser, but in no event less than the lower or more
than the higher of the first two appraisals made under this Section 16(b).
SECTION 17. RELEASE OF MONEY OR OTHER PROPERTY UPON WRITTEN REQUEST.
The Manager agrees that any money or other property of the Company or Subsidiary
held by the Manager under this Agreement shall be held by the Manager as
custodian for the Company or Subsidiary, and the Manager's records shall be
appropriately marked clearly to reflect the ownership of such money or other
property by the Company or such Subsidiary. Upon the receipt by the Manager of a
written request signed by a duly authorized officer of the Company requesting
the
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<PAGE> 22
Manager to release to the Company or any Subsidiary any money or other property
then held by the Manager for the account of the Company or any Subsidiary under
this Agreement, the Manager shall release such money or other property to the
Company or any Subsidiary within a reasonable period of time, but in no event
later than sixty (60) days following such request. The Manager shall not be
liable to the Company, any Subsidiary, the Independent Directors, or the
Company's or a Subsidiary's stockholders or partners for any acts performed or
omissions to act by the Company or any Subsidiary in connection with the money
or other property released to the Company or any Subsidiary in accordance with
the first sentence of this Section 17. The Company and any Subsidiary shall
indemnify the Manager and its members, managers, officers and employees against
any and all expenses, losses, damages, liabilities, demands, charges and claims
of any nature whatsoever, which arise in connection with the Manager's release
of such money or other property to the Company or any Subsidiary in accordance
with the terms of this Section 17. Indemnification pursuant to this provision
shall be in addition to any right of the Manager to indemnification under
Section 11 of this Agreement.
SECTION 18. NOTICES. Unless expressly provided otherwise in this
Agreement, all notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given, made and received when delivered against receipt or upon actual
receipt of (i) personal delivery, (ii) delivery by reputable overnight courier,
(iii) delivery by facsimile transmission against answerback, (iv) delivery by
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) If to the Company:
Fortress Investment Corp.
One Penn Plaza
250 West 34th Street, Suite 3600
New York, New York 10119
Attention: Mr. Randal A. Nardone
(b) If to the Manager:
Fortress Investment Group, LLC
One Penn Plaza
25 West 34th Street, Suite 3600
New York, New York 10119
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<PAGE> 23
Attention: Mr. Randal A. Nardone
Either party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this Section 18 for the giving of notice.
SECTION 19. BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and permitted
assigns as provided in this Agreement.
SECTION 20. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter of this Agreement, and supersedes all prior and contemporaneous
agreements, understandings, inducements and conditions, express or implied, oral
or written, of any nature whatsoever with respect to the subject matter of this
Agreement. The express terms of this Agreement control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms of
this Agreement. This Agreement may not be modified or amended other than by an
agreement in writing.
SECTION 21. CONTROLLING LAW. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement shall be governed
by and construed, interpreted and enforced in accordance with the laws of the
State of New York, notwithstanding any New York or other conflict-of-law
provisions to the contrary.
SECTION 22. INDULGENCES, NOT WAIVERS. Neither the failure nor any delay
on the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
SECTION 23. TITLES NOT TO AFFECT INTERPRETATION. The titles of
paragraphs and subparagraphs contained in this Agreement are for convenience
only, and they
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<PAGE> 24
neither form a part of this Agreement nor are they to be used in the
construction or interpretation of this Agreement.
SECTION 24. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
SECTION 25. PROVISIONS SEPARABLE. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
SECTION 26. GENDER. Words used herein regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
REIT:
FORTRESS INVESTMENT CORP., a
Maryland corporation
By: /s/ Randal A. Nardone
Its: Chief Operating Officer and Secretary
OPERATING PARTNERSHIP:
FORTRESS PARTNERS, L.P., Delaware
limited partnership
By: Fortress Investment Corp., its general
partner
By: /s/ Randal A. Nardone
Its: Chief Operating Officer and Secretary
MANAGER:
FORTRESS INVESTMENT GROUP
LLC, a Delaware limited liability company
By: /s/ Randal A. Nardone
Its: Chief Operating Officer and Secretary
<PAGE> 26
For the purposes of Section 16(b)
of this Agreement:
SPECIAL LIMITED PARTNER:
FORTRESS PRINCIPAL INVESTMENT GROUP LLC,
a Delaware limited liability company
By: /s/ Randal A. Nardone
Its: Chief Operating Officer and Secretary
<PAGE> 1
Exhibit 10.2
AGREEMENT OF LIMITED PARTNERSHIP
OF
FORTRESS PARTNERS, L.P.
a Delaware limited partnership
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP
AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM
AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT
THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND
UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS.
dated as of June 10, 1998
<PAGE> 2
AGREEMENT OF
LIMITED PARTNERSHIP OF FORTRESS PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF FORTRESS PARTNERS,
L.P., dated as of June10, 1998, is entered into by and between Fortress
Investment Corp., a Maryland corporation (the "General Partner") and the
Special Limited Partner (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.3.A
hereof.
"Additional Limited Partner" means a Person who is admitted to
the Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2
hereof and who is shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Partnership Year, after giving effect to the following
adjustments:
(i) decrease such deficit by any amounts that such
Partner is obligated to restore pursuant to this Agreement or by
operation of law upon liquidation of such Partner's Partnership
Interest or is deemed to be obligated to restore pursuant to the
penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) increase such deficit by the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the
event that:
<PAGE> 3
(i) the General Partner (a) declares or pays a
dividend on its outstanding REIT Shares in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT
Shares, (b) splits or subdivides its outstanding REIT Shares or (c)
effects a reverse stock split or otherwise combines its outstanding
REIT Shares into a smaller number of REIT Shares, the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor previously in
effect by a fraction, (i) the numerator of which shall be the number of
REIT Shares issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend,
distribution, split, subdivision, reverse split or combination has
occurred as of such time) and (ii) the denominator of which shall be
the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or
combination;
(ii) the General Partner distributes any rights,
options or warrants to all holders of its REIT Shares to subscribe for
or to purchase or to otherwise acquire REIT Shares (or other securities
or rights convertible into, exchangeable for or exercisable for REIT
Shares) at a price per share less than the Value of a REIT Share on the
record date for such distribution (each a "Distributed Right"), then
the Adjustment Factor shall be adjusted by multiplying the Adjustment
Factor previously in effect by a fraction (a) the numerator of which
shall be the number of REIT Shares issued and outstanding on the record
date plus the maximum number of REIT Shares purchasable under such
Distributed Rights and (b) the denominator of which shall be the number
of REIT Shares issued and outstanding on the record date plus a
fraction (1) the numerator of which is the maximum number of REIT
Shares purchasable under such Distributed Rights times the minimum
purchase price per REIT Share under such Distributed Rights and (2) the
denominator of which is the Value of a REIT Share as of the record
date; provided, however, that, if any such Distributed Rights expire or
become no longer exercisable, then the Adjustment Factor shall be
adjusted, effective retroactive to the date of distribution of the
Distributed Rights, to reflect a reduced maximum number of REIT Shares
or any change in the minimum purchase price for the purposes of the
above fraction; and
(iii) the General Partner shall, by dividend or
otherwise, distribute to all holders of its REIT Shares evidences of
its indebtedness or assets (including securities, but excluding any
dividend or distribution referred to in subsection (i) above), which
evidences of indebtedness or assets relate to assets not received by
the General Partner and/or any Special Limited Partner pursuant to a
pro rata distribution by the Partnership, then the Adjustment Factor
shall be adjusted to equal the amount determined by multiplying the
Adjustment Factor in effect immediately prior to the close of business
on the date fixed for determination of shareholders entitled to receive
such distribution by a fraction (i) the numerator of which shall be
such Value of a REIT Share on the date fixed for such determination and
(ii) the denominator of which shall be the Value of a REIT Share on the
dates fixed for such determination less the then fair market value (as
determined by the General Partner, whose determination shall be
conclusive) of the portion of the evidences of indebtedness or assets
so distributed applicable to one REIT Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event, provided, however, that any Limited Partner may waive, by
written
2
<PAGE> 4
notice to the General Partner, the effect of any adjustment to the Adjustment
Factor applicable to the Partnership Common Units held by such Limited Partner,
and, thereafter, such adjustment will not be effective as to such Partnership
Common Units. For illustrative purposes, examples of adjustments to the
Adjustment Factor are set forth on Exhibit B attached hereto.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling or controlled by or under common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Agreement of Limited Partnership of
Fortress Partners, L.P., as it may be amended, supplemented or restated from
time to time.
"Applicable Percentage" has the meaning set forth in Section
8.6.B hereof.
"Appraisal" means, with respect to any assets, the written
opinion of an independent third party experienced in the valuation of similar
assets, selected by the General Partner in good faith. Such opinion may be in
the form of an opinion by such independent third party that the value for such
property or asset as set by the General Partner is fair, from a financial point
of view, to the Partnership.
"Assignee" means a Person to whom one or more Partnership
Common Units have been Transferred in a manner permitted under this Agreement,
but who has not become a Substituted Limited Partner, and who has the rights set
forth in Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(1) the Partnership's Net Income or Net
Loss (as the case may be) for such period,
(2) Depreciation and all other noncash
charges to the extent deducted in determining Net Income or
Net Loss for such period,
(3) the amount of any reduction in
reserves of the Partnership referred to in clause (ii)(6)
below (including, without limitation, reductions resulting
because the General Partner determines such amounts are no
longer necessary),
(4) the excess, if any, of the net cash
proceeds from the sale, exchange, disposition, financing or
refinancing of Partnership property for such period over the
gain (or loss, as the case may be) recognized from such sale,
exchange, disposition, financing or refinancing during such
period (excluding Terminating Capital Transactions), and
(5) all other cash received (including
amounts previously accrued as Net Income and amounts of
deferred income) or any net amounts borrowed by the
3
<PAGE> 5
Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(1) all principal debt payments made
during such period by the Partnership,
(2) capital expenditures made by the
Partnership during such period,
(3) investments in any entity
(including loans made thereto) to the extent that such
investments are not otherwise described in clause (ii)(1) or
clause (ii)(2) above,
(4) all other expenditures and payments
not deducted in determining Net Income or Net Loss for such
period (including amounts paid in respect of expenses
previously accrued),
(5) any amount included in determining
Net Income or Net Loss for such period that was not received
by the Partnership during such period,
(6) the amount of any increase in
reserves (including, without limitation, working capital
reserves) established during such period that the General
Partner determines are necessary or appropriate in its sole
and absolute discretion, and
(7) any amount distributed or paid in
redemption of any Limited Partner Interest or Partnership
Units including, without limitation, any Cash Amount paid.
Notwithstanding the foregoing, Available Cash shall not include (a) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership or (b) any Capital Contributions,
whenever received.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" means, with respect to any Partner, the
Capital Account maintained by the General Partner for such Partner on the
Partnership's books and records in accordance with the following provisions:
(a) To each Partner's Capital Account, there
shall be added such Partner's Capital Contributions, such Partner's distributive
share of Net Income and any items in the nature of income or gain that are
specially allocated pursuant to Section 6.3 hereof, and the principal amount of
any Partnership liabilities assumed by such Partner or that are secured by any
property distributed to such Partner.
(b) From each Partner's Capital Account, there
shall be subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses that are specially allocated
4
<PAGE> 6
pursuant to Section 6.3 hereof, and the principal amount of any liabilities of
such Partner assumed by the Partnership or that are secured by any property
contributed by such Partner to the Partnership.
(c) In the event any interest in the Partnership
is Transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent that it
relates to the Transferred interest.
(d) In determining the principal amount of any
liability for purposes of subsections (a) and (b) hereof, there shall be taken
into account Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
(e) The provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a
manner consistent with such Regulations. If the General Partner shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General Partner may
make such modification provided that such modification will not have a material
effect on the amounts distributable to any Partner without such Partner's
Consent. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate
modifications in the event that unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Account Deficit" has the meaning set forth in Section
13.2.C hereof.
"Capital Contribution" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any Contributed Property
that such Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or
4.3 hereof or is deemed to contribute pursuant to Section 4.4 hereof.
"Cash Amount" means the lesser of (a) an amount of cash equal
to the product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount
determined as of the applicable Valuation Date or (b) in the case of a
Declination followed by an Offering Funding, the Offering Funding Amount.
"Certificate" means the Certificate of Limited Partnership of
the Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Amended and Restated Articles of
Incorporation of the General Partner filed with the State Department of
Assessments and Taxation of Maryland, on the Effective Date, as amended,
supplemented or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time or any successor statute thereto, as interpreted by
the applicable Regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
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<PAGE> 7
"Consent" means the consent to, approval of, or vote in favor
of a proposed action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a
Majority in Interest of the Limited Partners, which Consent shall be obtained
prior to the taking of any action for which it is required by this Agreement
and, except as otherwise provided in this Agreement, may be given or withheld by
a Majority in Interest of the Limited Partners.
"Contributed Property" means each item of property or other
asset, in such form as may be permitted by the Act, but excluding cash,
contributed or deemed contributed to the Partnership (or deemed contributed by
the Partnership to a "new" partnership pursuant to Code Section 708).
"Controlled Entity" means, as to any Limited Partner, (a) any
corporation more than fifty percent (50%) of the outstanding voting stock of
which is owned by such Limited Partner or such Limited Partner's Family Members,
(b) any trust, whether or not revocable, of which such Limited Partner or such
Limited Partner's Family Members are the sole beneficiaries, (c) any partnership
of which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"Cut-Off Date" means the fifth (5th) Business Day after the
General Partner's receipt of a Notice of Redemption.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person; (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof; and (iv) lease
obligations of such Person that, in accordance with generally accepted
accounting principles, should be capitalized.
"Declination" has the meaning set forth in Section 8.6.D
hereof.
"Depreciation" means, for each Partnership Year or other
applicable period, an amount equal to the federal income tax depreciation,
amortization or other cost recovery deduction allowable with respect to an asset
for such year or other period, except that if the Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year or period, Depreciation shall be in an amount that bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period bears to such beginning adjusted tax basis; provided, however, that
if the federal income tax depreciation, amortization or other cost recovery
deduction for such year or period is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the General Partner.
"Distributed Right" has the meaning set forth in the
definition of "Adjustment Factor."
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<PAGE> 8
"Effective Date" means June 10, 1998.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Family Members" means, as to a Person that is an individual,
such Person's spouse, ancestors, descendants (whether by blood or by adoption),
brothers and sisters and intervivos or testamentary trusts of which only such
Person and his spouse, ancestors, descendants (whether by blood or by adoption),
brothers and sisters are beneficiaries.
"Funding Debt" means any Debt incurred by or on behalf of the
General Partner or any Special Limited Partner for the purpose of providing
funds to the Partnership.
"Funds from Operations" is as defined by the National
Association of Real Estate Investment Trusts ("NAREIT") and means net income
(computed in accordance with GAAP) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization on real
estate assets, and after adjustments for unconsolidated partnerships and joint
ventures.
"General Partner" means Fortress Investment Corp., a Maryland
corporation, and its successors and assigns, as the general partner of the
Partnership in their capacities as general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held
by the General Partner, which Partnership Interest is an interest as a general
partner under the Act. A General Partner Interest may be expressed as a number
of Partnership Common Units, Partnership Preferred Units or any other
Partnership Units.
"General Partner Loan" has the meaning set forth in Section
4.3.D hereof.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair market value
of such asset as determined by the General Partner and agreed to by the
contributing Partner. In any case in which the General Partner and the
contributing Partner are unable to agree as to the gross fair market value of
any contributed asset or assets, such gross fair market value shall be
determined by Appraisal.
(b) The Gross Asset Values of all Partnership
assets immediately prior to the occurrence of any event described in clause (i),
clause (ii), clause (iii), clause (iv) or clause (v) hereof shall be adjusted to
equal their respective gross fair market values, as determined by the General
Partner using such reasonable method of valuation as it may adopt, as of the
following times:
(i) the acquisition of an additional
interest in the Partnership (other than in connection with the
execution of this Agreement but including, without limitation,
acquisitions pursuant to Section 4.2 hereof or contributions
or deemed contributions by the General Partner pursuant to
Section 4.2 hereof) by a new or existing Partner in exchange
for more than a de minimis
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<PAGE> 9
Capital Contribution, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership
to a Partner of more than a de minimis amount of Partnership
property as consideration for an interest in the Partnership,
if the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership
within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor
General Partner pursuant to Section 12.1 hereof; and
(v) at such other times as the General
Partner shall reasonably determine necessary or advisable in
order to comply with Regulations Sections 1.704-1(b) and
1.704-2.
(c) The Gross Asset Value of any Partnership
asset distributed to a Partner shall be the gross fair market value of such
asset on the date of distribution as determined by the distributee and the
General Partner provided that, if the distributee is the General Partner or if
the distributee and the General Partner cannot agree on such a determination,
such gross fair market value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but
only to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
subsection (d) to the extent that the General Partner reasonably determines that
an adjustment pursuant to subsection (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership
asset has been determined or adjusted pursuant to subsection (a), subsection (b)
or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by
the Depreciation taken into account with respect to such asset for purposes of
computing Net Income and Net Losses.
"Holder" means either (a) a Partner or (b) an Assignee, owning
a Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
"Incapacity" or "Incapacitated" means, (i) as to any Partner
who is an individual, death, total physical disability or entry by a court of
competent jurisdiction adjudicating such Partner incompetent to manage his or
her person or his or her estate; (ii) as to any Partner that is a corporation or
limited liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any Partner that is a partnership, the dissolution and commencement of winding
up of the partnership; (iv) as to any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Partner is adjudged
8
<PAGE> 10
as bankrupt or insolvent, or a final and nonappealable order for relief under
any bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
above is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of its status as (A) the General Partner or (B) a director of the
General Partner or an officer or employee of the Partnership or the General
Partner and (ii) such other Persons (including Affiliates of the General Partner
or the Partnership) as the General Partner may designate from time to time
(whether before or after the event giving rise to potential liability), in its
sole and absolute discretion.
"Independent Director" has the meaning ascribed thereto in the
Charter.
"Interest" means interest, original issue discount and other
similar payments or amounts paid by the Partnership for the use or forbearance
of money.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Junior Share" means a share of capital stock of the General
Partner now or hereafter authorized or reclassified that has dividend rights, or
rights upon liquidation, winding up and dissolution, that are inferior or junior
to the REIT Shares.
"Limited Partner" means the Special Limited Partner and any
Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit
A may be amended from time to time, or any Substituted Limited Partner or
Additional Limited Partner, in such Person's capacity as a Limited Partner in
the Partnership.
"Limited Partner Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partner Interest may be
expressed as a number of Partnership Common Units, Partnership Preferred Units
or other Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.2.A
hereof.
"Majority in Interest of the Limited Partners" means Limited
Partners holding more than fifty percent (50%) of the outstanding Partnership
Common Units held by all Limited Partners.
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<PAGE> 11
"Management Agreement" shall mean the Management Agreement,
dated as of the Effective Date, among the General Partner, the Partnership and
the Manager, as such Management Agreement may be amended, modified,
supplemented, replaced or restated, from time to time.
"Manager" shall mean Fortress Investment Group LLC, a Delaware
limited liability company or any affiliate of Fortress Investment Group LLC who
shall succeed to its interest as "manager" under the Management Agreement.
"Net Income" or "Net Loss" means, for each Partnership Year of
the Partnership, an amount equal to the Partnership's taxable income or loss for
such year, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing Net Income
(or Net Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be
added to (or subtracted from, as the case may be) such taxable income (or loss);
(b) Any expenditure of the Partnership described in
Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the
case may be) such taxable income (or loss);
(c) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of
the definition of "Gross Asset Value," the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such asset for
purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and
other cost recovery deductions that would otherwise be taken into account in
computing such taxable income or loss, there shall be taken into account
Depreciation for such Partnership Year;
(f) To the extent that an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as a result of a distribution other than in liquidation of a Partner's interest
in the Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the asset
and shall be taken into account for purposes of computing Net Income or Net
Loss; and
(g) Notwithstanding any other provision of this
definition of "Net Income" or "Net Loss," any item that is specially allocated
pursuant to Section 6.3 hereof shall not be taken into account in computing Net
Income or Net Loss. The amounts of the items of Partnership income, gain, loss
or deduction available to be specially allocated pursuant to Section 6.3 hereof
shall be determined by applying rules analogous to those set forth in this
definition of "Net Income" or "Net Loss."
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<PAGE> 12
"New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or Preferred Shares, excluding Preferred Shares, Junior
Shares and grants under the Stock Option Plans, or (ii) any Debt issued by the
General Partner that provides any of the rights described in clause (i).
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
substantially in the form of Exhibit C attached to this Agreement.
"Offering Funding" has the meaning set forth in Section
8.6.D(2) hereof.
"Offering Funding Amount" means the dollar amount equal to (i)
the product of (x) the number of Offering Funding Shares sold in an Offering
Funding and (y) the offering price per share of such Offering Funding Shares in
such Offering Funding, less (ii) the aggregate underwriting discounts and
commissions in such Offering Funding.
"Offering Funding Shares" has the meaning set forth in Section
8.6.D(2) hereof.
"Ownership Limit" means the applicable restriction or
restrictions on ownership of shares of the General Partner imposed under the
Charter.
"Partner" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"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 Fortress Partnership, L.P., the Delaware
limited partnership formed under the Act and pursuant to this Agreement, and any
successor thereto.
"Partnership Common Unit" means a fractional share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2
hereof, but does not include any Partnership Preferred Unit or any other
Partnership Unit specified in a Partnership Unit Designation as being other than
a Partnership Common Unit; provided, however, that the General Partner Interest
and the Limited Partner Interests shall have the differences in rights and
privileges as specified in this Agreement. The ownership of Partnership Common
Units may (but need not, in the sole and absolute
11
<PAGE> 13
discretion of the General Partner) be evidenced by the form of certificate for
Partnership Common Units attached hereto as Exhibit D.
"Partnership Interest" means an ownership interest in the
Partnership held by either a Limited Partner or the General Partner and includes
any and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Common Units, Partnership
Preferred Units or other Partnership Units.
"Partnership Junior Unit" means a fractional share of the
Partnership Interests that the General Partner has authorized pursuant to
Section 4.1 or Section 4.2 or Section 4.3 hereof that has distribution rights,
or rights upon liquidation, winding up and dissolution, that are inferior or
junior to the Partnership Common Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Preferred Unit" means a fractional share of the
Partnership Interests that the General Partner has authorized pursuant to
Section 4.1 or Section 4.2 or Section 4.3 hereof that has distribution rights,
or rights upon liquidation, winding up and dissolution, that are superior or
prior to the Partnership Common Units.
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash pursuant to Section
5.1 hereof, which record date shall generally be the same as the record date
established by the General Partner for a distribution to its shareholders of
some or all of its portion of such distribution.
"Partnership Unit" shall mean a Partnership Common Unit, a
Partnership Preferred Unit, a Partnership Junior Unit or any other fractional
share of the Partnership Interests that the General Partner has authorized
pursuant to Section 4.1 or Section 4.2 or Section 4.3 hereof.
"Partnership Unit Designation" shall have the meaning set
forth in Section 4.2 hereof.
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to each Partner, its interest
in the Partnership Units as determined by dividing the Partnership Units owned
by such Partner by the total number of Partnership Units then outstanding.
"Permitted Transfer" has the meaning set forth in Section
11.3.A hereof.
"Person" means an individual or a corporation, partnership,
trust, unincorporated organization, association, limited liability company or
other entity, including and federal, state or local government or any agency or
subdivision thereof.
"Pledge" has the meaning set forth in Section 11.3.A hereof.
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<PAGE> 14
"Preferred Share" means a share of capital stock of the
General Partner now or hereafter authorized or reclassified that has dividend
rights, or rights upon liquidation, winding up and dissolution, that are
superior or prior to the REIT Shares.
"Primary Offering Notice" has the meaning set forth in Section
8.6.F(4) hereof.
"Private Placement" means the private placement of REIT Shares
of the General Partner pursuant to exemption from registration under the
Securities Act, as described in the Offering Memorandum dated June 5, 1998.
"Properties" means any assets and property of the Partnership
such as, but not limited to, interests in real property and personal property,
including, without limitation, fee interests, interests in ground leases,
interests in limited liability companies, joint ventures or partnerships,
interests in mortgages, and Debt instruments as the Partnership may hold from
time to time and "Property" shall mean any one such asset or property.
"Qualified REIT Subsidiary" means a qualified REIT subsidiary
of the General Partner within the meaning of Code Section 856(i)(2).
"Qualified Transferee" means an "accredited investor" as
defined in Rule 501 promulgated under the Securities Act.
"Qualifying Party" means (a) the Special Limited Partner, (b)
an Additional Limited Partner, (c) a Family Member, or a lending institution as
the pledgee of a Pledge, who is the transferee in a Permitted Transfer or (d) a
Substituted Limited Partner succeeding to all or part of the Limited Partner
Interest of (i) the Special Limited Partner, (ii) an Additional Limited Partner,
or (iii) a Family Member, or a lending institution who is the pledgee of a
Pledge, who is the transferee in a Permitted Transfer.
"Redemption" has the meaning set forth in Section 8.6.A
hereof.
"Regulations" means the applicable income tax regulations
under the Code, whether such regulations are in proposed, temporary or final
form, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section
6.3.B(viii) hereof.
"REIT" means a real estate investment trust qualifying under
Code Section 856.
"REIT Partner" means (a) a Partner, including, without
limitation, the General Partner, that is, or has made an election to qualify as,
a REIT, (b) any Qualified REIT Subsidiary of any Partner that is, or has made an
election to qualify as, a REIT and (c) any Partner that is a Qualified REIT
Subsidiary of a REIT.
"REIT Payment" has the meaning set forth in Section 15.11
hereof.
"REIT Requirements" has the meaning set forth in Section 5.1
hereof.
"REIT Share" means a share of the General Partner's Common
Shares, par value $.01 per share. Where relevant in this Agreement, "REIT
Shares" includes shares of the General Partner's Common Shares, par value $.01
per share, issued upon conversion of Preferred Shares or Junior Shares.
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<PAGE> 15
"REIT Shares Amount" means a number of REIT Shares equal to
the product of (a) the number of Tendered Units and (b) the Adjustment Factor;
provided, however, that, in the event that the General Partner issues to all
holders of REIT Shares as of a certain record date rights, options, warrants or
convertible or exchangeable securities entitling the General Partner's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the General
Partner in good faith.
"Related Party" means, with respect to any Person, any other
Person whose ownership of shares of the General Partner's capital stock would be
attributed to the first such Person under Code Section 544 (as modified by Code
Section 856(h)(1)(B)).
"Rights" has the meaning set forth in the definition of "REIT
Shares Amount."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Services Agreement" means any management, development or
advisory agreement with a property and/or asset manager for the provision of
property management, asset management, leasing, development and/or similar
services with respect to the Properties and any agreement for the provision of
services of accountants, legal counsel, appraisers, insurers, brokers, transfer
agents, registrars, developers, financial advisors and other professional
services.
"Single Funding Notice" has the meaning set forth in Section
8.6.D(3) hereof.
"Special Limited Partner" means Fortress Principal Investment
Group LLC, a Delaware limited liability company.
"Specified Redemption Date" means the later of (a) the tenth
(10th) Business Day after the receipt by the General Partner of a Notice of
Redemption or (b) in the case of a Declination followed by an Offering Funding,
the Business Day next following the date of the closing of the Offering Funding;
provided, however, that no Specified Redemption Date shall occur during the
first Twelve-Month Period; provided, further, that the Specified Redemption
Date, as well as the closing of a Redemption, or an acquisition of Tendered
Units by the General Partner pursuant to Section 8.6.B hereof, on any Specified
Redemption Date, may be deferred, in the General Partner's sole and absolute
discretion, for such time (but in any event not more than one hundred fifty
(150) days in the aggregate) as may reasonably be required to effect, as
applicable, (i) an Offering Funding or other necessary funding arrangements,
(ii) compliance with the Securities Act or other law (including, but not limited
to, (a) state "blue sky" or other securities laws and (b) the expiration or
termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"Stock Option Plan" means any stock option plan hereafter
adopted by the Partnership or the General Partner.
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"Subsidiary" means, with respect to any Person, any other
Person (which is not an individual) of which a majority of (i) the voting power
of the voting equity securities or (ii) the outstanding equity interests is
owned, directly or indirectly, by such Person; provided, however, that, with
respect to the Partnership, "Subsidiary" means solely a partnership or limited
liability company (taxed, for federal income tax purposes, as a partnership and
not as an association or publicly traded partnership taxable as a corporation)
of which the Partnership is a partner or member, as applicable, unless the
General Partner has received an unqualified opinion from independent counsel of
recognized standing, or a ruling from the IRS, that the ownership of shares of
stock of a corporation or other entity will not jeopardize the General Partner's
status as a REIT, in which event the term "Subsidiary" shall include the
corporation or other entity which is the subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Section 6.4.A hereof.
"Tendered Units" has the meaning set forth in Section 8.6.A
hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A
hereof.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Transfer," when used with respect to a Partnership Unit, or
all or any portion of a Partnership Interest, means any sale, assignment,
bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, "Transfer" does not
include (a) any Redemption of Partnership Common Units by the Partnership, or
acquisition of Tendered Units by the General Partner, pursuant to Section 8.6
hereof or (b) any redemption of Partnership Units pursuant to any Partnership
Unit Designation. The terms "Transferred" and "Transferring" have correlative
meanings.
"Twelve-Month Period" means (a) as to the Special Limited
Partner or any successor-in-interest of the Special Limited Partner that is a
Qualifying Party, a twelve-month period ending on the day before the first (1st)
anniversary of the Effective Date or on the day before a subsequent anniversary
thereof and (b) as to any other Qualifying Party, a twelve-month period ending
on the day before the first (1st) anniversary of such Qualifying Party's
becoming a Holder of Partnership Common Units or on the day before a subsequent
anniversary thereof; provided, however, that the General Partner may, in its
sole and absolute discretion, by written agreement with a Qualifying Party,
shorten or lengthen the first Twelve-Month Period to a period of shorter or
longer than twelve (12) months with respect to a Qualifying Party.
"Unitholder" means the General Partner or any Holder of
Partnership Units.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
immediately preceding Business Day.
"Value" means, on any Valuation Date with respect to a REIT
Share, the average of the daily Market Prices (as defined below) for ten (10)
consecutive trading days immediately preceding the Valuation Date (except that,
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as provided in Section 4.4.C. hereof, the Market Price for the trading day
immediately preceding the date of exercise of a stock option under any Stock
Option Plans shall be substituted for such average of daily market prices for
purposes of Section 4.4 hereof). The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding REIT Shares, the Closing
Price for such REIT Shares on such date. The "Closing Price" on any date shall
mean the last sale price for such REIT Shares, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, for such REIT Shares, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if such REIT Shares are
not listed or admitted to trading on the New York Stock Exchange, as reported on
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
REIT Shares are listed or admitted to trading or, if such REIT Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if such REIT Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such REIT Shares selected by the Board of
Directors of the General Partner or, in the event that no trading price is
available for such REIT Shares, the fair market value of the REIT Shares, as
determined in good faith by the Board of Directors of the General Partner.
In the event that the REIT Shares Amount includes Rights (as defined in
the definition of "REIT Shares Amount") that a holder of REIT Shares would be
entitled to receive, then the Value of such Rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited
partnership organized pursuant to the provisions of the Act and upon the terms
and subject to the conditions set forth in this Agreement. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration and termination of the Partnership shall be governed by the
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is "FORTRESS
PARTNERS, L.P." The Partnership's business may be conducted under any other name
or names deemed advisable by the General Partner, including the name of the
General Partner or any Affiliate thereof. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall notify the Partners of such change in the next regular
communication to the Partners.
Section 2.3 Registered Office and Agent; Principal Office. The
address of the registered office of the Partnership in the State of Delaware is
located at Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805, and the registered agent for service of process on the Partnership in the
State of Delaware at such registered office is Corporation Service Company, 1013
Centre Road, Wilmington Delaware, 19805. The principal office of the Partnership
is located at One Penn Plaza, 250 West 34th Street, New York, New York 10119 or
such other place
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as the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee hereby
irrevocably constitutes and appoints the General Partner, any Liquidator, and
authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments (including, without limitation, this
Agreement and the Certificate and all amendments, supplements or
restatements thereof) that the General Partner or the Liquidator deems
appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability to the
extent provided by applicable law) in the State of Delaware and in all
other jurisdictions in which the Partnership may conduct business or
own property; (b) all instruments that the General Partner or the
Liquidator deems appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement in accordance
with its terms; (c) all conveyances and other instruments or documents
that the General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation,
a certificate of cancellation; (d) all conveyances and other
instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the distribution or exchange
of assets of the Partnership pursuant to the terms of this Agreement;
(e) all instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described in,
Article 11, Article 12 or Article 13 hereof or the Capital Contribution
of any Partner; and (f) all certificates, documents and other
instruments relating to the determination of the rights, preferences
and privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms
of this Agreement or appropriate or necessary, in the sole and absolute
discretion of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or the Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to
be irrevocable and a special power coupled with an interest, in recognition of
the fact that each of the Limited Partners and Assignees will be relying upon
the power of the General Partner or the Liquidator to act as contemplated by
this Agreement in any filing or other action by it on behalf of the Partnership,
and it shall survive and not be affected by the subsequent Incapacity of any
Limited Partner or Assignee and the Transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Units or Partnership Interest and
shall extend to such Limited Partner's or Assignee's heirs, successors, assigns
and personal representatives. Each such Limited
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Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or the Liquidator, acting in good faith pursuant to such power
of attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or the Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
Section 2.5 Term. The term of the Partnership commenced on May
12, 1998, the date that the original Certificate was filed in the office of the
Secretary of State of Delaware in accordance with the Act, and shall continue
until December 31, 2051 unless the Partnership is dissolved sooner pursuant to
the provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of
the Partnership is to conduct any business, enterprise or activity permitted by
or under the Act; provided, however, such business and arrangements and
interests may be limited to and conducted in such a manner as to permit the
General Partner, in the sole and absolute discretion of the General Partner, at
all times to be classified as a REIT. The Partnership shall have all powers
necessary or desirable to accomplish the purposes enumerated. In connection with
the foregoing, the Partnership shall have full power and authority to enter
into, perform and carry out contracts of any kind, to borrow and lend money and
to issue evidence of indebtedness, whether or not secured by mortgage, deed of
trust, pledge or other lien and, directly or indirectly, to acquire and
construct additional Properties necessary, useful or desirable in connection
with its business.
Section 3.2 Powers.
A. The Partnership shall be empowered to do any and all
acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership.
B. The Partnership may contribute from time to time
Partnership capital to one or more newly formed entities solely in exchange for
equity interests therein (or in a wholly-owned subsidiary entity thereof).
C. Notwithstanding any other provision in this
Agreement, the General Partner may cause the Partnership not to take, or to
refrain from taking, any action that, in the judgment of the General Partner, in
its sole and absolute discretion, (i) could adversely affect the ability of the
General Partner to continue to qualify as a REIT, (ii) could subject the General
Partner to any additional taxes under Code Section 857 or Code Section 4981 or
any other related or successor provision of the Code, or (iii) could violate any
law or regulation of any governmental body or agency having jurisdiction over
the General Partner, its securities or the Partnership, unless such action (or
inaction) under clause (i), clause (ii) or clause (iii) above shall have been
specifically consented to by the General Partner in writing.
Section 3.3 Partnership Only for Partnership Purposes. This
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility
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on behalf of the Partnership, its Properties or any other Partner. No Partner,
in its capacity as a Partner under this Agreement, shall be responsible or
liable for any indebtedness or obligation of another Partner, and the
Partnership shall not be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner) that is
an individual represents and warrants to each other Partner(s) that (i) the
consummation of the transactions contemplated by this Agreement to be performed
by such Partner will not result in a breach or violation of, or a default under,
any material agreement by which such Partner or any of such Partner's property
is bound, or any statute, regulation, order or other law to which such Partner
is subject, (ii) subject to the last sentence of this Section 3.4.A, such
Partner is neither a "foreign person" within the meaning of Code Section 1445(f)
nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such
Partner does not own, directly or indirectly, (a) nine and eight tenths percent
(9.8%) or more of the total combined voting power of all classes of stock
entitled to vote, or nine and eight tenths percent (9.8%) or more of the total
number of shares of all classes of stock, of any corporation that is a tenant of
either (I) the General Partner or any Qualified REIT Subsidiary , (II) the
Partnership or (III) any partnership, venture or limited liability company of
which the General Partner, any Qualified REIT Subsidiary or the Partnership is a
member or (b) an interest of nine and eight tenths percent (9.8%) or more in the
assets or net profits of any tenant of either (I) the General Partner or any
Qualified REIT Subsidiary, (II) the Partnership or (III) any partnership,
venture, or limited liability company of which the General Partner, any
Qualified REIT Subsidiary or the Partnership is a member and (iv) this Agreement
is binding upon, and enforceable against, such Partner in accordance with its
terms. Notwithstanding anything contained herein to the contrary, in the event
that the representation contained in clause (ii) foregoing would be inaccurate
if given by a Partner, such Partner (w) shall not be required to make and shall
not be deemed to have made such representation, (x) shall deliver to the General
Partner in connection with or prior to its execution of this Agreement written
notice that it may not truthfully make such representation, (y) hereby agrees
that it is subject to, and hereby authorizes the General Partner to withhold,
all withholdings to which such a "foreign person" or "foreign partner", as
applicable, is subject under the Code and (z) hereby agrees to cooperate fully
with the General Partner with respect to such withholdings, including by
effecting the timely completion and delivery to the General Partner of all
internal revenue forms required in connection therewith.
B. Each Partner (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner) that is
not an individual represents and warrants to each other Partner(s) that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including, without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership or operating agreement, trust agreement, articles, charter or
bylaws, as the case may be, any material agreement by which such Partner or any
of such Partner's properties or any of its partners, members, beneficiaries,
trustees or shareholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its partners,
members, trustees, beneficiaries or shareholders, as the case may be, is or are
subject, (iii) subject to the last sentence of this Section 3.4.B, such Partner
is neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign partner" within the meaning of Code Section 1446(e), (iv) such Partner
does not own, directly or indirectly, (a) nine and eight tenths percent (9.8%)
or more of the total combined voting power of all classes of stock entitled to
vote, or nine and eight tenths percent (9.8%) or more of the total number of
shares of all classes of stock, of
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any corporation that is a tenant of either (I) the General Partner, or any
Qualified REIT Subsidiary , (II) the Partnership or (III) any partnership,
venture or limited liability company of which the General Partner, any Qualified
REIT Subsidiary or the Partnership is a member or (b) an interest of nine and
eight tenths percent (9.8%) or more in the assets or net profits of any tenant
of either (I) the General Partner or any Qualified REIT Subsidiary , (II) the
Partnership or (III) any partnership, venture or limited liability company for
which the General Partner, any Qualified REIT Subsidiary or the Partnership is a
member and (v) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms. Notwithstanding anything contained herein
to the contrary, in the event that the representation contained in clause (iii)
foregoing would be inaccurate if given by a Partner, such Partner (w) shall not
be required to make and shall not be deemed to have made such representation,
(x) shall deliver to the General Partner in connection with or prior to its
execution of this Agreement written notice that it may not truthfully make such
representation, (y) hereby agrees that it is subject to, and hereby authorizes
the General Partner to withhold, all withholdings to which such a "foreign
person" or "foreign partner", as applicable, is subject under the Code and (z)
hereby agrees to cooperate fully with the General Partner with respect to such
withholdings, including by effecting the timely completion and delivery to the
General Partner of all internal revenue forms required in connection therewith.
C. Each Partner (including, without limitation, each
Substituted Limited Partner as a condition to becoming a Substituted Limited
Partner) represents, warrants and agrees that it has acquired and continues to
hold its interest in the Partnership for its own account for investment purposes
only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, and not with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds that it has invested in the Partnership in what
it understands to be a highly speculative and illiquid investment.
D. The representations and warranties contained in
Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the execution and delivery
of this Agreement by each Partner (and, in the case of an Additional Limited
Partner or a Substituted Limited Partner, the admission of such Additional
Limited Partner or Substituted Limited Partner as a Limited Partner in the
Partnership) and the dissolution, liquidation and termination of the
Partnership.
E. Each Partner (including, without limitation, each
Substituted Limited Partner as a condition to becoming a Substituted Limited
Partner) hereby acknowledges that no representations as to potential profit,
cash flows, funds from operations or yield, if any, in respect of the
Partnership or the General Partner have been made by any Partner or any employee
or representative or Affiliate of any Partner, and that projections and any
other information, including, without limitation, financial and descriptive
information and documentation, that may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. The
Partners shall, concurrently with the Private Placement, make Capital
Contributions to the Partnership, whereupon each Partner shall own Partnership
Units in the amount set forth for such Partner on Exhibit A, as the same may be
amended from time to time by the General Partner to the extent necessary to
reflect accurately sales, exchanges or other Transfers, redemptions, Capital
Contributions, the issuance of additional Partnership Units, or similar events
having an effect on a Partner's ownership of Partnership Units.
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Except as provided by law or in Section 4.2, 4.3 or 10.4 hereof, the Partners
shall have no obligation or right to make any additional Capital Contributions
or loans to the Partnership.
Section 4.2 Issuances of Additional Partnership Interests.
A. General. The General Partner is hereby authorized to
cause the Partnership to issue additional Partnership Interests, in the form of
Partnership Units, for any Partnership purpose, at any time or from time to
time, to the Partners (including the General Partner and the Special Limited
Partner) or to other Persons, and to admit such Persons as Additional Limited
Partners, for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Without limiting the foregoing,
the General Partner is expressly authorized to cause the Partnership to issue
Partnership Units (i) upon the conversion, redemption or exchange of any Debt,
Partnership Units or other securities issued by the Partnership, (ii) for less
than fair market value, so long as the General Partner concludes in good faith
that such issuance is in the best interests of the General Partner and the
Partnership, and (iii) in connection with any merger of any other Person into
the Partnership if the applicable merger agreement provides that Persons are to
receive Partnership Units in exchange for their interests in the Person merging
into the Partnership. Subject to Delaware law, any additional Partnership
Interests may be issued in one or more classes, or one or more series of any of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as shall be deter mined by
the General Partner, in its sole and absolute discretion without the approval of
any Limited Partner, and set forth in a written document thereafter attached to
and made an exhibit to this Agreement (each, a "Partnership Unit Designation").
Without limiting the generality of the foregoing, the General Partner shall have
authority to specify (a) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (b) the right of each such class or series of Partnership Interests
to share in Partnership distributions; (c) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; (d) the voting rights, if any, of each such class or series of
Partnership Interests; and (e) the conversion, redemption or exchange rights
applicable to each such class or series of Partnership Interests. Upon the
issuance of any additional Partnership Interest, the General Partner shall amend
Exhibit A as appropriate to reflect such issuance.
B. Issuances to the General Partner. No additional
Partnership Units shall be issued to the General Partner unless (i) the
additional Partnership Units are issued to all Partners in proportion to their
respective Percentage Interests with respect to the class of Partnership Units
so issued, (ii) (a) the additional Partnership Units are (x) Partnership Common
Units issued in connection with an issuance of REIT Shares (including an
issuance of REIT Shares in connection with a dividend reinvestment plan), or (y)
Partnership Units (other than Partnership Common Units) issued in connection
with an issuance of Preferred Shares, New Securities or other interests in the
General Partner (other than REIT Shares), which Preferred Shares, New Securities
or other interests have designations, preferences and other rights, terms and
provisions that are substantially the same as the designations, preferences and
other rights, terms and provisions of the additional Partnership Units issued to
the General Partner, and (b) the General Partner contributes to the Partnership
the cash proceeds or other consideration received in connection with the
issuance of such REIT Shares, Preferred Shares, New Securities or other
interests in the General Partner, (iii) the additional Partnership Units are
issued upon the conversion, redemption or exchange of Debt, Partnership Units or
other securities issued by the Partnership, or (iv) the additional Partnership
Units are issued pursuant to Section 4.6 or Section 4.7.
C. No Preemptive Rights. No Person, including, without
limitation, any Partner or Assignee, shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest.
Section 4.3 Additional Funds and Capital Contributions.
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A. General. The General Partner may, at any time and
from time to time, determine that the Partnership requires additional funds
("Additional Funds") for the acquisition or development of additional
Properties, for the redemption of Partnership Units or for such other purposes
as the General Partner may determine in its sole and absolute discretion.
Additional Funds may be obtained by the Partnership, at the election of the
General Partner, in any manner provided in, and in accordance with, the terms of
this Section 4.3 without the approval of any Limited Partners.
B. Additional Capital Contributions. The General
Partner, on behalf of the Partnership, may obtain any Additional Funds by
accepting Capital Contributions from any Partners or other Persons. In
connection with any such Capital Contribution (of cash or property), the General
Partner is hereby authorized to cause the Partnership from time to time to issue
additional Partnership Units (as set forth in Section 4.2 above) in
consideration therefor and the Percentage Interests of the General Partner and
the Limited Partners (including the Special Limited Partner) shall be adjusted
to reflect the issuance of such additional Partnership Units .
C. Loans by Third Parties. The General Partner, on
behalf of the Partnership, may obtain any Additional Funds by causing the
Partnership to incur Debt to any Person upon such terms as the General Partner
deter mines appropriate, including making such Debt convertible, redeemable or
exchangeable for Partnership Units; provided, however, that the Partnership
shall not incur any such Debt if (i) a breach, violation or default of such Debt
would be deemed to occur by virtue of the Transfer of any Partnership Interest,
or (ii) such Debt is recourse to any Partner (unless the Partner otherwise
agrees).
D. General Partner Loans. The General Partner, on behalf
of the Partnership, may obtain any Additional Funds by causing the Partnership
to incur Debt with the General Partner (each, a "General Partner Loan") if (i)
such Debt is, to the extent permitted by law, on substantially the same terms
and conditions (including interest rate, repayment schedule, and conversion,
redemption, repurchase and exchange rights) as Funding Debt incurred by the
General Partner, the net proceeds of which are loaned to the Partnership to
provide such Additional Funds, or (ii) such Debt is on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from any third party; provided, however, that the Partnership shall not incur
any such Debt if (a) a breach, violation or default of such Debt would be deemed
to occur by virtue of the Transfer of any Partnership Interest, or (b) such Debt
is recourse to any Partner (unless the Partner otherwise agrees).
E. Issuance of Securities by the General Partner. The
General Partner shall not issue any additional REIT Shares, Preferred Shares,
Junior Shares or New Securities unless the General Partner contributes the cash
proceeds or other consideration received from the issuance of such additional
REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may
be, and from the exercise of the rights contained in any such additional New
Securities, to the Partnership in exchange for (x) in the case of an issuance of
REIT Shares, Partnership Common Units, or (y) in the case of an issuance of
Preferred Shares, Junior Shares or New Securities, Partnership Units with
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such Preferred Shares, Junior Shares or New Securities;
provided, however, that notwithstanding the foregoing, the General Partner may
issue REIT Shares, Preferred Shares, Junior Shares or New Securities (a)
pursuant to Section 4.4 or Section 8.6.B hereof, (b) pursuant to a dividend or
distribution (including any stock split) of REIT Shares, Preferred Shares,
Junior Shares or New Securities to all of the holders of REIT Shares, Preferred
Shares, Junior Shares or New Securities, as the case may be, (c) upon a
conversion, redemption or exchange of Preferred Shares, (d) upon a conversion of
Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or
exercise of New Securities, or (f) in connection with an acquisition of a
property or other asset to be owned, directly or indirectly, by the General
Partner if the General Partner determines that such acquisition is in the best
interests of the Partnership. In the event of any issuance of additional REIT
Shares, Preferred Shares, Junior Shares or New Securities by the General
Partner, and the contribution to the Partnership, by the General Partner, of the
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cash proceeds or other consideration received from such issuance, the
Partnership shall pay the General Partner's expenses associated with such
issuance, including any underwriting discounts or commissions.
Section 4.4 Stock Option Plan.
A. Options Granted to Special Limited Partner. If at any time or
from time to time, in connection with the Stock Option Plan, a stock option
granted to the Special Limited Partner, any Affiliate of the Special Limited
Partner, any employee of the Special Limited Partner or any employee of any
Affiliate of the Special Limited Partner is duly exercised:
(1) the General Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an
amount equal to the exercise price paid to the General Partner by such
exercising party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.4.A(1) hereof, the General Partner
shall be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional Limited Partner
Interest (expressed in and as additional Partnership Common Units), an
amount equal to the Value of a REIT Share as of the date of exercise
multiplied by the number of REIT Shares then being issued in connection
with the exercise of such stock option.
(3) An equitable Percentage Interest adjustment shall be made
in which the General Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.A(2) hereof.
B. Options Granted to Independent Directors. If at any time or
from time to time, in connection with the Stock Option Plan, a stock option
granted to an Independent Director is duly exercised:
(1) the General Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an
amount equal to the exercise price paid to the General Partner by such
exercising party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution
actually made pursuant to Section 4.4.B(1) hereof, the General Partner
shall be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional Limited Partner
Interest (expressed in and as additional Partnership Common Units), an
amount equal to the Value of a REIT Share as of the date of exercise
multiplied by the number of REIT Shares then being issued in connection
with the exercise of such stock option.
(3) An equitable Percentage Interest adjustment shall be made
in which the General Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.B(2) hereof.
C. Special Valuation Rule. For purposes of this Section 4.4, in
determining the Value of a REIT Share, only the trading date immediately
preceding the exercise of the relevant stock option under the Stock Option Plan
shall be considered.
D. Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the General Partner from adopting,
modifying or terminating stock incentive plans, in addition to
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the Stock Option Plan, for the benefit of employees, directors or other business
associates of the General Partner, the Partnership or any of their Affiliates.
The Limited Partners acknowledge and agree that, in the event that any such plan
is adopted, modified or terminated by the General Partner, amendments to this
Section 4.4 may become necessary or advisable and that any approval or consent
to any such amendments requested by the General Partner shall not be
unreasonably withheld or delayed.
Section 4.5 No Interest; No Return. No Partner shall be
entitled to interest on its Capital Contribution or on such Partner's Capital
Account. Except as provided herein or by law, no Partner shall have any right to
demand or receive the return of its Capital Contribution from the Partnership.
Section 4.6 Conversion or Redemption of Preferred Shares.
A. Conversion of Preferred Shares. If, at any time, any of the
Preferred Shares are converted into REIT Shares, in whole or in part, then a
number of Partnership Preferred Units equal to the number of Preferred Shares so
converted shall automatically be converted into a number of Partnership Common
Units equal to (i) the number of REIT Shares issued upon such conversion divided
by (ii) the Adjustment Factor then in effect, and the Percentage Interests of
the General Partner and the Limited Partners (including the Special Limited
Partner) shall be adjusted to reflect such conversion.
B. Redemption of Preferred Shares. If, at any time, any
Preferred Shares are redeemed (whether by exercise of a put or call,
automatically or by means of another arrangement) by the General Partner for
cash, the Partnership shall, immediately prior to such redemption of Preferred
Shares, redeem an equal number of Partnership Preferred Units held by the
General Partner, upon the same terms and for the same price per Partnership
Preferred Unit, as such Preferred Shares are redeemed.
Section 4.7 Conversion or Redemption of Junior Shares.
A. Conversion of Junior Shares. If, at any time, any of the
Junior Shares are converted into REIT Shares, in whole or in part, then a number
of Partnership Common Units equal to (i) the number of REIT Shares issued upon
such conversion divided by (ii) the Adjustment Factor then in effect shall be
issued to the General Partner, and the Percentage Interests of the General
Partner and the Limited Partners (including the Special Limited Partner) shall
be adjusted to reflect such conversion.
B. Redemption of Junior Shares. If, at any time, any Junior
Shares are redeemed (whether by exercise of a put or call, automatically or by
means of another arrangement) by the General Partner for cash, the Partnership
shall, immediately prior to such redemption of Junior Shares, redeem an equal
number of Partnership Junior Units held by the General Partner, upon the same
terms and for the same price per Partnership Junior Unit, as such Junior Shares
are redeemed.
Section 4.8 Other Contribution Provisions. In the event that
any Partner is admitted to the Partnership and is given a Capital Account in
exchange for services rendered to the Partnership, unless otherwise determined
by the General Partner in its sole and absolute discretion, such transaction
shall be treated by the Partnership and the affected Partner as if the
Partnership had compensated such partner in cash and such Partner had
contributed the cash to the capital of the Partnership. In addition, with the
consent of the General Partner, one or more Limited Partners (including the
Special Limited Partner) may enter into contribution agreements with the
Partnership which have the effect of providing a guarantee of certain
obligations of the Partnership.
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Section 4.9 Not Publicly Traded. The General Partner, on
behalf of the Partnership, shall use its best efforts not to take any action
which would result in the Partnership being a "publicly traded partnership"
under and as such term is defined in Section 7704(b) of the Code.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions.
Subject to the terms of any Partnership Unit Designation, the General Partner
shall cause the Partnership to distribute quarterly, after payments of
distributions pursuant to Section 5.7 hereof, all, or such portion as the
General Partner may in its sole and absolute discretion determine, of Available
Cash generated by the Partnership during such quarter to the Holders of
Partnership Units on such Partnership Record Date with respect to such quarter:
(i) first, with respect to any Partnership Interests that are entitled to any
preference in distribution, in accordance with the rights of such class(es) of
Partnership Interests (and, within such class(es), pro rata in proportion to the
respective Percentage Interests on such Partnership Record Date), and (ii)
second, with respect to any Partnership Interests that are not entitled to any
preference in distribution, in accordance with the rights of such class of
Partnership Interests (and, within such class, pro rata in proportion to the
respective Percentage Interests on such Partnership Record Date). Distributions
payable with respect to any Partnership Units that were not outstanding during
the entire quarterly period in respect of which any distribution is made shall
be prorated based on the portion of such period that such units were
outstanding. The General Partner in its sole and absolute discretion may
distribute to the Unitholders Available Cash on a more frequent basis and
provide for an appropriate Partnership Record Date. The General Partner shall
make such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with the General Partner's qualification as a REIT, to
cause the Partnership to distribute sufficient amounts to enable the General
Partner to pay shareholder dividends that will (a) satisfy the requirements for
qualification as a REIT under the Code and Regulations (the "REIT Requirements")
and (b) except to the extent otherwise determined by the General Partner, avoid
any federal income or excise tax liability of the General Partner.
Section 5.2 Distributions in Kind. No right is given to any
Unitholder to demand and receive property other than cash as provided in this
Agreement. The General Partner may determine, in its sole and absolute
discretion, to make a distribution in kind of Partnership assets to the
Unitholders, and such assets shall be distributed in such a fashion as to ensure
that the fair market value is distributed and allocated in accordance with
Articles 5, 6 and 10 hereof.
Section 5.3 Amounts Withheld. All amounts withheld pursuant to
the Code or any provisions of any state or local tax law and Section 10.4 hereof
with respect to any allocation, payment or distribution to any Unitholder shall
be treated as amounts paid or distributed to such Unitholder pursuant to Section
5.1 hereof for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation. Notwithstanding
the other provisions of this Article 5, net proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Unitholders in accordance with Section 13.2 hereof.
Section 5.5 Distributions to Reflect Issuance of Additional
Partnership Units. In the event that the Partnership issues additional
Partnership Units pursuant to the provisions of Article 4 hereof, subject to
Section 7.3.D, the General Partner is hereby authorized to make such revisions
to this Article 5 as it determines are necessary or desirable to reflect the
issuance of such additional Partnership Units, including, without limitation,
making preferential distributions to certain classes of Partnership Units.
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Section 5.6 Restricted Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, neither the Partnership
nor the General Partner, on behalf of the Partnership, shall make a distribution
to any Unitholder on account of its Partnership Interest or interest in
Partnership Units if such distribution would violate Section 17-607 of the Act
or other applicable law.
Section 5.7 Preferred Distributions. In addition to any and
all distributions to be made pursuant to Section 5.1 hereof, the Special Limited
Partner shall be entitled to receive a preferred distribution from the
Partnership for each fiscal quarter, on a cumulative, but not compounding,
basis, in an amount equal to the product of (A) 25% of the dollar amount by
which (1)(a) the Funds from Operations (before such preferred distribution) of
the General Partner and the Partnership, per REIT Share and per Partnership
Common Unit (based on the weighted average number of REIT Shares and Partnership
Common Units outstanding), plus (b) gains (or losses) from debt restructuring
and gains (or losses) from sales of property per REIT Share and per Partnership
Common Unit (based on the weighted average number of REIT Shares and Partnership
Common Units outstanding), exceed (2) an amount equal to (a) the weighted
average of the price per REIT Share at the initial offering of the General
Partner's REIT Shares and the prices per REIT Share (or Partnership Common
Units) at any subsequent offerings by the General Partner or the Partnership
(adjusted for any prior capital dividends or capital distributions) multiplied
by (b) a simple interest rate of ten percent (10%) per annum (divided by four to
adjust for quarterly calculations) multiplied by (B) the weighted average number
of REIT Shares and Partnership Common Units outstanding during such period. It
is intended that the preferred distributions payable to the Special Limited
Partner pursuant to this Section 5.7 shall be treated as a preferred return of
partnership income and not as a guaranteed payment for services pursuant to Code
Section 707(c).
Section 5.8 Right to Purchase Preferred Distributions. Upon
any termination of the Management Agreement, the General Partner shall be
entitled to purchase the right to receive the preferred distributions pursuant
to Section 5.7 from the Special Limited Partner, and in the event the General
Partner elects not to do so the Special Limited Partner shall have the right to
require the General Partner to do so, in each case in accordance with the
provisions of Section 16(b) of the Management Agreement.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and
Net Loss. Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Partnership Year of the Partnership as of the end
of each such year. Except as otherwise provided in this Article 6, and subject
to Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income
or Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that is taken into account in computing Net
Income or Net Loss.
Section 6.2 General Allocations.
A. In General. Subject to the terms of any Partnership
Unit Designation, except as otherwise provided in this Article 6 and subject to
Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the
Holders of Partnership Units holding the same class of Partnership Units in
accordance with their respective Percentage Interests in such class at the end
of each Partnership Year.
B. Allocations to Reflect Issuance of Additional
Partnership Units. In the event that the Partnership issues additional
Partnership Units pursuant to the provisions of Article 4 hereof, the General
Partner is hereby authorized to make such revisions to this Section 6.2 as it
determines are necessary or desirable to reflect the
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terms of the issuance of such additional Partnership Units, including, without
limitation, making preferential allocations to certain classes of Partnership
Units.
C. Allocations to Reflect Preferred Distributions. Prior
to any allocation of Net Income or Net Loss pursuant to Section 6.2.A hereof, an
amount of gross income equal to the amount distributed to the Special Limited
Partner pursuant to Section 5.7 hereof shall first be allocated to the Special
Limited Partner.
Section 6.3 Additional Allocation Provisions. Notwithstanding
the foregoing provisions of this Article 6:
A. Special Allocations Regarding Partnership Preferred
Units. If any Partnership Preferred Units are redeemed pursuant to Section 4.6.B
hereof (treating a full liquidation of the General Partner Interest for purposes
of this Section 6.3.A as including a redemption of any then outstanding
Partnership Preferred Units pursuant to Section 4.6.B hereof), for the
Partnership Year that includes such redemption (and, if necessary, for
subsequent Partnership Years) (a) gross income and gain shall be allocated to
the General Partner to the extent that the Redemption Amounts paid or payable
with respect to the Partnership Preferred Units so redeemed (or treated as
redeemed) exceeds the aggregate Capital Contributions (net of liabilities
assumed or taken subject to by the Partnership) per Partnership Preferred Unit
allocable to the Partnership Preferred Units so redeemed (or treated as
redeemed) and (b) deductions and losses shall be allocated to the General
Partner to the extent that the aggregate Capital Contributions (net of
liabilities assumed or taken subject to by the Partnership) per Partnership
Preferred Unit allocable to the Partnership Preferred Units so redeemed (or
treated as redeemed) exceeds the Redemption Amount paid or payable with respect
to the Partner ship Preferred Units so redeemed (or treated as redeemed).
B. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(f), notwithstanding the
provisions of Section 6.2 hereof, or any other provision of this
Article 6, if there is a net decrease in Partnership Minimum Gain
during any Partnership Year, each Holder of Partnership Common Units
shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to
such Holder's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations Section 1.704- 2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Holder pursuant thereto. The
items to be allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
6.3.B(i) is intended to qualify as a "minimum gain chargeback" within
the meaning of Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as
otherwise provided in Regulations Section 1.704-2(i)(4) or in Section
6.3.B(i) hereof, if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year,
each Holder of Partnership Common Units who has a share of the Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Holder's share of the net decrease in Partner Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required
to be allocated to each General Partner, Limited Partner and other
Holder
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pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).
This Section 6.3.B(ii) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of
Regulations Section 1.704-2(i) and shall be interpreted consistently
therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any Partnership Year shall
be specially allocated to the Holders of Partnership Common Units in
accordance with their Partnership Common Units. Any Partner Nonrecourse
Deductions for any Partnership Year shall be specially allocated
to the Holder(s) who bears the economic risk of loss with respect to
the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable, in accordance with Regulations Section
1.704-2(i).
(iv) Qualified Income Offset. If any Holder of
Partnership Common Units receives an adjustment, allocation or
distribution described in Regulations Section 1.704- 1(b)(2)(ii)(d)(4),
(5) or (6), items of Partnership income and gain shall be allocated, in
accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such
Holder in an amount and manner sufficient to eliminate, to the extent
required by such Regulations, the Adjusted Capital Account Deficit of
such Holder as quickly as possible, provided that an allocation
pursuant to this Section 6.3.B(iv) shall be made if and only to the
extent that such Holder would have an Adjusted Capital Account Deficit
after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.3.B(iv) were not in the
Agreement. It is intended that this Section 6.3.B(iv) qualify and be
construed as a "qualified income offset" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(v) Gross Income Allocation. In the event that any
Holder of Partnership Common Units has a deficit Capital Account at the
end of any Partnership Year that is in excess of the sum of (1) the
amount (if any) that such Holder is obligated to restore to the
Partnership upon complete liquidation of such Holder's Partnership
Interest (including, the Holder's interest in outstanding Partnership
Preferred Units and other Partnership Units) and (2) the amount that
such Holder is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Holder shall be specially allocated items of
Partnership income and gain in the amount of such excess to eliminate
such deficit as quickly as possible, provided that an allocation
pursuant to this Section 6.3.B(v) shall be made if and only to the
extent that such Holder would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have
been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv)
hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the
extent that any allocation of Net Loss would cause or increase an
Adjusted Capital Account Deficit as to any Holder of Partnership Common
Units, such allocation of Net Loss shall be reallocated among the other
Holders of Partnership Common Units in accordance with their respective
Partnership Common Units, subject to the limitations of this Section
6.3.B(vi).
(vii) Section 754 Adjustment. To the extent that an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2) (iv)(m)(2) or Regulations Section
1.704- 1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a
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distribution to a Holder of Partnership Common Units in complete
liquidation of its interest in the Partnership, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Holders in accordance with their Partnership
Common Units in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such
distribution was made in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocations. The allocations set
forth in Sections 6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii)
hereof (the "Regulatory Allocations") are intended to comply with
certain regulatory requirements, including the requirements of
Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the
provisions of Section 6.1 hereof, the Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss and
deduction among the Holders of Partnership Common Units so that to the
extent possible without violating the requirements giving rise to the
Regulatory Allocations, the net amount of such allocations of other
items and the Regulatory Allocations to each Holder of a Partnership
Common Unit shall be equal to the net amount that would have been
allocated to each such Holder if the Regulatory Allocations had not
occurred.
C. Special Allocations Upon Liquidation. Notwithstanding
any provision in this Article 6 to the contrary, in the event that the
Partnership disposes of all or substantially all of its assets in a transaction
that will lead to a liquidation of the Partnership pursuant to Article 13
hereof, then any Net Income or Net Loss realized in connection with such
transaction and thereafter (and, if necessary, constituent items of income,
gain, loss and deduction) shall be specially allocated among the Partners as
required so as to cause liquidating distributions pursuant to Section 13.2.A(4)
hereof to be made in the same amounts and proportions as would have resulted had
such distributions instead been made pursuant to Article 5 hereof.
D. Allocation of Excess Nonrecourse Liabilities. For
purposes of determining a Holder's proportional share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits shall be equal to
such Holder's share of Partnership Common Units.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this
Section 6.4, for income tax purposes under the Code and the Regulations each
Partnership item of income, gain, loss and deduction (collectively, "Tax Items")
shall be allocated among the Holders of Partnership Common Units in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations.
Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is
contributed to the Partnership with a Gross Asset Value that varies from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated among the Holders of Partnership Common Units
for income tax purposes pursuant to Regulations promulgated under Code Section
704(c) so as to take into account such variation. The Partnership shall account
for such variation under any method approved under Code Section 704(c) and the
applicable Regulations as chosen by the General Partner, including, without
limitation, the "remedial allocation method" as described in Regulations Section
1.704-3(d). In the event that the Gross Asset Value of any partnership asset is
adjusted pursuant to subsection (b) of the definition of "Gross Asset Value"
(provided in Article 1 hereof), subsequent allocations of Tax Items with respect
to such asset shall take account
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of the variation, if any, between the adjusted basis of such asset and its Gross
Asset Value in the same manner as under Code Section 704(c) and the applicable
Regulations.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Partners with or without cause, except with
the Consent of the General Partner. In addition to the powers now or hereafter
granted a general partner of a limited partnership under the Act or that are
granted to the General Partner under any other provision of this Agreement, the
General Partner, subject to the other provisions hereof including Section 7.3,
shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effectuate the purposes set forth
in Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending
or borrowing of money (including, without limitation, making
prepayments on loans and borrowing money or selling assets to permit
the Partnership to make distributions to its Partners in such amounts
as will permit the General Partner (so long as the General Partner
qualifies as a REIT) to avoid the payment of any federal income tax
(including, for this purpose, any excise tax pursuant to Code Section
4981) and to make distributions to its shareholders sufficient to
permit the General Partner to maintain REIT status or otherwise to
satisfy the REIT Requirements), the assumption or guarantee of, or
other contracting for, indebtedness and other liabilities, the issuance
of evidences of indebtedness (including the securing of same by deed to
secure debt, mortgage, deed of trust or other lien or encumbrance on
the Partnership's assets) and the incurring of any obligations that it
deems necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other
filings, or rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, sale, transfer, exchange or
other disposition of any, all or substantially all of the assets of the
Partnership (including, but not limited to, the exercise or grant of
any conversion, option, privilege or subscription right or any other
right available in connection with any assets at any time held by the
Partnership) or the merger, consolidation, reorganization or other
combination of the Partnership with or into another entity;
(4) the mortgage, pledge, encumbrance or
hypothecation of any assets of the Partnership, the use of the assets
of the Partnership (including, without limitation, cash on hand) for
any purpose consistent with the terms of this Agreement and on any
terms that it sees fit, including, without limitation, the financing of
the operations and activities of the General Partner, the Partnership
or any of the Partnership's Subsidiaries, the lending of funds to other
Persons (including, without limitation, the Partnership's Subsidiaries)
and the repayment of obligations of the Partnership,
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its Subsidiaries and any other Person in which the Partnership has an
equity investment, and the making of capital contributions to and
equity investments in the Partnership's Subsidiaries;
(5) the management, operation, leasing,
landscaping, repair, alteration, demolition, replacement or improvement
of any Property, including, without limitation, any Contributed
Property, or other asset of the Partnership or any Subsidiary, whether
pursuant to the Management Agreement or otherwise;
(6) the negotiation, execution and performance
of any contracts, leases, conveyances or other instruments that the
General Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General Partner's
powers under this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other professional
advisors and other agents (including, without limitation, the Manager)
and the payment of their expenses and compensation out of the
Partnership's assets;
(7) the distribution of Partnership cash or
other Partnership assets in accordance with this Agreement, the
holding, management, investment and reinvestment of cash and other
assets of the Partnership, and the collection and receipt of revenues,
rents and income of the Partnership;
(8) the maintenance of such insurance for the
benefit of the Partnership and the Partners as it deems necessary or
appropriate, including, without limitation, (i) casualty, liability and
other insurance on the Properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder;
(9) the formation of, or acquisition of an
interest in, and the contribution of property to, any further limited
or general partnerships, limited liability companies, joint ventures or
other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of
property to, any Subsidiary and any other Person in which it has an
equity investment from time to time); provided, however, that, as long
as the General Partner has determined to continue to qualify as a REIT,
the General Partner may not engage in any such formation, acquisition
or contribution that would cause the General Partner to fail to qualify
as a REIT within the meaning of Code Section 856(a);
(10) the control of any matters affecting the
rights and obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of dispute
resolution, or abandonment, of any claim, cause of action, liability,
debt or damages, due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution, and the
representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute
resolution, the incurring of legal expense, and the indemnification of
any Person against liabilities and contingencies to the extent
permitted by law;
(11) the undertaking of any action in connection
with the Partnership's direct or indirect investment in any Subsidiary
or any other Person (including, without limitation, the contribution or
loan of funds by the Partnership to such Persons);
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(12) except as otherwise specifically set forth
in this Agreement, the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method
of valuation as it may adopt; provided that such methods are otherwise
consistent with the requirements of this Agreement;
(13) the enforcement of any rights against any
Partner pursuant to representations, warranties, covenants and
indemnities relating to such Partner's contribution of property or
assets to the Partnership;
(14) the exercise, directly or indirectly,
through any attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote, appurtenant to any
asset or investment held by the Partnership;
(15) the exercise of any of the powers of the
General Partner enumerated in this Agreement on behalf of or in
connection with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect interest, or jointly
with any such Subsidiary or other Person;
(16) the exercise of any of the powers of the
General Partner enumerated in this Agreement on behalf of any Person in
which the Partnership does not have an interest, pursuant to
contractual or other arrangements with such Person;
(17) the making, execution and delivery of any
and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts, guarantees,
warranties, indemnities, waivers, releases or legal instruments or
agreements in writing necessary or appropriate in the judgment of the
General Partner for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement;
(18) the issuance of additional Partnership
Units, as appropriate and in the General Partner's sole and absolute
discretion, in connection with Capital Contributions by Additional
Limited Partners and additional Capital Contributions by Partners
pursuant to Article 4 hereof; and
(19) an election to dissolve the Partnership
pursuant to Section 13.1.C hereof.
B. Each of the Limited Partners agrees that, except as
provided in Section 7.3 hereof, the General Partner is authorized to execute,
deliver and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the
General Partner may cause the Partnership to establish and maintain working
capital and other reserves in such amounts as the General Partner, in its sole
and absolute discretion, deems appropriate and reasonable from time to time.
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D. In exercising its authority under this Agreement, the
General Partner may, but shall be under no obligation to, take into account the
tax consequences to any Partner (including the General Partner and the Special
Limited Partner) of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership. To the extent
that such action is determined by the General Partner to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and
each other state, the District of Columbia or any other jurisdiction, in which
the Partnership may elect to do business or own property. Subject to the terms
of Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability to the extent provided by applicable
law) in the State of Delaware and any other state, or the District of Columbia
or other jurisdiction, in which the Partnership may elect to do business or own
property.
Section 7.3 Restrictions on General Partner's Authority.
A. The General Partner may not take any action in
contravention of this Agreement, including, without limitation:
(1) taking any action that would make it
impossible to carry on the ordinary business of the Partnership, except
as otherwise provided in this Agreement;
(2) possessing Partnership Property, or
assigning any rights in specific Partnership Property, for other than a
Partnership purpose except as otherwise provided in this Agreement,
including, without limitation, Section 7.10;
(3) admitting a Person as a Partner, except as
otherwise provided in this Agreement;
(4) performing any act that would subject a
Limited Partner to liability as a general partner in any jurisdiction
or any other liability except as provided Section 10.4 hereof or under
the Act; or
(5) entering into any contract, mortgage, loan
or other agreement that prohibits or restricts, or has the effect of
prohibiting or restricting, the ability of (a) the General Partner, or
the Partnership from satisfying its obligations under Section 8.6
hereof in full or (b) a Limited Partner from exercising its rights
under Section 8.6 hereof to effect a Redemption in full, except, in
either case, with the written consent of such Limited Partner affected
by the prohibition or restriction.
B. The General Partner shall not, without the prior
Consent of the Limited Partners, undertake, on behalf of the Partnership, any of
the following actions or enter into any transaction that would have the effect
of such transactions:
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(1) except as provided in Sections 4.2.A, 5.5,
6.2.B and 7.3.C hereof, amend, modify or terminate this Agreement other
than to reflect the admission, substitution, termination or withdrawal
of Partners pursuant to Article 11 or Article 12 hereof;
(2) make a general assignment for the benefit of
creditors or appoint or acquiesce in the appointment of a custodian,
receiver or trustee for all or any part of the assets of the
Partnership; or
(3) institute any proceeding for bankruptcy on
behalf of the Partnership.
C. Notwithstanding Section 7.3.B hereof, the General
Partner shall have the power, without the Consent of the Limited Partners, to
amend this Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General
Partner or surrender any right or power granted to the General Partner
or any Affiliate of the General Partner for the benefit of the Limited
Partners;
(2) to reflect the admission, substitution or
withdrawal of Partners or the termination of the Partnership in
accordance with this Agreement, and to amend Exhibit A in connection
with such admission, substitution or withdrawal;
(3) to reflect a change that is of an
inconsequential nature and does not adversely affect the Limited
Partners in any material respect, or to cure any ambiguity, correct or
supplement any provision in this Agreement not inconsistent with law or
with other provisions, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent with law or
with the provisions of this Agreement;
(4) to satisfy any requirements, conditions or
guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or
state law;
(5) (a) to reflect such changes as are
reasonably necessary (i) for the General Partner to maintain its status
as a REIT or to satisfy the REIT Requirements; (b) to reflect the
Transfer of all or any part of a Partnership Interest between the
General Partner and any Qualified REIT Subsidiary;
(6) to modify the manner in which Capital
Accounts are computed (but only to the extent set forth in the
definition of "Capital Account" or contemplated by the Code or the
Regulations); and
(7) to issue additional Partnership Interests in
accordance with Section 4.2.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this
Agreement shall not be amended, and no action may be taken by the General
Partner, without the Consent of each Partner adversely affected thereby, if such
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amendment or action would (i) convert a Limited Partner Interest in the
Partnership into a General Partner Interest (except as a result of the General
Partner acquiring such Partnership Interest), (ii) modify the limited liability
of a Limited Partner, (iii) alter the rights of any Partner to receive the
distributions to which such Partner is entitled, pursuant to Article 5 or
Section 13.2.A(4) hereof, or alter the allocations specified in Article 6 hereof
(except, in any case, as permitted pursuant to Sections 4.2, 5.5, 6.2.B and
7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT
Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify
any related definitions, or (v) amend this Section 7.3.D; provided, however,
that the Consent of each Partner adversely affected shall not be required for
any amendment or action that affects all Partners holding the same class or
series of Partnership Units on a uniform or pro rata basis. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth elsewhere in this Section 7.3 without the Consent specified therein. Any
such amendment or action consented to by any Partner shall be effective as to
that Partner, notwithstanding the absence of such consent by any other Partner.
Section 7.4 Reimbursement of the General Partner.
A. The General Partner shall not be compensated for its
services as general partner of the Partnership except as provided in this
Agreement (including the provisions of Articles 5 and 6 hereof regarding
distributions, payments and allocations to which it may be entitled in its
capacity as the General Partner).
B. Subject to Sections 7.4.C and 15.11 hereof, the
Partnership shall be liable for, and shall reimburse the General Partner on a
monthly basis, or such other basis as the General Partner may determine in its
sole and absolute discretion, for all sums expended in connection with the
Partnership's business, including, without limitation, (i) expenses relating to
the ownership of interests in and management and operation of, or for the
benefit of, the Partnership, (ii) compensation of officers and employees,
including, without limitation, payments under future compensation plans of the
General Partner that may provide for stock units, or phantom stock, pursuant to
which employees of the General Partner will receive payments based upon
dividends on or the value of REIT Shares, (iii) director fees and expenses and
(iv) all costs and expenses of the General Partner being a public company,
including costs of filings with the SEC, reports and other distributions to its
shareholders; provided, however, that the amount of any reimbursement shall be
reduced by any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it on behalf of the
Partnership as permitted pursuant to Section 7.5 hereof. Such reimbursements
shall be in addition to any reimbursement of the General Partner as a result of
indemnification pursuant to Section 7.7 hereof.
C. To the extent practicable, Partnership expenses shall
be billed directly to and paid by the Partnership and, subject to Section 15.11
hereof, reimbursements to the General Partner or any of its Affiliates by the
Partnership pursuant to this Section 7.4 shall be treated as non-income
reimbursements, and not as "guaranteed payments" within the meaning of Code
Section 707(c) or other form of gross income.
Section 7.5 Outside Activities of the General Partner. The
General Partner shall not directly or indirectly enter into or conduct any
business, other than in connection with (a) the ownership, acquisition and
disposition of Partnership Interests as General Partner, (b) the management of
the business of the Partnership, (c) the operation of the General Partner as a
reporting company with a class (or classes) of securities registered under the
Exchange Act, (d) the General Partner's operations as a REIT, (e) the offering,
sale, syndication, private placement or public offering of stock, bonds,
securities or other interests, (f) financing or refinancing of any type related
to the Partnership or its assets or activities, (g) any of the foregoing
activities as they relate to a Subsidiary of the Partnership or of the General
Partner and (h) such activities as are incidental thereto. Nothing contained
herein shall be deemed to prohibit the General Partner from executing guarantees
of Partnership debt for which it would otherwise be liable in its capacity as
General Partner. Subject to Section 7.3.B hereof, the General Partner shall not
own any assets or take title to assets
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(other than temporarily in connection with an acquisition prior to contributing
such assets to the Partnership) other than interests in Subsidiaries of the
Partnership and the General Partner and Partnership Interests as the General
Partner and other than such cash and cash equivalents, bank accounts or similar
instruments or accounts as the General Partner deems reasonably necessary,
taking into account Section 7.1.D hereof and the requirements necessary for the
General Partner to carry out its responsibilities contemplated under this
Agreement and the Charter and to qualify as a REIT. Notwithstanding the
foregoing, if the General Partner acquires assets in its own name and owns
Property other than through the Partnership, the Partners agree to negotiate in
good faith to amend this Agreement, including, without limitation, the
definition of "Adjustment Factor," to reflect such activities and the direct
ownership of assets by the General Partner. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute funds or other
assets to its Subsidiaries or other Persons in which it has an equity
investment, and such Persons may borrow funds from the Partnership, on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any Subsidiary or any other Person.
B. Except as provided in Section 7.5 hereof and subject
to Section 3.1 hereof, the Partnership may transfer assets to joint ventures,
limited liability companies, partnerships, corporations, business trusts or
other business entities in which it is or thereby becomes a participant upon
such terms and subject to such conditions consistent with this Agreement and
applicable law as the General Partner, in its sole and absolute discretion,
believes to be advisable.
C. Except as expressly permitted by this Agreement,
neither the General Partner nor any of its Affiliates shall sell, transfer or
convey any property to the Partnership, directly or indirectly, except pursuant
to transactions that are determined by the General Partner in good faith to be
fair and reasonable.
D. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans funded by the
Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter
into, in the name and on behalf of the Partnership, any Services Agreement with
Affiliates of any of the Partnership or the General Partner or the Special
Limited Partner, on such terms as the General Partner, in its sole and absolute
discretion, believes are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by applicable law,
the Partnership shall indemnify each Indemnitee from and against any and all
losses, claims, damages, liabilities (whether joint or several), expenses
(including, without limitation, attorney's fees and other legal fees and
expenses), judgments, fines, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the
Partnership ("Actions") as set forth in this Agreement in which such Indemnitee
may be involved, or is threatened to be involved, as a party or otherwise;
provided, however, that the Partnership shall not indemnify an Indemnitee (i)
for bad faith, gross negligence, willful misconduct or a knowing
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violation of the law or (ii) for any transaction for which such Indemnitee
received an improper personal benefit in violation or breach of any provision of
this Agreement. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolocontendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior to
judgment, does not create a presumption that such Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses
incurred by an Indemnitee who is a party to a proceeding or otherwise subject to
or the focus of or is involved in any Action shall be paid or reimbursed by the
Partnership as incurred by the Indemnitee in advance of the final disposition of
the Action upon receipt by the Partnership of (i) a written affirmation by the
Indemnitee of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in this Section
7.7.A has been met, and (ii) a written undertaking by or on behalf of the
Indemnitee to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
C. The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee
unless otherwise provided in a written agreement with such Indemnitee or in the
writing pursuant to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of any of the Indemnitees and such
other Persons as the General Partner shall determine, against any liability that
may be asserted against or expenses that may be incurred by such Person in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such Person against such liability
under the provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a
result of acting on behalf of the Partnership or the General Partner (whether as
a fiduciary or otherwise) in connection with the operation, administration or
maintenance of an employee benefit plan or any related trust or funding
mechanism (whether such liabilities are in the form of excise taxes assessed by
the IRS, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7, unless such
liabilities arise as a result of (i) such Indemnitee's bad faith, gross
negligence, intentional misconduct or knowing violation of the law, or (ii) any
transaction in which such Indemnitee received a personal benefit in violation or
breach of any provision of this Agreement or applicable law.
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F. In no event may an Indemnitee subject any of the
Partners to personal liability by reason of the indemnification provisions set
forth in this Agreement.
G. An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.7 because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
I. It is the intent of the Partners that any amounts
paid by the Partnership to the General Partner pursuant to this Section 7.7
shall be treated as "guaranteed payments" within the meaning of Code Section
707(c).
Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in
this Agreement, neither the General Partner nor any of its directors or officers
shall be liable or accountable in damages or otherwise to the Partnership, any
Partners or any Assignees for losses sustained, liabilities incurred or benefits
not derived as a result of errors in judgment or mistakes of fact or law or of
any act or omission if the General Partner or such director or officer acted in
good faith.
B. The Limited Partners expressly acknowledge that the
General Partner is acting for the benefit of the Partnership, the Limited
Partners and the General Partner's shareholders collectively and that the
General Partner is under no obligation to give priority to the separate
interests of the Limited Partners or the General Partner's shareholders
(including, without limitation, the tax consequences to Limited Partners,
Assignees or the General Partner's shareholders) in deciding whether to cause
the Partnership to take (or decline to take) any actions.
C. Subject to its obligations and duties as General
Partner set forth in Section 7.1.A hereof, the General Partner may exercise any
of the powers granted to it by this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its employees or
agents (subject to the supervision and control of the General Partner). The
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's, and its officers' and
directors', liability to the Partnership and the Limited Partners under this
Section 7.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
E. Notwithstanding anything herein to the contrary,
except for fraud, willful misconduct or gross negligence, or pursuant to any
express indemnities given to the Partnership by any Partner pursuant to any
other written instrument, no Partner shall have any personal liability
whatsoever, to the Partnership or to the other Partner(s), for the debts or
liabilities of the Partnership or the Partnership's obligations hereunder, and
the full recourse of the other
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Partner(s) shall be limited to the interest of that Partner in the Partnership.
To the fullest extent permitted by law, no officer, director or shareholder of
the General Partner shall be liable to the Partnership for money damages except
for (i) active and deliberate dishonesty established by a non-appealable final
judgment or (ii) actual receipt of an improper benefit or profit in money,
property or services. Without limitation of the foregoing, and except for fraud,
willful misconduct or gross negligence, or pursuant to any such express
indemnity, no property or assets of any Partner, other than its interest in the
Partnership, shall be subject to levy, execution or other enforcement procedures
for the satisfaction of any judgment (or other judicial process) in favor of any
other Partner(s) and arising out of, or in connection with, this Agreement. This
Agreement is executed by the officers of the General Partner solely as officers
of the same and not in their own individual capacities.
F. To the extent that, at law or in equity, the General
Partner has duties (including fiduciary duties) and liabilities relating thereto
to the Partnership or the Limited Partners, the General Partner shall not be
liable to the Partnership or to any other Partner for its good faith reliance on
the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of the General Partner
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such General Partner.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected
in acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture or
other paper or document believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers, architects,
engineers, environmental consultants and other consultants and advisers selected
by it, and any act taken or omitted to be taken in reliance upon the opinion of
such Persons as to matters that the General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect
of any of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every act
and duty that is permitted or required to be done by the General Partner
hereunder.
D. Notwithstanding any other provision of this Agreement
or the Act, any action of the General Partner on behalf of the Partnership or
any decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner to continue to qualify as a REIT, (ii) for the General Partner otherwise
to satisfy the REIT Requirements, (iii) to avoid the General Partner incurring
any taxes under Code Section 857 or Code Section 4981, is expressly authorized
under this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership
assets, whether real, personal or mixed and whether tangible or intangible,
shall be deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively with other Partners or Persons, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in
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the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding
anything to the contrary in this Agreement, any Person dealing with the
Partnership shall be entitled to assume that the General Partner has full power
and authority, without the consent or approval of any other Partner or Person,
to encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
take any and all actions on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner as if it were the Partnership's sole
party in interest, both legally and beneficially. Each Limited Partner hereby
waives any and all defenses or other remedies that may be available against such
Person to contest, negate or disaffirm any action of the General Partner in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the necessity or
expediency of any act or action of the General Partner or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner or its representatives shall be
conclusive evidence in favor of any and every Person relying in good faith
thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (iii) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners
shall have no liability under this Agreement (other than for breach thereof)
except as expressly provided in Section 10.4 or under the Act.
Section 8.2 Management of Business. No Limited Partner or
Assignee (other than the General Partner, any of its Affiliates or any officer,
director, member, employee, partner, agent or trustee of the General Partner,
the Partnership or any of their Affiliates, in their capacity as such) shall
take part in the operations, management or control (within the meaning of the
Act) of the Partnership's business, transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the Partnership.
The transaction of any such business by the General Partner, any of its
Affiliates or any officer, director, member, employee, partner, agent,
representative, or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to
any agreements entered into pursuant to Section 7.6.E hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary (including, without limitation, any
employment agreement), any Limited Partner and any Assignee, officer, director,
employee, agent, trustee, Affiliate, member or shareholder of any Limited
Partner shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities that are in direct or indirect competition
with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partner shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none
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of the Limited Partners nor any other Person shall have any rights by virtue of
this Agreement or the partnership relationship established hereby in any
business ventures of any other Person (other than the General Partner, to the
extent expressly provided herein), and such Person shall have no obligation
pursuant to this Agreement, subject to Section 7.6.E hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary, to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character that, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital. Except pursuant to the rights of
Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled
to the withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided in Article 6
hereof or otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee either
as to the return of Capital Contributions or as to profits, losses or
distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by
the Act, and except as limited by Section 8.5.C hereof, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of (i) the most recent annual and
quarterly reports filed with the SEC by the General Partner pursuant to
the Exchange Act and (ii) each report or other written communication
sent to the shareholders of the General Partner;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with executed copies
of all powers of attorney pursuant to which this Agreement, the
Certificate and all amendments thereto have been executed; and
(5) to obtain true and full information regarding the
amount of cash and a description and statement of any other property or
services contributed by each Partner and that each Partner has agreed
to contribute in the future, and the date on which each became a
Partner.
B. The Partnership shall notify any Limited Partner that is a
Qualifying Party, on request, of the then current Adjustment Factor or any
change made to the Adjustment Factor.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner believes to be in
the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
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Partnership or the General Partner or (ii) the Partnership or the General
Partner is required by law or by agreements with unaffiliated third parties to
keep confidential.
Section 8.6 Redemption Rights of Qualifying Parties.
A. After the applicable Twelve-Month Period, a Qualifying Party,
but no other Limited Partner or Assignee, shall have the right (subject to the
terms and conditions set forth herein) to require the Partnership to redeem all
or a portion of the Partnership Common Units held by such Tendering Party (such
Partnership Common Units being hereafter "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership (i) until and
unless there has been a Declination and (ii) before the Business Day following
the Cut-Off Date. Regardless of the binding or non-binding nature of a pending
Redemption, a Tendering Party shall have no right to receive distributions with
respect to any Tendered Units (other than the Cash Amount) paid after delivery
of the Notice of Redemption, whether or not the Partnership Record Date for such
distribution precedes or coincides with such delivery of the Notice of
Redemption; provided, however, that in the event that the General Partner on
behalf of the Partnership elects to fund the Cash Amount with the proceeds of an
Offering Funding pursuant to Section 8.6.D hereof, the Tendering Party's right
to receive distributions shall not be suspended as hereinbefore provided and
such Tendering Party shall have the right to receive distributions actually made
hereunder prior to the date of the closing of the Offering Funding whose
proceeds are used to pay the Cash Amount. In the event of a Redemption, the Cash
Amount shall be delivered as a certified check payable to the Tendering Party
or, in the General Partner's sole and absolute discretion, in immediately
available funds.
B. Notwithstanding the provisions of Section 8.6.A hereof, on or
before the close of business on the Cut-Off Date, the General Partner may, in
its sole and absolute discretion but subject to the Ownership Limit and the
transfer restrictions and other limitations of the Charter, elect to acquire
some or all (such percentage being referred to as the "Applicable Percentage")
of the Tendered Units from the Tendering Party in exchange for the REIT Shares
Amount calculated based on the portion of Tendered Units it elects to acquire in
exchange for REIT Shares. In making such election, the General Partner shall act
in a fair, equitable and reasonable manner that neither prefers one group or
class of Qualifying Parties over another nor discriminates against a group or
class of Qualifying Parties. If the General Partner so elects, on the Specified
Redemption Date the Tendering Party shall sell such number of the Tendered Units
to the General Partner in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage. The Tendering
Party shall submit (i) such information, certification or affidavit as the
General Partner may reasonably require in connection with the application of the
Ownership Limit and other restrictions and limitations of the Charter to any
such acquisition and (ii) such written representations, investment letters,
legal opinions or other instruments necessary, in the General Partner's view, to
effect compliance with the Securities Act. In the event of a purchase of the
Tendered Units by the General Partner pursuant to this Section 8.6.B, the
Tendering Party shall no longer have the right to cause the Partnership to
effect a Redemption of such Tendered Units, and, upon notice to the Tendering
Party by the General Partner, given on or before the close of business on the
Cut-Off Date, that the General Partner has elected to acquire some or all of the
Tendered Units pursuant to this Section 8.6.B, the obligation of the Partnership
to effect a Redemption of the Tendered Units as to which the General Partner's
notice relates shall not accrue or arise. The product of the Applicable
Percentage and the REIT Shares Amount, if applicable, shall be delivered by the
General Partner as duly authorized, validly issued, fully paid and accessible
REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or
restriction, other than the Ownership Limit and other restrictions provided in
the Charter, the Bylaws of the General Partner, the Securities Act and relevant
state securities or "blue sky" laws. Neither any Tendering Party whose Tendered
Units are acquired by the General Partner pursuant to this Section 8.6.B, any
Partner, any Assignee nor any other interested Person shall have any right to
require or cause
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the General Partner to register, qualify or list any REIT Shares owned or held
by such Person, whether or not such REIT Shares are issued pursuant to this
Section 8.6.B, with the SEC, with any state securities commissioner, department
or agency, under the Securities Act or the Exchange Act or with any stock
exchange; provided, however, that this limitation shall not be in derogation of
any registration or similar rights granted pursuant to any other written
agreement between the General Partner and any such Person. Notwithstanding any
delay in such delivery, the Tendering Party shall be deemed the owner of such
REIT Shares and Rights for all purposes, including, without limitation, rights
to vote or consent, receive dividends, and exercise rights, as of the Specified
Redemption Date. REIT Shares issued upon an acquisition of the Tendered Units by
the General Partner pursuant to this Section 8.6.B may contain such legends
regarding restrictions under the Securities Act and applicable state securities
laws as the General Partner in good faith determines to be necessary or
advisable in order to ensure compliance with such laws. The Special Limited
Partner will be granted registration rights with respect to the REIT Shares
Amount, if any, delivered pursuant hereto to the Special Limited Partner in
exchange for Tendered Units.
C. Notwithstanding the provisions of Section 8.6.A and 8.6.B
hereof, the Tendering Parties shall have no rights under this Agreement that
would otherwise be prohibited under the Charter with respect to the Ownership
Limit. To the extent that any attempted Redemption or acquisition of the
Tendered Units by the General Partner pursuant to Section 8.6.B hereof would be
in violation of this Section 8.6.C, it shall be null and void ab initio, and the
Tendering Party shall not acquire any rights or economic interests in REIT
Shares otherwise issuable by the General Partner under Section 8.6.B hereof.
D. In the event that the General Partner declines or fails to
exercise its purchase rights pursuant to Section 8.6.B hereof following receipt
of a Notice of Redemption (a "Declination"):
(1) The General Partner shall give notice of such
Declination to the Tendering Party on or before the close of business
on the Cut-Off Date. The failure of the General Partner to give notice
of such Declination by the close of business on the Cut-Off Date shall
itself constitute a Declination.
(2) Subject to Section 11.6.D, the General Partner on
behalf of the Partnership may elect to raise funds for the payment of
the Cash Amount either (a) by contribution by the General Partner of
funds from the proceeds of a private placement or registered public
offering (each, an "Offering Funding") by the General Partner of a
number of REIT Shares or other securities of the REIT ("Offering
Funding Shares") equal to the REIT Shares Amount with respect to the
Tendered Units or (b) from any other sources (including, but not
limited to, the sale of any Property and the incurrence of additional
Debt) available to the Partnership.
(3) Promptly upon the General Partner's receipt of the
Notice of Redemption and the General Partner giving notice of its
Declination, the General Partner shall give notice (a "Single Funding
Notice") to all Qualifying Parties then holding a Partnership Interest
(or an interest therein) and having Redemption rights pursuant to this
Section 8.6 and require that all such Qualifying Parties elect whether
or not to effect a Redemption of their Partnership Common Units to be
funded through an Offering Funding (if an Offering Funding has been
elected by the General Partner) or otherwise. In the event that any
such Qualifying Party elects to effect such a Redemption, it shall give
notice thereof and of the number of Partnership Common Units to be made
subject thereto in writing to the General Partner within ten (10)
Business Days after receipt of the Single Funding Notice, and such
Qualifying Party shall be treated as a Tendering Party for all purposes
of this Section 8.6. In the event that a Qualifying Party does not so
elect, it shall be deemed to have waived its right to effect a
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Redemption for the current Twelve-Month Period; provided, however, that
the General Partner shall not be required to acquire Partnership Common
Units pursuant to this Section 8.6.D more than twice within a calendar
year.
Any proceeds from an Offering Funding that are in excess of the Cash Amount
shall be for the sole benefit of the General Partner. The General Partner shall
make a Capital Contribution of such amounts to the Partnership for an additional
General Partner Interest and/or Limited Partner Interest. Any such contribution
shall entitle the General Partner to an equitable Percentage Interest
adjustment.
E. Notwithstanding the provisions of Section 8.6.B hereof, the
General Partner shall not, under any circumstances, elect to acquire Tendered
Units in exchange for the REIT Shares Amount if such exchange would be
prohibited under the Charter or the REIT provisions of the Code.
F. Notwithstanding anything herein to the contrary (but subject
to Section 8.6.C hereof), with respect to any Redemption (or any tender of
Partnership Common Units for Redemption if the Tendered Units are acquired by
the General Partner pursuant to Section 8.6.B hereof) pursuant to this Section
8.6:
(1) All Partnership Common Units acquired by the General
Partner pursuant to Section 8.6.B hereof shall automatically, and
without further action required, be converted into and deemed to be a
General Partner Interest comprised of the same number of Partnership
Common Units.
(2) Subject to the Ownership Limit, no Tendering Party
may effect a Redemption for less than five hundred (500) Partnership
Common Units or, if such Tendering Party holds (as a Limited Partner
or, economically, as an Assignee) less than five hundred (500)
Partnership Common Units, all of the Partnership Common Units held by
such Tendering Party.
(3) Each Tendering Party (a) may effect a Redemption only
once in each fiscal quarter of a Twelve-Month Period and (b) may not
effect a Redemption during the period after the Partnership Record Date
with respect to a distribution and before the record date established
by the General Partner for a distribution to its shareholders of some
or all of its portion of such Partnership distribution.
(4) Notwithstanding anything herein to the contrary, with
respect to any Redemption or acquisition of Tendered Units by the
General Partner pursuant to Section 8.6.B hereof, in the event that the
General Partner gives notice to all Limited Partners (but excluding any
Assignees) then owning Partnership Interests (a "Primary Offering
Notice") that the General Partner desires to effect a primary offering
of its equity securities then, unless the General Partner otherwise
consents, commencement of the actions denoted in Section 8.6.D hereof
as to an Offering Funding, if any, with respect to any Notice of
Redemption thereafter received, whether or not the Tendering Party is a
Limited Partner, may be delayed until the earlier of (a) the completion
of the primary offering or (b) ninety (90) days following the giving of
the Primary Offering Notice.
(5) Without the Consent of the General Partner, no
Tendering Party may effect a Redemption within ninety (90) days
following the closing of any prior Offering Funding.
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(6) The consummation of such Redemption (or an
acquisition of Tendered Units by the General Partner pursuant to
Section 8.6.B hereof, as the case may be) shall be subject to the
expiration or termination of the applicable waiting period, if any,
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
(7) The Tendering Party shall continue to own (subject,
in the case of an Assignee, to the provision of Section 11.5 hereof)
all Partnership Common Units subject to any Redemption, and be treated
as a Limited Partner or an Assignee, as applicable, with respect to
such Partnership Common Units for all purposes of this Agreement, until
such Partnership Common Units are either paid for by the Partnership
pursuant to Section 8.6.A hereof or transferred to the General Partner
and paid for, by the issuance of the REIT Shares, pursuant to Section
8.6.B hereof on the Specified Redemption Date. Until a Specified
Redemption Date and an acquisition of the Tendered Units by the General
Partner pursuant to Section 8.6.B hereof, the Tendering Party shall
have no rights as a shareholder of the General Partner with respect to
the REIT Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6.F, all Partnership Common Units beneficially owned by a Related
Party of a Tendering Party shall be considered to be owned or held by such
Tendering Party.
G. In connection with an exercise of Redemption rights pursuant
to this Section 8.6, the Tendering Party shall submit the following to the
General Partner, in addition to the Notice of Redemption:
(1) A written affidavit, dated the same date as the
Notice of Redemption, (a) disclosing the actual and constructive
ownership, as determined for purposes of Code Sections 856(a)(6) and
856(h), of REIT Shares by (i) such Tendering Party and (ii) any Related
Party and (b) representing that, after giving effect to the Redemption
or an acquisition of the Tendered Units by the General Partner
pursuant to Section 8.6.B hereof, neither the Tendering Party nor any
Related Party will own REIT Shares in excess of the Ownership Limit;
(2) A written representation that neither the Tendering
Party nor any Related Party has any intention to acquire any additional
REIT Shares prior to the closing of the Redemption or an acquisition of
the Tendered Units by the General Partner pursuant to Section 8.6.B
hereof on the Specified Redemption Date; and
(3) An undertaking to certify, at and as a condition to
the closing of (i) the Redemption or (ii) the acquisition of the
Tendered Units by the General Partner pursuant to Section 8.6.B hereof
on the Specified Redemption Date, that either (a) the actual and
constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit
required by Section 8.6.G(1) or (b) after giving effect to the
Redemption or an acquisition of the Tendered Units by the General
Partner pursuant to Section 8.6.B hereof, neither the Tendering Party
nor any Related Party shall own REIT Shares in violation of the
Ownership Limit.
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ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
A. The General Partner shall keep or cause to be kept at the
principal office of the Partnership those records and documents required to be
maintained by the Act and other books and records deemed by the General Partner
to be appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 8.5.A or Section 9.3 hereof. Any records maintained by or on behalf
of the Partnership in the regular course of its business may be kept on, or be
in the form for, punch cards, magnetic tape, photographs, micrographics or any
other information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time.
B. The books of the Partnership shall be maintained, for
financial and tax reporting purposes, on an accrual basis in accordance with
generally accepted accounting principles, or on such other basis as the General
Partner determines to be necessary or appropriate. To the extent permitted by
sound accounting practices and principles, the Partnership and the General
Partner may operate with integrated or consolidated accounting records,
operations and principles.
Section 9.2 Partnership Year. The Partnership Year of the Partnership
shall be the calendar year.
Section 9.3 Reports.
A. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each Partnership Year, the General Partner
shall cause to be mailed to each Limited Partner, of record as of the close of
the Partnership Year, an annual report containing financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, for such Partnership Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be mailed to
each Limited Partner, of record as of the last day of the calendar quarter, a
report containing unaudited financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, and such other information as may be required by
applicable law or regulation or as the General Partner determines to be
appropriate. At the request of any Limited Partner, the General Partner shall
provide access to the books, records and workpapers upon which the reports
required by this Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall
arrange for the preparation and timely filing of all returns with respect to
Partnership income, gains, deductions, losses and other items required of the
Partnership for federal and state income tax purposes and shall use all
reasonable effort to furnish, within ninety (90)
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days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes. The
Limited Partners shall promptly provide the General Partner with such
information relating to the Contributed Properties, including tax basis and
other relevant information, as may be reasonably requested by the General
Partner from time to time.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, but not limited to,
the election under Code Section 754 and the election to use the "recurring item"
method of accounting provided under Code Section 461(h) with respect to property
taxes imposed on the Partnership's Properties; provided, however, that, if the
"recurring item" method of accounting is elected with respect to such property
taxes, the Partnership shall pay the applicable property taxes prior to the date
provided in Code Section 461(h) for purposes of determining economic
performance. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, any election under Code Sections 461(h)
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and expenses
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, so long
as the compensation paid by the Partnership for such services is reasonable. At
the request of any Limited Partner, the General Partner agrees to consult with
such Limited Partner with respect to the preparation and filing of any returns
and with respect to any subsequent audit or litigation relating to such returns;
provided, however, that the filing of such returns shall be in the sole and
absolute discretion of the General Partner.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with
respect to any administrative or 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 (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a settlement
agreement on behalf of such Partner or (ii) who is a "notice partner"
(as defined in Code Section 6231) or a member of a "notice group" (as
defined in Code Section 6223(b)(2));
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition for readjustment
with the United States Tax Court or the United States Claims Court, or
the filing of a complaint for refund with the District Court of the
United States for the district in which the Partnership's principal
place of business is located;
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(3) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment
with the IRS at any time and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading (petition or
complaint) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax that is attributable to any item required
to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners in
connection with any tax audit or judicial review proceeding to the
extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters
partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole and absolute discretion of the tax matters partner
and the provisions relating to indemnification of the General Partner set forth
in Section 7.7 hereof shall be fully applicable to the tax matters partner in
its capacity as such.
Section 10.4 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Code Section 1441, Code
Section 1442, Code Section 1445 or Code Section 1446. 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 fifteen (15) days after notice from the General Partner that such
payment must be made unless (i) the Partnership withholds such payment from a
distribution that would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the Available Funds of the Partnership that
would, but for such payment, be distributed to the Limited Partner. Each Limited
Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Limited Partner's Partnership Interest to secure such
Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the Partnership
as against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (i.e., fifteen (15)
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
Section 10.5 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60 month period as provided in Section 709 of the Code.
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ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. No part of the interest of a Partner shall be subject to the
claims of any creditor, to any spouse for alimony or support, or to legal
process, and may not be voluntarily or involuntarily alienated or encumbered
except as may be specifically provided for in this Agreement.
B. No Partnership Interest shall be Transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any Transfer or purported Transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void ab initio.
C. Notwithstanding the other provisions of this Article 11 (other
than Section 11.6.D hereof), the Partnership Interests of the General Partner
may be Transferred, in whole or in part, at any time or from time to time, to
any Person that is, at the time of such Transfer, a Qualified REIT Subsidiary.
Any transferee of the entire General Partner Interest pursuant to this Section
11.1.C shall automatically become, without further action or Consent of any
Limited Partners, the sole general partner of the Partnership, subject to all
the rights, privileges, duties and obligations under this Agreement and the Act
relating to a general partner. Upon any Transfer permitted by this Section
11.1.C, the transferor Partner shall be relieved of all its obligations under
this Agreement. The provisions of Section 11.2.B (other than the last sentence
thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted
by this Section 11.1.C.
D. No Transfer of any Partnership Interest may be made to a
lender to the Partnership or any Person who is related (within the meaning of
Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose
loan constitutes a Nonrecourse Liability, without the consent of the General
Partner in its sole and absolute discretion; provided that as a condition to
such consent, the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem or exchange for the REIT Shares
Amount any Partnership Units in which a security interest is held by such lender
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
Section 11.2 Transfer of General Partner's Partnership Interest.
A. The General Partner may not Transfer any of its General
Partner Interest or withdraw from the Partnership except as provided in Sections
11.1.C, 11.2.B and 11.2.C hereof.
B. Except as set forth in Section 11.2.C below, the General
Partner shall not withdraw from the Partnership and shall not Transfer all or
any portion of its interest in the Partnership (whether by sale, disposition,
statutory merger or consolidation, liquidation or otherwise) without the
Consent of the Limited Partners, which Consent may be given or withheld in the
sole and absolute discretion of the Limited Partners. Upon any Transfer of such
a Partnership Interest pursuant to the Consent of the Limited Partners and
otherwise in accordance with the provisions of this Section 11.2.B, the
transferee shall become a successor General Partner for all purposes herein, and
shall be vested with the powers and rights of the transferor General Partner,
and shall be liable for all obligations and responsible for all duties of the
General Partner, once such transferee has executed such instruments as may be
necessary to effectuate such admission and to confirm the agreement of such
transferee to be bound by all the terms and provisions of this Agreement with
respect to the Partnership Interest so acquired. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes, by operation
of law or express agreement, all of the obligations of the
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transferor General Partner under this Agreement with respect to such Transferred
Partnership Interest, and such Transfer shall relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Limited Partners. In the event that the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or otherwise dissolves
or terminates, or upon the bankruptcy of the General Partner, a Majority in
Interest of the Limited Partners may elect to continue the Partnership business
by selecting a successor General Partner in accordance with the Act.
C. The General Partner may merge with another entity if (i) in
connection therewith the Limited Partners receive property with a value equal in
value to the amount such Partners would have received had the exercised the
Redemption Rights immediately prior to such merger or (ii) immediately after
such merger substantially all of the assets of the surviving entity, other than
the General Partner Interest held by the General Partner, are contributed to the
Partnership as a Capital Contribution in exchange for Partnership Units.
Section 11.3 Limited Partners' Rights to Transfer.
A. General. Prior to the end of the first Twelve-Month Period, no
Limited Partner shall Transfer all or any portion of its Partnership Interest to
any transferee without the Consent of the General Partner, which Consent may be
withheld in its sole and absolute discretion; provided, however, that any
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or part of its Partnership Interest to any Family Member, any
Controlled Entity or any Affiliate, provided that the transferee is, in any such
case, a Qualified Transferee, or (ii) pledge (a "Pledge") all or any portion of
its Partnership Interest to a lending institution, that is not an Affiliate of
such Limited Partner, as collateral or security for a bona fide loan or other
extension of credit, and Transfer such pledged Partnership Interest to such
lending institution in connection with the exercise of remedies under such loan
or extension or credit (any Transfer or Pledge permitted by this proviso is
hereinafter referred to as a "Permitted Transfer"). After such first
Twelve-Month Period, each Limited Partner, and each transferee of Partnership
Units or Assignee pursuant to a Permitted Transfer, shall have the right to
Transfer all or any portion of its Partnership Interest to any Person, subject
to the provisions of Section 11.6 hereof and the satisfaction of each of the
following conditions (except in the case of a Transfer pursuant to clauses (i)
or (ii) above):
(1) Qualified Transferee. Any Transfer of a Partnership
Interest shall be made only to a single Qualified Transferee; provided,
however, that, for such purposes, all Qualified Transferees that are
Affiliates, or that comprise investment accounts or funds managed by a
single Qualified Transferee and its Affiliates, shall be considered
together to be a single Qualified Transferee; provided, further, that
each Transfer meeting the minimum Transfer restriction of Section
11.3.A(2) hereof may be to a separate Qualified Transferee.
(2) Minimum Transfer Restriction. Any Transferring
Partner must Transfer not less than the lesser of (i) the greater of
five hundred (500) Partnership Units or one-third (1/3) of the number
of Partnership Units owned by such Partner as of the Effective Date or
(ii) all of the remaining Partnership Units owned by such Transferring
Partner; provided, however, that, for purposes of determining
compliance with the foregoing restriction, all Partnership Units owned
by Affiliates of a Limited Partner shall be considered to be owned by
such Limited Partner.
(3) Exception for Permitted Transfers. The conditions of
Sections 11.3.A(1) and 11.3.A(2) hereof shall not apply in the case of
a Permitted Transfer.
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It is a condition to any Transfer otherwise permitted hereunder (whether or not
such Transfer is effected during or after the first Twelve-Month Period) that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such Transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Notwithstanding the foregoing, any transferee of any
Transferred Partnership Interest shall be subject to any and all ownership
limitations (including, without limitation, the Ownership Limit) contained in
the Charter that may limit or restrict such transferee's ability to exercise its
Redemption rights, including, without limitation, the Ownership Limit. Any
transferee, whether or not admitted as a Substituted Limited Partner, shall take
subject to the obligations of the transferor hereunder. Unless admitted as a
Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by
operation of law or otherwise, shall have any rights hereunder, other than the
rights of an Assignee as provided in Section 11.5 hereof.
B. Incapacity. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners, for the purpose of settling or managing the estate, and such
power as the Incapacitated Limited Partner possessed to Transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. Opinion of Counsel. In connection with any proposed Transfer
of a Limited Partner Interest, the General Partner shall have the right to
receive an opinion of counsel reasonably satisfactory to it to the effect that
the proposed Transfer may be effected without registration under the Securities
Act and will not otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Partnership Interests
Transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
D. Adverse Tax Consequences. No Transfer by a Limited Partner of
its Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the Partnership or the General Partner) may be made to or
by any person if (i) in the opinion of legal counsel for the Partnership, it
would result in the Partnership being treated as an association taxable as a
corporation or would result in a termination of the Partnership under Code
Section 708, or (ii) such Transfer would be effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Code Section 7704.
Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a
transferee (including transferees pursuant to Transfers permitted by Section
11.3 hereof) as a Limited Partner in its place. A transferee of the interest of
a Limited Partner may be admitted as a Substituted Limited Partner only with the
Consent of the General Partner, which Consent may be given or withheld by the
General Partner in its sole and absolute discretion. The failure or refusal by
the General Partner to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or the General Partner. Subject to the foregoing, an Assignee
shall not be admitted as a Substituted Limited Partner until and unless it
furnishes to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all the terms, conditions and
applicable obligations of this Agreement, (ii) a counterpart signature page to
this Agreement executed by such Assignee and (iii)
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such other documents and instruments as may be required or advisable, in the
sole and absolute discretion of the General Partner, to effect such Assignee's
admission as a Substituted Limited Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement.
C. Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address and number of
Partnership Units of such Substituted Limited Partner and to eliminate or
adjust, if necessary, the name, address and number of Partnership Units of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees. If the General Partner, in its sole and
absolute discretion, does not consent to the admission of any permitted
transferee under Section 11.3 hereof as a Substituted Limited Partner, as
described in Section 11.4 hereof, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest under the Act,
including the right to receive distributions from the Partnership and the share
of Net Income, Net Losses and other items of income, gain, loss, deduction and
credit of the Partnership attributable to the Partnership Units assigned to such
transferee and the rights to Transfer the Partnership Units provided in this
Article 11, but shall not be deemed to be a holder of Partnership Units for any
other purpose under this Agreement, and shall not be entitled to effect a
Consent or vote or effect a Redemption with respect to such Partnership Units on
any matter presented to the Limited Partners for approval (such right to Consent
or vote or effect a Redemption, to the extent provided in this Agreement or
under the Act, fully remaining with the transferor Limited Partner). In the
event that any such transferee desires to make a further assignment of any such
Partnership Units, such transferee shall be subject to all the provisions of
this Article 11 to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted Transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11, with respect to which the
transferee becomes a Substituted Limited Partner, or pursuant to a redemption
(or acquisition by the General Partner) of all of its Partnership Units pursuant
to a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit
Designation.
B. Any Limited Partner who shall Transfer all of its Partnership
Units in a Transfer (i) permitted pursuant to this Article 11 where such
transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the
exercise of its rights to effect a redemption of all of its Partnership Units
pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any
Partnership Unit Designation or (iii) to the General Partner, whether or not
pursuant to Section 8.6.B hereof, shall cease to be a Limited Partner.
C. If any Partnership Unit is Transferred in compliance with the
provisions of this Article 11, or is redeemed by the Partnership, or acquired by
the General Partner pursuant to Section 8.6 hereof, on any day other than the
first day of a Partnership Year, then Net Income, Net Losses, each item thereof
and all other items of income, gain, loss, deduction and credit attributable to
such Partnership Unit for such Partnership Year shall be allocated to the
transferor Partner or the Tendering Party, as the case may be, and, in the case
of a Transfer or assignment other than a Redemption, to the transferee Partner,
by taking into account their varying interests during the Partnership Year in
accordance with Code Section 706(d), using the "interim closing of the books"
method or another permissible method
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selected by the General Partner. Solely for purposes of making such allocations,
each of such items for the calendar month in which a Transfer occurs shall be
allocated to the transferee Partner and none of such items for the calendar
month in which a Transfer or a Redemption occurs shall be allocated to the
transferor Partner or the Tendering Party, as the case may be, if such Transfer
occurs on or before the fifteenth (15th) day of the month, otherwise such items
shall be allocated to the transferor. All distributions of Available Cash
attributable to such Partnership Unit with respect to which the Partnership
Record Date is before the date of such Transfer, assignment or Redemption shall
be made to the transferor Partner or the Tendering Party, as the case may be,
and, in the case of a Transfer other than a Redemption, all distributions of
Available Cash thereafter attributable to such Partnership Unit shall be made to
the transferee Partner.
D. In addition to any other restrictions on Transfer herein
contained, in no event may any Transfer or assignment of a Partnership Interest
by any Partner (including any Redemption, any acquisition of Partnership Units
by the General Partner or any other acquisition of Partnership Units by the
Partnership) be made (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) in the event that such Transfer would
cause the General Partner to cease to comply with the REIT Requirements; (v) if
such Transfer would, in the opinion of counsel to the Partnership or the General
Partner, cause a termination of the Partnership for federal or state income tax
purposes (except as a result of the Redemption (or acquisition by the General
Partner) of all Partnership Common Units held by all Limited Partners); (vi) if
such Transfer would, in the opinion of legal counsel to the Partnership, cause
the Partnership to cease to be classified as a partnership for federal income
tax purposes (except as a result of the Redemption (or acquisition by the
General Partner) of all Partnership Common Units held by all Limited Partners);
(vii) if such Transfer would cause the Partnership to become, with respect to
any employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in ERISA Section 3(14)) or a "disqualified person" (as defined in Code
Section 4975(c)); (viii) if such Transfer would, in the opinion of legal counsel
to the Partnership, cause any portion of the assets of the Partnership to
constitute assets of any employee benefit plan pursuant to Department of Labor
Regulations Section 2510.2-101; (ix) if such Transfer requires the registration
of such Partnership Interest pursuant to any applicable federal or state
securities laws; (x) if such Transfer causes the Partnership to become a
"publicly traded partnership," as such term is defined in Code Section 469(k)(2)
or Code 7704(b); (xi) if such Transfer would cause the Partnership to have more
than five hundred (500) partners (including as partners those persons indirectly
owning an interest in the Partnership through a partnership, limited liability
company, subchapter S corporation or grantor trust); (xii) if such Transfer
causes the Partnership (as opposed to the General Partner) to become a reporting
company under the Exchange Act; or (xiii) if such Transfer subjects the
Partnership to regulation under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended.
E. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all
of the General Partner's General Partner Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective immediately prior
to such Transfer. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
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Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of the Special Limited
Partner on the date hereof, a Person (other than an existing Partner) who makes
a Capital Contribution to the Partnership in accordance with this Agreement
shall be admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the sole and absolute discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2,
no Person shall be admitted as an Additional Limited Partner without the consent
of the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the
Partnership on any day other than the first day of a Partnership Year, then Net
Income, Net Losses, each item thereof and all other items of income, gain, loss,
deduction and credit allocable among Partners and Assignees for such Partnership
Year shall be allocated pro rata among such Additional Limited Partner and all
other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Code Section 706(d), using the
"interim closing of the books" method or another permissible method selected by
the General Partner. Solely for purposes of making such allocations, each of
such items for the calendar month in which an admission of any Additional
Limited Partner occurs shall be allocated among all the Partners and Assignees
including such Additional Limited Partner, in accordance with the principles
described in Section 11.6.C hereof. All distributions of Available Cash with
respect to which the Partnership Record Date is before the date of such
admission shall be made solely to Partners and Assignees other than the
Additional Limited Partner, and all distributions of Available Cash thereafter
shall be made to all the Partners and Assignees including such Additional
Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
Section 12.4 Admission of Initial Limited Partners. The Persons listed
on Exhibit A as limited partners of the Partnership shall be admitted to the
Partnership as Limited Partners upon their execution and delivery of this
Agreement.
Section 12.5 Limit on Number of Partners. Unless otherwise permitted by
the General Partner, no Person shall be admitted to the Partnership as an
Additional Limited Partner if the effect of such admission would be to cause the
Partnership to have a number of Partners (including as Partners for this purpose
those Persons indirectly owning an interest in the Partnership through another
partnership, a limited liability company, a subchapter S corporation or a
grantor trust) that would cause the Partnership to become a reporting company
under the Exchange Act.
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ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Additional Limited Partners or by the admission of a successor
General Partner in accordance with the terms of this Agreement. Upon the
withdrawal of the General Partner, any successor General Partner shall continue
the business of the Partnership without dissolution. However, the Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following (each a "Liquidating Event"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal, as defined in the Act (including,
without limitation, bankruptcy), of the sole General Partner unless, within
ninety (90) days after the withdrawal, a "majority in interest" (as such phrase
is used in Section 17-801(3) of the Act) of the remaining Partners agree in
writing, in their sole and absolute discretion, to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner:
C. an election to dissolve the Partnership made by the General
Partner in its sole and absolute discretion, with or without the Consent of the
Limited Partners;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the occurrence of a Terminating Capital Transaction; or
F. the Redemption (or acquisition by the General Partner) of all
Partnership Units other than Partnership Units held by the General Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets and satisfying the claims of its creditors and
Partners. After the occurrence of a Liquidating Event, no Partner shall take any
action that is inconsistent with, or not necessary to or appropriate for, the
winding up of the Partnership's business and affairs. The General Partner (or,
in the event that there is no remaining General Partner or the General Partner
has dissolved, become bankrupt within the meaning of the Act or ceased to
operate, any Person elected by a Majority in Interest of the Limited Partners
(the General Partner or such other Person being referred to herein as the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property, and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:
(1) First, to the satisfaction of all of the
Partnership's debts and liabilities to creditors other than the
Partners and their Assignees (whether by payment or the making of
reasonable provision for payment thereof);
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(2) Second, to the satisfaction of all of the
Partnership's debts and liabilities to the General Partner (whether by
payment or the making of reasonable provision for payment thereof),
including, but not limited to, amounts due as reimbursements under
Section 7.4 hereof;
(3) Third, to the satisfaction of all of the
Partnership's debts and liabilities to the other Partners and any
Assignees (whether by payment or the making of reasonable provision for
payment thereof);
(4) Fourth, to the payment of any unpaid preferred
distributions to the Special Limited Partner; and
(5) Subject to the terms of any Partnership Unit
Designation, the balance, if any, to the General Partner, the Limited
Partners and any Assignees in accordance with and in proportion to
their positive Capital Account balances, after giving effect to all
contributions, distributions and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the event that the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article 13 to the Partners and Assignees that have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
to the extent of, and in proportion to, positive Capital Account balances. If
the General Partner has a deficit balance in its Capital Account (after giving
effect to all contributions, distributions and allocations for all taxable
years, including the year during which such liquidation occurs) (a "Capital
Account Deficit"), the General Partner shall make a contribution to the capital
of the Partnership equal to the amount of such deficit. No Partner other than
the General Partner shall be required to make any contribution to the capital of
the Partnership with respect to a Capital Account Deficit, if any, of such
Partner, and such Capital Account Deficit shall not be considered a debt owed to
the Partnership or any other person for any purpose whatsoever. In the sole and
absolute discretion of the General Partner or the Liquidator, a pro rata portion
of the distributions that would otherwise be made to the Partners pursuant to
this Article 13 may be:
1. distributed to a trust established for the benefit of
the General Partner and the Limited Partners for the purpose of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities or obligations of the Partnership or of the
General Partner arising out of or in connection with the Partnership and/or
Partnership activities. The assets of any such trust shall be distributed to the
General Partner and the Limited Partners, from time to time, in the reasonable
discretion of the General Partner, in
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the same proportions and amounts as would otherwise have been distributed to the
General Partner and the Limited Partners pursuant to this Agreement; or
2. withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A hereof as soon as practicable.
Section 13.3 Deemed Distribution and Recontribution. Notwithstanding
any other provision of this Article 13, in the event that the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership shall be deemed to have distributed the Property in
kind to the Partners and the Assignees, who shall be deemed to have contributed
all of its assets and liabilities to a new partnership in exchange for an
interest in the new partnership; and, immediately thereafter, distributed
interests in the new partnership to the Partners in accordance with their
respective Capital Accounts in liquidation of the Partnership, and the new
partnership is deemed to continue the business of the Partnership. Nothing in
this Section 13.3 shall be deemed to have constituted any Assignee as a
Substituted Limited Partner without compliance with the provisions of Section
11.4 hereof.
Section 13.4 Rights of Limited Partners. Except as otherwise provided
in this Agreement, (a) each Limited Partner shall look solely to the assets of
the Partnership for the return of its Capital Contribution, (b) no Limited
Partner shall have the right or power to demand or receive property other than
cash from the Partnership and (c) no Limited Partner shall have priority over
any other Limited Partner as to the return of its Capital Contributions,
distributions or allocations.
Section 13.5 Notice of Dissolution. In the event that a Liquidating
Event occurs or an event occurs that would, but for an election or objection by
one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of
the Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and, in the General
Partner's sole and absolute discretion or as required by the Act, to all other
parties with whom the Partnership regularly conducts business (as determined in
the sole and absolute discretion of the General Partner), and the General
Partner may, or, if required by the Act, shall, publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the sole and absolute discretion
of the General Partner).
Section 13.6 Cancellation of Certificate of Limited Partnership. Upon
the completion of the liquidation of the Partnership cash and property as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed with the State of Delaware, all
qualifications of the Partnership as a foreign limited partnership or
association in jurisdictions other than the State of Delaware shall be
cancelled, and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
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ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners. The
actions requiring consent or approval of Limited Partners pursuant to this
Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable
law, are subject to the procedures set forth in this Article 14.
Section 14.2 Amendments. Amendments to this Agreement may be proposed
by the General Partner or by a Majority in Interest of the Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Limited Partners. The General Partner shall seek the written consent of
the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that the General Partner may deem
appropriate. For purposes of obtaining a written consent, the General Partner
may require a response within a reasonable specified time, but not less than
fifteen (15) days, and failure to respond in such time period shall constitute a
consent that is consistent with the General Partner's recommendation with
respect to the proposal; provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
Section 14.3 Meetings of the Partners.
A. Meetings of the Partners may be called by the General Partner
and shall be called upon the receipt by the General Partner of a written request
by a Majority in Interest of the Limited Partners. The call shall state the
nature of the business to be transacted. Notice of any such meeting shall be
given to all Partners not less than seven (7) days nor more than thirty (30)
days prior to the date of such meeting. Partners may vote in person or by proxy
at such meeting. Whenever the vote or Consent of Partners is permitted or
required under this Agreement, such vote or Consent may be given at a meeting of
Partners or may be given in accordance with the procedure prescribed in Section
14.3.B hereof.
B. Any action required or permitted to be taken at a meeting of
the Partners may be taken without a meeting if a written consent setting forth
the action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement
for the action in question). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to
act for it by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy (or there is
receipt of a proxy authorizing a later date). Every proxy shall be revocable at
the pleasure of the Limited Partner executing it, such revocation to be
effective upon the Partnership's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate in its sole and absolute discretion. Without limitation,
meetings of Partners may be
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conducted in the same manner as meetings of the General Partner's shareholders
and may be held at the same time as, and as part of, the meetings of the General
Partner's shareholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. Any notice, demand, request or
report required or permitted to be given or made to a Partner or Assignee under
this Agreement shall be in writing and shall be deemed given or made when
delivered in person or when sent by first class United States mail or by other
means of written communication (including by telecopy, facsimile, or commercial
courier service) to the Partner or Assignee at the address set forth in Exhibit
A or such other address of which the Partner shall notify the General Partner in
writing.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" or "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require,
any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver.
A. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the
rights and benefits of the Limited Partners contained in this Agreement, and the
duties, covenants and other requirements of performance or notice by the Limited
Partners, are for the benefit of the Partnership and, except for an obligation
to pay money to the Partnership, may be waived or relinquished by the General
Partner, in its sole and absolute discretion, on behalf of the Partnership in
one or more instances from time to time and at any time; provided, however, that
any such waiver or relinquishment may not be made if it would have the effect of
(i) creating liability for any other Limited Partner, (ii) causing the
Partnership to cease to qualify as a limited partnership, (iii) reducing the
amount of cash otherwise distributable to the Limited Partners, (iv) resulting
in the classification of the Partnership as an association or publicly traded
partnership taxable as a corporation or (v) violating the Securities Act, the
Exchange Act or any state "blue sky" or other securities laws; provided,
further, that any waiver relating to compliance with the Ownership Limit or
other restrictions in the Charter shall be made and shall be effective only as
provided in the Charter.
59
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Section 15.7 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.8 Applicable Law. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of law. In the event of a conflict
between any provision of this Agreement and any non-mandatory provision of the
Act, the provisions of this Agreement shall control and take precedence.
Section 15.9 Entire Agreement. This Agreement contains all of the
understandings and agreements between and among the Partners with respect to
the subject matter of this Agreement and the rights, interests and obligations
of the Partners with respect to the Partnership.
Section 15.10 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
Section 15.11 Limitation to Preserve REIT Status. Notwithstanding
anything else in this Agreement, to the extent that the amount paid, credited,
distributed or reimbursed by the Partnership to any REIT Partner or its
officers, directors, employees or agents, whether as a reimbursement, fee,
expense or indemnity (a "REIT Payment"), would constitute gross income to the
REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3),
then, notwithstanding any other provision of this Agreement, the amount of such
REIT Payments, as selected by the General Partner in its discretion from among
items of potential distribution, reimbursement, fees, expenses and indemnities,
shall be reduced for any Partnership Year so that the REIT Payments, as so
reduced, for or with respect to such REIT Partner shall not exceed the lesser
of:
(i) an amount equal to the excess, if any, of (a) four and
nine-tenths percent (4.9%) of the REIT Partner's total gross income
(but excluding the amount of any REIT Payments) for the Partnership
Year that is described in subsections (A) through (H) of Code Section
856(c)(2) over (b) the amount of gross income (within the meaning of
Code Section 856(c)(2)) derived by the REIT Partner from sources other
than those described in subsections (A) through (H) of Code Section
856(c)(2) (but not including the amount of any REIT Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-four
percent (24%) of the REIT Partner's total gross income (but excluding
the amount of any REIT Payments) for the Partnership Year that is
described in subsections (A) through (I) of Code Section 856(c)(3) over
(b) the amount of gross income (within the meaning of Code Section
856(c)(3)) derived by the REIT Partner from sources other than those
described in subsections (A) through (I) of Code Section 856(c)(3) (but
not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Partnership Year as
a consequence of the limitations set forth in this Section 15.11, such REIT
Payments shall carry over and shall be treated as arising in the following
Partnership Year. The purpose of the limitations contained in this Section 15.11
is to prevent any REIT Partner from failing to qualify as a REIT
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under the Code by reason of such REIT Partner's share of items, including
distributions, reimbursements, fees, expenses or indemnities, receivable
directly or indirectly from the Partnership, and this Section 15.11 shall be
interpreted and applied to effectuate such purpose.
Section 15.12 No Partition. No Partner nor any successor-in-interest to
a Partner shall have the right while this Agreement remains in effect to have
any property of the Partnership partitioned, or to file a complaint or institute
any proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions of
this Agreement are solely for the purpose of defining the interests of the
Partners, interse; and no other person, firm or entity (i.e., a party who is
not a signatory hereto or a permitted successor to such signatory hereto) shall
have any right, power, title or interest by way of subrogation or otherwise, in
and to the rights, powers, title and provisions of this Agreement. No creditor
or other third party having dealings with the Partnership (other than as
expressly set forth herein with respect to Indemnitees) shall have the right to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor may any such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or any of the Partners.
Section 15.14 No Rights as Stockholders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders of Partnership Units
any rights whatsoever as stockholders of the General Partner, including without
limitation any right to receive dividends or other distributions made to
stockholders of the General Partner or to vote or to consent or receive notice
as stockholders in respect of any meeting of stockholders for the election of
directors of the General Partner or any other matter.
[the next page is the signature page]
61
<PAGE> 63
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
GENERAL PARTNER:
FORTRESS INVESTMENT CORP., a Maryland corporation
By: /s/ Randal A. Nardone
Name: Randal A. Nardone
Title: Chief Operating Officer and Secretary
SPECIAL LIMITED PARTNER:
FORTRESS PRINCIPAL INVESTMENT GROUP LLC, a
Delaware limited liability company
By: /s/ Randal A. Nardone
Name: Randal A. Nardone
Title: Chief Operating Officer and Secretary
<PAGE> 64
AS OF JUNE 10, 1998
EXHIBIT A
PARTNERS AND PARTNERSHIP UNITS
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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GENERAL PARTNER:
FORTRESS INVESTMENT CORP. 20,353,450 Partnership Common Units
One Penn Plaza
250 West 34th Street, Suite 3600
New York, New York 10119
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SPECIAL LIMITED PARTNER:
FORTRESS PRINCIPAL INVESTMENT GROUP 5 Partnership Common Units
LLC
One Penn Plaza
250 West 34th Street, Suite 3600
New York, New York 10119
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LIMITED PARTNERS:
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A-1
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-2
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-3
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-4
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-5
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-6
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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A-7
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NAME AND ADDRESS OF PARTNERS PARTNERSHIP UNITS (TYPE AND AMOUNT)
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TOTALS 20,353,455 Partnership Common Units
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A-8
<PAGE> 72
Exhibit B
EXAMPLES REGARDING ADJUSTMENT FACTOR
For purposes of the following examples, it is assumed that (a) the
Adjustment Factor in effect on December 30, 1997 is 1.0 and (b) on January 1,
1998 (the "Partnership Record Date" for purposes of these examples), prior to
the events described in the examples, there are 100 REIT Shares issued and
outstanding.
Example 1
On the Partnership Record Date, the General Partner declares a dividend
on its outstanding REIT Shares in REIT Shares. The amount of the dividend is one
REIT Share paid in respect of each REIT Share owned. Pursuant to Paragraph (i)
of the definition of "Adjustment Factor," the Adjustment Factor shall be
adjusted on the Partnership Record Date, effective immediately after the stock
dividend is declared, as follows:
200
1.0 * --- = 2.0
100
Accordingly, the Adjustment Factor after the stock dividend is declared
is 2.0.
Example 2
On the Partnership Record Date, the General Partner distributes options
to purchase REIT Shares to all holders of its REIT Shares. The amount of the
distribution is one option to acquire one REIT Share in respect of each REIT
Share owned. The strike price is $4.00 a share. The Value of a REIT Share on the
Partnership Record Date is $5.00 per share. Pursuant to Paragraph (ii) of the
definition of "Adjustment Factor," the Adjustment Factor shall be adjusted on
the Partnership Record Date, effective immediately after the options are
distributed, as follows:
(100+100)
1.0* --------------- =1.1111
100*$4.00
(100+---------------)
$5.00
Accordingly, the Adjustment Factor after the options are distributed is
1.1111. If the options expire or become no longer exercisable, then the
retroactive adjustment specified in Paragraph (ii) of the definition of
"Adjustment Factor" shall apply.
Example 3
On the Partnership Record Date, the General Partner distributes assets
to all holders of its REIT Shares. The amount of the distribution is one asset
with a fair market value (as determined by the General Partner) of $1.00 in
respect of each REIT Share owned. It is also assumed that the assets do not
relate to assets received by the General Partner pursuant to a pro rata
distribution by the Partnership. The Value of a REIT Share on the Partnership
B-1
<PAGE> 73
Record Date is $5.00 a share. Pursuant to Paragraph (iii) of the definition of
"Adjustment Factor," the Adjustment Factor shall be adjusted on the Partnership
Record Date, effective immediately after the assets are distributed, as follows:
$5.00
1.0* --------------- = 1.25
$5.00 - $1.00
Accordingly, the Adjustment Factor after the assets are distributed is
1.25.
B-2
<PAGE> 74
Exhibit C
NOTICE OF REDEMPTION
To: Fortress Investment Corp.
c/o______________________
_________________________
_________________________
_________________________
The undersigned Limited Partner or Assignee hereby irrevocably
tenders for Redemption _______ Partnership Common Units in Fortress Partners,
L.P. in accordance with the terms of the Agreement of Limited Partnership of
Fortress Partners, L.P., dated as of _________, 1998 as amended (the
"Agreement"), and the Redemption rights referred to therein. The undersigned
Limited Partner or Assignee:
(a) undertakes (i) to surrender such Partnership Common Units
and any certificate therefor at the closing of the Redemption and (ii)
to furnish to the General Partner, prior to the Specified Redemption
Date, the documentation, instruments and information required under
Section 8.6.G of the Agreement;
(b) directs that the certified check representing the Cash
Amount, or the REIT Shares Amount, as applicable, deliverable upon the
closing of such Redemption be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that:
(i) the undersigned Limited Partner or Assignee is a
Qualifying Party,
(ii) the undersigned Limited Partner or Assignee has,
and at the closing of the Redemption will have, good,
marketable and unencumbered title to such Partnership Common
Units, free and clear of the rights or interests of any other
person or entity,
(iii) the undersigned Limited Partner or Assignee
has, and at the closing of the Redemption will have, the full
right, power and authority to tender and surrender such
Partnership Common Units as provided herein, and
(iv) the undersigned Limited Partner or Assignee has
obtained the consent or approval of all persons and entities,
if any, having the right to consent to or approve such tender
and surrender; and
(d) acknowledges that he will continue to own such Partnership
Common Units until and unless either (1) such Partnership Common Units are
acquired by the General Partner pursuant to Section 8.6.B of the Agreement or
(2) such redemption transaction closes.
C-1
<PAGE> 75
All capitalized terms used herein and not otherwise defined
shall have the same meaning ascribed to them respectively in the Agreement.
Dated: __________________
Name of Limited Partner or Assignee:
__________________________________________
__________________________________________
(Signature of Limited Partner or Assignee)
__________________________________________
(Street Address)
__________________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
__________________________________________
Issue Check Payable to: __________________________________________
Please insert social security
or identifying number: __________________________________________
C-2
<PAGE> 76
Exhibit D
FORM OF UNIT CERTIFICATE
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF
COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN ADDITION, THE LIMITED
PARTNERSHIP INTEREST EVIDENCED BY THIS CERTIFICATE MAY BE SOLD OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN
THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FORTRESS
PARTNERS, L.P., DATED AS OF __________, 1998 A COPY OF WHICH MAY BE OBTAINED
FROM FORTRESS INVESTMENT CORP., THE GENERAL PARTNER, AT ITS PRINCIPAL EXECUTIVE
OFFICE.
Certificate Number ________
FORTRESS PARTNERS, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that ____________________________________________________________
is the owner of ________________________________________________________________
FULLY PAID PARTNERSHIP COMMON UNITS
OF
FORTRESS PARTNERS, L.P.,
transferable on the books of the Partnership in person or by duly authorized
attorney on the surrender of this Certificate properly endorsed. This
Certificate and the Partnership Common Units represented hereby are issued and
shall be held subject to all of the provisions of the Agreement of Limited
Partnership, as the same may be amended and/or supplemented from time to time.
IN WITNESS WHEREOF, the undersigned has signed this Certificate.
Dated:
By________________________________
D-1
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1
DEFINED TERMS.......................................................................................... 1
ARTICLE 2
ORGANIZATIONAL MATTERS................................................................................. 16
Section 2.1 Organization............................................................ 16
Section 2.2 Name.................................................................... 16
Section 2.3 Registered Office and Agent; Principal Office........................... 16
Section 2.4 Power of Attorney....................................................... 17
Section 2.5 Term.................................................................... 18
ARTICLE 3
PURPOSE................................................................................................ 18
Section 3.1 Purpose and Business.................................................... 18
Section 3.2 Powers.................................................................. 18
Section 3.3 Partnership Only for Partnership Purposes............................... 18
Section 3.4 Representations and Warranties by the Parties........................... 19
ARTICLE 4
CAPITAL CONTRIBUTIONS.................................................................................. 20
Section 4.1 Capital Contributions of the Partners................................... 20
Section 4.2 Issuances of Additional Partnership Interests........................... 21
Section 4.3 Additional Funds and Capital Contributions.............................. 21
Section 4.4 Stock Option Plan....................................................... 23
Section 4.5 No Interest; No Return.................................................. 24
Section 4.6 Conversion or Redemption of Preferred Shares........................... 24
Section 4.7 Conversion or Redemption of Junior Shares............................... 24
Section 4.8 Other Contribution Provisions........................................... 24
Section 4.9 Not Publicly Traded..................................................... 25
ARTICLE 5
DISTRIBUTIONS.......................................................................................... 25
Section 5.1 Requirement and Characterization of Distributions....................... 25
Section 5.2 Distributions in Kind................................................... 25
Section 5.3 Amounts Withheld........................................................ 25
Section 5.4 Distributions Upon Liquidation.......................................... 25
Section 5.5 Distributions to Reflect Issuance of Additional Partnership Units....... 25
Section 5.6 Restricted Distributions................................................ 26
Section 5.7 Preferred Distributions................................................. 26
Section 5.8 Right to Purchase Preferred Distributions............................... 26
</TABLE>
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<TABLE>
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ARTICLE 6
ALLOCATIONS............................................................................................ 26
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss............. 26
Section 6.2 General Allocations..................................................... 26
Section 6.3 Additional Allocation Provisions........................................ 27
Section 6.4 Tax Allocations......................................................... 29
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS.................................................................. 30
Section 7.1 Management.............................................................. 30
Section 7.2 Certificate of Limited Partnership...................................... 33
Section 7.3 Restrictions on General Partner's Authority............................. 33
Section 7.4 Reimbursement of the General Partner.................................... 35
Section 7.5 Outside Activities of the General Partner............................... 35
Section 7.6 Contracts with Affiliates............................................... 36
Section 7.7 Indemnification......................................................... 36
Section 7.8 Liability of the General Partner........................................ 38
Section 7.9 Other Matters Concerning the General Partner............................ 39
Section 7.10 Title to Partnership Assets............................................ 39
Section 7.11 Reliance by Third Parties.............................................. 40
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................................................. 40
Section 8.1 Limitation of Liability................................................. 40
Section 8.2 Management of Business.................................................. 40
Section 8.3 Outside Activities of Limited Partners.................................. 40
Section 8.4 Return of Capital....................................................... 41
Section 8.5 Rights of Limited Partners Relating to the Partnership.................. 41
Section 8.6 Redemption Rights of Qualifying Parties............................... 42
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS................................................................. 46
Section 9.1 Records and Accounting.................................................. 46
Section 9.2 Partnership Year........................................................ 46
Section 9.3 Reports................................................................. 46
ARTICLE 10
TAX MATTERS............................................................................................ 46
Section 10.1 Preparation of Tax Returns............................................. 46
Section 10.2 Tax Elections.......................................................... 47
Section 10.3 Tax Matters Partner.................................................... 47
Section 10.4 Withholding............................................................ 48
Section 10.5 Organizational Expenses................................................ 48
</TABLE>
ii
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<TABLE>
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ARTICLE 11
TRANSFERS AND WITHDRAWALS.............................................................................. 49
Section 11.1 Transfer............................................................... 49
Section 11.2 Transfer of General Partner's Partnership Interest..................... 49
Section 11.3 Limited Partners' Rights to Transfer................................... 50
Section 11.4 Substituted Limited Partners........................................... 51
Section 11.5 Assignees.............................................................. 52
Section 11.6 General Provisions..................................................... 52
ARTICLE 12
ADMISSION OF PARTNERS.................................................................................. 53
Section 12.1 Admission of Successor General Partner................................. 53
Section 12.2 Admission of Additional Limited Partners............................... 54
Section 12.3 Amendment of Agreement and Certificate................................. 54
Section 12.4 Admission of Initial Limited Partners.................................. 54
Section 12.5 Limit on Number of Partners............................................ 54
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION............................................................... 55
Section 13.1 Dissolution............................................................ 55
Section 13.2 Winding Up............................................................. 55
Section 13.3 Deemed Distribution and Recontribution................................. 57
Section 13.4 Rights of Limited Partners............................................. 57
Section 13.5 Notice of Dissolution.................................................. 57
Section 13.6 Cancellation of Certificate of Limited Partnership..................... 57
Section 13.7 Reasonable Time for Winding-Up......................................... 57
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS...................................................................... 58
Section 14.1 Procedures for Actions and Consents of Partners........................ 58
Section 14.2 Amendments............................................................. 58
Section 14.3 Meetings of the Partners............................................... 58
ARTICLE 15
GENERAL PROVISIONS..................................................................................... 59
Section 15.1 Addresses and Notice................................................... 59
Section 15.2 Titles and Captions.................................................... 59
Section 15.3 Pronouns and Plurals................................................... 59
Section 15.4 Further Action......................................................... 59
</TABLE>
iii
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<TABLE>
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<S> <C>
Section 15.5 Binding Effect......................................................... 59
Section 15.6 Waiver................................................................. 59
Section 15.7 Counterparts........................................................... 60
Section 15.8 Applicable Law......................................................... 60
Section 15.9 Entire Agreement....................................................... 60
Section 15.10 Invalidity of Provisions.............................................. 60
Section 15.11 Limitation to Preserve REIT Status.................................... 60
Section 15.12 No Partition.......................................................... 61
Section 15.13 No Third-Party Rights Created Hereby.................................. 61
Section 15.14 No Rights as Stockholders............................................. 61
Exhibit A
PARTNERS AND PARTNERSHIP UNITS......................................................................... A-1
Exhibit B
EXAMPLES REGARDING ADJUSTMENT FACTOR................................................................... B-1
Exhibit C
NOTICE OF REDEMPTION................................................................................... C-1
Exhibit D
FORM OF UNIT CERTIFICATE............................................................................... D-1
</TABLE>
iv
<PAGE> 1
Exhibit 10.3
LIMITED LIABILITY COMPANY AGREEMENT
OF
FORTRESS INVESTMENT GROUP LLC
Dated as of February 6, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS..........................................................1
SECTION 1.1 Definitions.............................................1
ARTICLE II
GENERAL PROVISIONS...................................................8
SECTION 2.1 Company Name............................................8
SECTION 2.2 Registered Office, Registered Agent.....................8
SECTION 2.3 Certificates............................................9
SECTION 2.4 Nature of Business; Permitted Powers....................9
SECTION 2.5 Fiscal Year.............................................9
SECTION 2.6 Perpetual Existence.....................................9
SECTION 2.7 Limitation on Member Liability..........................9
SECTION 2.8 Indemnification.........................................9
SECTION 2.9 Exculpation............................................10
SECTION 2.10 Fiduciary Duty.......................................10
SECTION 2.11 Insurance............................................11
ARTICLE III
CLASSES OF INTERESTS AND ADMISSION OF MEMBERS.......................12
SECTION 3.1 Classes................................................12
SECTION 3.2 Admission of Initial Members...........................12
SECTION 3.3 Admission of Additional Members........................12
SECTION 3.4 Schedule A.............................................13
ARTICLE IV
OFFICERS............................................................13
SECTION 4.1 Designation; Term; Qualifications......................13
SECTION 4.2 Removal and Resignation................................13
SECTION 4.3 Vacancies..............................................14
SECTION 4.4 Compensation...........................................14
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Page
SECTION 4.5 Acts of the Officers...................................14
ARTICLE V
VOTING AND MANAGEMENT...............................................14
SECTION 5.1 Class A Member Voting Rights...........................14
SECTION 5.2 Class B Member Voting Rights...........................14
SECTION 5.3 Management of the Company..............................15
SECTION 5.4 Acts of the Directors, Management Procedures
and Delegation.........................................15
SECTION 5.5 Compensation of the Directors..........................16
SECTION 5.6 Books and Records; Accounting..........................16
SECTION 5.7 Reliance by Third Parties; Officers....................16
SECTION 5.8 Expenses...............................................16
SECTION 5.9 Company Tax and Information Returns....................17
ARTICLE VI
CONTRIBUTIONS AND CAPITAL ACCOUNTS..................................17
SECTION 6.1 Capital Contributions..................................17
SECTION 6.2 Capital Accounts.......................................18
SECTION 6.3 Withdrawal of Capital; Return of Capital;
Deficit Balance in Capital Account.....................19
ARTICLE VII
ALLOCATIONS.........................................................19
SECTION 7.1 Allocation of Net Operating Profits and
Net Operating Losses for Book Accounting Purposes......19
SECTION 7.2 Allocation of Net Disposition Profits and
Net Disposition Losses for Book Accounting Purposes....20
ARTICLE VIII
DISTRIBUTIONS.......................................................20
SECTION 8.1 Distributions from Operations..........................20
SECTION 8.2 Distributions of Capital Receipts......................20
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Page
SECTION 8.3 Treatment of Insufficiency.............................20
SECTION 8.4 Distributions in Kind..................................21
ARTICLE IX
SPECIAL ALLOCATION RULES............................................21
SECTION 9.1 Certain Definitions....................................21
SECTION 9.2 Allocations............................................24
ARTICLE X
RESIGNATION AND ASSIGNMENT OF INTERESTS.............................28
SECTION 10.1 Resignation of Member.................................28
SECTION 10.2 No Distribution Upon Resignation......................29
SECTION 10.3 Assignment of Interests...............................29
SECTION 10.4 Right of Assignee to Become a Substitute Member.......30
SECTION 10.5 Recognition of Transfer by Company....................30
ARTICLE XI
DISSOLUTION.........................................................31
SECTION 11.1 Duration and Dissolution..............................31
SECTION 11.2 Winding Up............................................31
SECTION 11.3 Distribution of Assets................................31
SECTION 11.4 Notice of Liquidation.................................32
ARTICLE XII
MISCELLANEOUS.......................................................32
SECTION 12.1 Tax Reports and Financial Statements..................32
SECTION 12.2 Amendment to the Agreement............................32
SECTION 12.3 Successors, Counterparts..............................32
SECTION 12.4 Governing Law; Severability...........................32
SECTION 12.5 Filings...............................................33
SECTION 12.6 Power of Attorney.....................................33
SECTION 12.7 Headings..............................................34
SECTION 12.8 Additional Documents..................................34
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Page
SECTION 12.9 Notices...............................................34
SECTION 12.10 Waiver of Right to Partition and Bill of Accounting...34
SCHEDULE A
INITIAL MEMBERS.....................................................35
SCHEDULE B
INITIAL DIRECTORS...................................................36
SCHEDULE C
INITIAL OFFICERS....................................................37
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LIMITED LIABILITY COMPANY AGREEMENT
OF
FORTRESS INVESTMENT GROUP LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of FORTRESS INVESTMENT GROUP
LLC, a Delaware limited liability company (the "Company"), is made as of
February 6, 1998, among the undersigned and the other Persons (as defined below)
who become members of the Company from time to time in accordance with the
provisions hereof (collectively, the "Members").
WHEREAS, the Members have formed the Company under the Delaware Act (as
defined below) by causing to be filed a Certificate of Formation of the Company
with the Office of the Secretary of State of the State of Delaware on February
6, 1998; and
WHEREAS, the Members desire to set forth their respective rights and
obligations as Members of the Company and to provide for the management of the
Company and its affairs and for the conduct of the business of the Company;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used herein, the following terms shall have
the following meanings:
"Additional Member" has the meaning specified in Section 3.3 of this
Agreement.
"Affiliate" means, with respect to a Person, another Person that
directly or indirectly controls, is controlled by or is under common control
with such first Person.
<PAGE> 7
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to vote a majority of the securities having voting power for the
election of Directors of such Person or otherwise to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.
"Agreement" means this Limited Liability Company Agreement of the
Company, as amended, modified, supplemented or restated from time to time.
"Capital Account" means the capital account established for each Member
in accordance with Section 6.2(a).
"Capital Asset" means any asset described in Section 1221 or 1231 of
the Code, or any other asset of the Company or of any partnership or limited
liability company in which the Company holds a direct or indirect interest, the
sale or other disposition of which at a gain would result in long term capital
gain within the meaning of Section 1222(3) of the Code.
"Capital Receipts" means the gross cash proceeds received by the
Company from the sale, exchange or any other disposition of any Capital Asset of
the Company, or of all or substantially all of the assets of the Company
(including without limitation in any Liquidation of the Company) or of any
partnership or limited liability company in which the Company holds a direct or
indirect interest, or from the incurrence of any Indebtedness (but excluding
capital contributions received by the Company), reduced by the sum of (i) all
expenditures made by the Company or by any partnership or limited liability
company in which the Company holds a direct or indirect interest, in connection
with such sale, exchange or other disposition, (ii) debt service payments made
from such gross cash proceeds, and (iii) amounts set aside as reserves therefrom
by the Directors.
"Capitalized Lease" as to any Person means (i) any lease of property,
real or personal, the obligations under which are capitalized on the
consolidated balance sheet of such Person and its subsidiaries, (ii) any other
such lease to the extent that the then present value of the minimum rental
commitment thereunder should, in accordance with GAAP, be capitalized on a
balance sheet of the lessee, and (iii) any lease of property, real or personal,
which is treated as indebtedness for Federal income tax purposes.
"Cash Flow" means, with respect to any period, the amount by which (i)
all cash receipts received by the Company during such period from whatever
source derived
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<PAGE> 8
(including, without limitation, cash from operations and funds released during
such period from cash reserves previously established from cash from operations,
but excluding Capital Receipts, funds released from reserves relating to Capital
Receipts and capital contributions received by the Company) exceeds (ii) all
disbursements of cash by the Company during such period, including, without
limitation, payment of operating expenses, capital expenditures, payment of
principal and interest on the Company's Indebtedness except to the extent taken
into account under the definition of Capital Receipts, and reserves established
by the Directors, but excluding distributions to Members, expenses and additions
to reserves relating to any Capital Receipts.
"Certificate of Formation" means the Certificate of Formation referred
to in the first recital of this Agreement and any and all amendments thereto and
restatements thereof filed on behalf of the Company with the office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act.
"Class A Approval" means the prior written consent of the holders of
Class A Membership Interests representing in the aggregate more than 50% of the
total number of Class A Membership Interests outstanding on the date of
determination.
"Class A Member" means a Member that holds one or more Class A
Membership Interests.
"Class A Membership Interests" means the Interests in the Company
designated as Class A Membership Interests as provided in Section 3.1(a) of this
Agreement having the terms provided in this Agreement.
"Class B Approval" means the prior written consent of the holders of
Class B Membership Interests representing in the aggregate more than 50% of the
total number of Class B Membership Interests outstanding on the date of
determination.
"Class B Member" means a Member that holds one or more Class B
Membership Interests.
"Class B Membership Interests" means the Interests in the Company
designated as Class B Membership Interests as provided in Section 3.1(a) of this
Agreement having the terms provided in this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement.
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A reference to a specific section of the Code refers not only to such
specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect and applicable on the date of the
application of the provisions of this Agreement containing such reference.
"Company" has the meaning specified in the Preamble to this Agreement.
"Contingent Obligation" as to any Person means any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness, leases (including
Capitalized Leases), dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth, solvency or other financial condition of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of such primary obligation of
the ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business or obligations of such Person
which would not be required to be disclosed under GAAP as liabilities or
footnoted on such Person's financial statement. The amount of any accrued or
accruable Contingent Obligation shall be determined in accordance with GAAP.
"Control" means (a) in the case of a corporation, ownership, directly
or through ownership of other entities, of at least ten percent of all the
voting stock (exclusive of stock which is voting only as required by applicable
law or in the event of nonpayment of dividends and pays dividends only on a
nonparticipating basis at a fixed or floating rate), and (b) in the case of any
entity, ownership, directly or through ownership of other entities, of at least
ten percent of all of the beneficial equity interests therein (calculated by a
method that excludes from equity interests, ownership interests that are
nonvoting (except as required by applicable law or in the event of nonpayment of
dividends or distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate) or, in any case (c) the
power directly or indirectly, to direct or control, or cause the direction of,
the management policies of another Person, whether through the ownership of
voting securities, general partnership interests, common
4
<PAGE> 10
Directors, trustees, officers by contract or otherwise. The terms "controlled"
and "controlling" shall have meanings correlative to the foregoing definition of
"control."
"Covered Person" means the Organizer, the Members, the Directors,
Officers, any Affiliate of a Member or a Director, or any officers, managers,
members, employees, representatives or agents of a Member or a Director, or any
employee or agent of the Company or its Affiliates.
"Damage" has the meaning set forth in Section 2.7.
"Delaware Act" means the Delaware Limited Liability Company Act, 6 Del.
C. Section 18- 101, et. seq., as amended from time to time.
"Director" means any Person hereafter elected to act as a manager of
the Company as provided in this Agreement (each in the capacity as a manager of
the Company) but does not include any Person who has ceased to be a manager of
the Company.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim, or restriction of any kind including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attribute of ownership.
"Fiscal Year" has the meaning set forth in Section 2.4.
"Fortress REIT" means Fortress Investment Corp., a Maryland
corporation.
"GAAP" means generally accepted accounting principles.
"incur" means to issue, assume, guarantee, incur or otherwise become
liable for; "incurrence" has the correlative meaning.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all indebtedness of such Person evidenced by
a note, bond, debenture or similar instrument, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of
any other Person secured by any Lien on any property owned by such Person,
whether or not such indebtedness has been assumed, (v) all Contingent
Obligations of such Person, (vi) all payment obligations of such Person under
any hedge
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<PAGE> 11
agreement or currency swaps or similar agreements, (vii) all indebtedness and
liabilities secured by any lien or mortgage on any property of such Person,
whether or not the same would be classified as a liability on a balance sheet,
(viii) the liability of such Person in respect of banker's acceptances and the
estimated liability under any participating mortgage, convertible mortgage or
similar arrangement, (ix) the present value of the aggregate amount of rentals
or other consideration payable by such Person in accordance with GAAP over the
remaining unexpired term of all Capitalized Leases, (x) all judgments or decrees
by a court, (xi) all indebtedness, payment obligations and contingent
obligations of any partnership in which such Person holds a general partnership
interest, (xii) all convertible debt and subordinated debt, (xiii) all preferred
stock of such Person that is redeemable for cash, a cash equivalent, a note
receivable or similar instrument or are convertible to Indebtedness as defined
herein (other than Indebtedness described in clause (iii), (ix), (x) or (xiii)
of this definition), and (xiv) all obligations, liabilities, reserves and any
other items which are listed as a liability on a balance sheet of such Person
determined on a consolidated basis in accordance with GAAP, but excluding all
general contingency reserves and reserves for deferred income taxes and
investment credit.
"Interest" means a limited liability company interest in the Company,
including the right of the holder thereof to any and all benefits to which a
Member may be entitled as provided in this Agreement together with the
obligations of a Member to comply with all of the terms and provisions of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale agreement, deposit arrangement, security interest,
encumbrance, lien (statutory or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever in
respect of any property of a Person, whether granted voluntarily or imposed by
law, and includes the interest of a lessor under a capital lease or under any
financing lease having substantially the same economic effect as any of the
foregoing, inchoate liens arising under the Employment Retirement Income
Security Act of 1974, as amended, and the filing of any financing statement or
similar notice (other than a financing statement filed by a "true" lessor or
consignor pursuant to Section 9-408 of the Uniform Commercial Code), naming the
owner of such property as debtor, under the Uniform Commercial Code or other
comparable law of any jurisdiction.
"Liquidation" means any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. For the purpose of this definition,
the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
interests, units or other
6
<PAGE> 12
consideration) of all or substantially all the property or assets of the Company
shall be deemed a voluntary liquidation, dissolution or winding up of the
Company, but a consolidation or merger of the Company with one or more other
limited liability companies, corporations or other Persons shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary.
"Majority of the Directors" means more than 50% of the votes of the
Directors who are then elected and qualified. For purposes of taking any action
or voting on any matter coming before the Directors, each Director shall have
one vote.
"Member" means any Person that holds an Interest in the Company, is
admitted as a member of the Company pursuant to the provisions of this Agreement
and named as a member of the Company on Schedule A hereto and includes any
Person admitted as an Additional Member or a Substitute Member pursuant to the
provisions of this Agreement, in such Person's capacity as a member of the
Company. For purposes of the Delaware Act, the Class A Members and the Class B
Members shall constitute separate classes or groups of Members.
"Net Disposition Profits" and "Net Disposition Losses" means for each
taxable year of the Company an amount equal to the Company's net gain or loss
for such year resulting from transactions described in the definition of Capital
Receipts, determined in accordance with the Federal income tax accounting
methods and rules used by the Company on its Federal Partnership Information
Return.
"Net Operating Profits" and "Net Operating Losses" means for each
taxable year of the Company an amount equal to the Company's net income or loss
for such year as determined in accordance with the Federal income tax accounting
methods and rules used by the Company on its Federal Partnership Information
Return, but excluding Net Disposition Profits and Net Disposition Losses, and
increased by any non-taxable income received by the Company and decreased by any
non-deductible expenses incurred by the Company.
"Organizer" has the meaning specified in Section 2.3 of this Agreement.
"Officer" means any officer appointed by the Directors or the Chairman
pursuant to Article IV hereof.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, an association, a joint-stock company, a
trust, a business trust,
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<PAGE> 13
a government or any agency or any political subdivision, any unincorporated
organization or any other entity of whatever nature.
"Proportionate Share" means, with respect to any Class B Member, a
fraction, the numerator of which is the aggregate number of Class B Membership
Interests held by such Member and the denominator of which is the total number
of Class B Membership Interests outstanding on the date of determination.
"Regulations" means the regulations proposed or promulgated under the
Code, as amended from time to time, or any federal income tax regulations
promulgated after the date of this Agreement. A reference to a specific
Regulation refers not only to such specific Regulation but also to any
corresponding provision of any federal tax regulation enacted after the date of
this Agreement, as such specific Regulation or corresponding provision is in
effect and applicable on the date of application of the provisions of this
Agreement containing such reference.
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 10.5 hereof, and who is named as a Member on Schedule
A to this Agreement.
"Tax Matters Partner" means the Person designated as such in Section
5.9.
"Transfer" has the meaning set forth in Section 10.3(a).
ARTICLE II
GENERAL PROVISIONS
SECTION 2.1 Company Name. The name of the Company is "Fortress
Investment Group LLC." The name of the Company may be changed from time to time
by the Directors in their sole discretion.
SECTION 2.2 Registered Office, Registered Agent. The Company shall
maintain a registered office in the State of Delaware at, and the name and
address of the Company's registered agent in the State of Delaware is, The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. Such
office and such agent may be changed from time to time by the Directors in their
discretion.
8
<PAGE> 14
SECTION 2.3 Certificates. Christopher Chee, as an authorized person,
within the meaning of the Act (the "Organizer"), shall execute, deliver and file
the certificate of formation of the Company (and any amendments and/or
restatements thereof) and any other certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
SECTION 2.4 Nature of Business; Permitted Powers. The purposes of the
Company shall be to manage the business and operations of the Fortress REIT and
to engage in any lawful act or activity for which limited liability companies
may be formed under the Delaware Act.
SECTION 2.5 Fiscal Year. Unless and until otherwise determined by the
Directors, the fiscal year of the Company for federal income tax purposes shall,
except as otherwise required in accordance with the Code, end on December 31 of
each year (each, a "Fiscal Year").
SECTION 2.6 Perpetual Existence. The Company shall have a perpetual
existence unless dissolved in accordance with the provisions of Article XI of
this Agreement.
SECTION 2.7 Limitation on Member Liability.
(a) Except as otherwise expressly required by law, the
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and neither the Organizer nor any Member shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being the Organizer or a Member.
(b) Except as otherwise expressly required by law, a
Member, in its capacity as a Member, shall have no liability to any Person
hereunder in excess of (i) its obligation to make payments expressly provided
for in this Agreement and (ii) the amount of any distributions wrongfully
distributed to it.
SECTION 2.8 Indemnification. To the fullest extent permitted by
applicable law, any Covered Person shall be indemnified and held harmless by the
Company for and from any liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fees, penalties, damages, costs and expenses,
including, without limitation, reasonable
9
<PAGE> 15
attorneys', accountants', investigators', and experts' fees and expenses
(collectively, "Damages") sustained or incurred by such Covered Person by reason
of any act performed or omitted by such Covered Person in good faith and in a
manner reasonably believed by the Covered Person to be in or not opposed to the
best interests of the Company; provided, however, that any indemnity under this
Section 2.8 shall be provided out of and to the extent of Company assets only,
and no Member shall have any personal liability on account thereof. The right of
indemnification pursuant to this Section 2.8 shall include the right to be paid,
in advance, or reimbursed by the Company for the reasonable expenses incurred by
a Covered Person who was, is, or is threatened to be made a named defendant or
respondent in a proceeding provided that the Covered Person shall have given a
written undertaking to reimburse the Company in the event it is subsequently
determined that he, she or it is not entitled to such indemnification.
SECTION 2.9 Exculpation.
(a) No Covered Person shall be liable to the Company or
any Member for any Damages incurred by reason of any act performed or omitted by
such Covered Person in good faith on behalf of the Company in a manner
reasonably believed to be in or not opposed to the best interests of the
Company.
(b) A Covered Person shall be fully protected in relying
in good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any Person as to
matters the Covered Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Company, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which distributions to Members might properly be paid.
SECTION 2.10 Fiduciary Duty.
(a) To the extent that, at law or in equity, a Covered
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Company or to any Member, a Covered Person acting under this Agreement
shall not be liable to the Company or to any Member for its good faith reliance
on the provisions of this Agreement. The duties and liabilities of a Covered
Person shall be as expressly set forth in this Agreement, and the parties hereto
agree that such duties and liabilities replace any duties and liabilities of a
Covered Person which would otherwise exist at law or equity.
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<PAGE> 16
(b) Unless otherwise expressly provided herein, (i)
whenever a conflict of interest exists or arises between any Member and the
Company or another Member, or (ii) whenever this Agreement or any other
agreement contemplated herein or therein provides that a Member shall act in a
manner that is, or provide terms that are, fair and reasonable to the Company or
any other Member, the Member shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement, transaction
or situation and the benefits and burdens relating to such interests, any
customary or accepted industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by a Member, the
resolution, action or term so made, taken or provided by such Member shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or of any duty or obligation of such Member at law or in equity or otherwise.
(c) Whenever in this Agreement a Member is permitted or
required to make a decision, the Member shall be entitled to make such decision
in its sole discretion and to consider such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Company or any other
Person. If in this Agreement a Member is permitted or required to make a
decision in its "good faith" or under another express standard, the Covered
Person shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or other applicable law.
SECTION 2.11 Insurance. The Company may purchase and maintain
insurance, to the extent and in such amounts as the Directors shall, in their
sole discretion, deem reasonable, on behalf of Covered Persons and such other
Persons as the Directors shall determine, against any liability that may be
asserted against or expenses that may be incurred by any such Person in
connection with the activities of the Company regardless of whether the Company
would have the power to indemnify such Person against such liability under the
provisions of this Agreement. The Company may enter into indemnity contracts
with Covered Persons and such other Persons as the Directors shall determine and
adopt written procedures pursuant to which arrangements are made for the
advancement of expenses and the funding of obligations under this Section 2.10
and containing such other procedures regarding indemnification as are
appropriate and consistent with this Agreement.
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ARTICLE III
CLASSES OF INTERESTS AND ADMISSION OF MEMBERS
SECTION 3.1 Classes.
(a) Subject to Section 3.1(b), the Interests of the
Company shall be divided into two classes, Class A Membership Interests and
Class B Membership Interests, each having the relative rights, powers and duties
set forth in this Agreement.
(b) Notwithstanding Section 3.1(a), but subject to
Sections 3.1(c) and 10.3(b), the Directors are hereby expressly authorized to
take any action, including without limitation amending this Agreement, to create
any class or series of Interests that was not previously outstanding, each
having such relative rights, powers and duties and interests in profits, losses,
allocations and distributions of the Company as may be determined by the
Directors and to cause holders of such Interests to be admitted as Additional
Members of the Company as provided in Section 3.3. Subject to Sections 3.1(c)
and 10.3(b), the total number of Class A Membership Interests and Class B
Membership Interests and units of any other class or series of Interests created
pursuant to this Section 3.1(b) which the Directors shall have the authority to
cause the Company to issue shall not be limited.
(c) Any class or series of Interests created by the
Directors shall dilute the financial interests of the Class A Membership
Interests and Class B Membership Interests proportionately.
SECTION 3.2 Admission of Initial Members. The initial members of the
Company are those Persons executing this Agreement as of the date of this
Agreement as members, each of which is admitted to the Company as the member
effective as of the date of this Agreement. The Company shall issue the Class A
Membership Interests and Class B Membership Interests listed on Schedule A
attached hereto to the Members listed on Schedule A hereto. The name of each
such Member and the amount contributed by such Member to the capital of the
Company is listed on Schedule A attached hereto.
SECTION 3.3 Admission of Additional Members. Subject to Section
10.3(b), the Directors are authorized to admit any Person as an additional
member of the Company (each, an "Additional Member" and collectively, the
"Additional Members"), and issue to such Additional Members Interests of any
other class or series of Interests
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established by the Directors pursuant to Section 3.1(b) of this Agreement. Each
such Person shall be admitted as an Additional Member at the time such Person
(i) executes this Agreement and (ii) is named as a Member on Schedule A hereto.
Except as set forth in Section 10.3(b), no consent of any Member shall be
required for the admission of an Additional Member.
SECTION 3.4 Schedule A. The Directors shall update Schedule A from time
to time as necessary to reflect accurately the information therein and shall
send each Member prompt written notice of each such update to Schedule A. Any
amendment or revision to Schedule A made in accordance with this Agreement shall
not be deemed an amendment to this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time.
ARTICLE IV
OFFICERS
SECTION 4.1 Designation; Term; Qualifications. The Directors or the
Chairman may, from time to time, designate one or more Persons to be Officers of
the Company. The names of the Persons designated as the initial Officers of the
Company are set forth in Schedule C, such Persons to serve in such offices until
resignation or removal by the Directors. Any Officer so designated shall have
such authority and perform such duties as the Directors or the Chairman may,
from time to time, delegate to such Person. The Directors and the Chairman may
assign titles to particular Officers, and unless the Directors or the Chairman
decide otherwise, the assignment of such title shall constitute the delegation
to such Officer of the authority and duties that are normally associated with
that office, subject to any specific delegation of authority and duties made to
such Officer by the Mangers or the Chairman pursuant to this Section 4.1. Each
Officer shall hold office for the term for which such Officer is designated and
until its successor shall be duly designated and shall qualify or until its
death, resignation or removal as provided in this Agreement. Any Person may hold
any number of offices. No Officer need be a Director, a Member, a Delaware
resident, or a Unites States citizen. Designation of such a Person as an Officer
of the Company shall not of itself create any contract rights.
SECTION 4.2 Removal and Resignation. Any Officer of the Company may be
removed as such, with or without cause, by a Majority of the Directors or the
Chairman whenever in the judgement of such Directors or the Chairman, as
applicable, the best
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interests of the Company will be served thereby; provided, however, that such
removal shall be without prejudice to the contract rights, if any, of the Person
so removed. Any Officer of the Company may resign as such at any time upon
written notice to the Company. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time is specified
therein, at the time of its receipt by the Chairman. The acceptance of a
resignation shall not be necessary to make it effective unless expressly so
provided in the resignation.
SECTION 4.3 Vacancies. Any vacancy occurring in any office of the
Company may be filled by the person designated by a majority of the Directors or
the Chairman.
SECTION 4.4 Compensation. The compensation, if any, of the Officers of
the Company shall be fixed from time to time by the Directors; provided,
however, that the Directors may delegate to one or more Directors, who may be
Officers of the Company, the authority to fix such compensation.
SECTION 4.5 Acts of the Officers. Each Officer of the Company is an
agent of the Company for the purpose of the business of the Company, and the act
of each Officer for apparently carrying on in the usual the business of the
Company binds the Company, unless (i) the Officer so acting has in fact no
authority to act for the Company in the particular matter and (ii) the Person
with whom such Officer is dealing has knowledge of the fact that such Officer
has no such authority. An act of an Officer which is not apparently for the
carrying on of the business of the Company in the usual way does not bind the
Company unless authorized by a Majority of the Directors.
ARTICLE V
VOTING AND MANAGEMENT
SECTION 5.1 Class A Member Voting Rights. Class A Members holding Class
A Membership Interests shall be entitled to one vote for each such Class A
Membership Interest upon all matters upon which Class A Members have the right
to vote. All Class A Members shall have the right to vote separately as a class
on any matter on which the Class A Members have the right to vote regardless of
the voting rights of any other class or series of Interests.
SECTION 5.2 Class B Member Voting Rights. Except as provided in Section
12.2, Class B Members holding Class B Membership Interests shall have, with
respect
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to such Class B Membership Interests, no right or power to vote on any question
or matter or in any proceeding or to be represented at, or to receive notice of,
any meeting of Members.
SECTION 5.3 Management of the Company. The business and affairs of the
Company shall be managed solely and exclusively by the Directors and the
Officers, if so delegated by the Directors, as provided herein. The Directors
shall have all rights and powers on behalf and in the name of the Company to
perform all acts necessary and desirable to the objects and purposes of the
Company. The Members, in such capacity, shall have no part in the management of
the Company and shall have no authority or right to act on behalf of or bind the
Company in connection with any matter, except certain tax matters as set forth
in Section 5.9 or as deemed necessary or appropriate by the Directors. The
Members agree that all determinations, decisions and actions made or taken by
the Directors (or their designee(s)) shall be conclusive and binding upon the
Company, the Members and their respective successors, assigns and personal
representatives.
On the date hereof, there shall be the number of Directors as are set
forth in Schedule B hereto (one of which shall be the Chairman), which number
shall be determined from time to time by the Class A Members. The persons listed
on Schedule B hereto as Directors, and the Director designated as the Chairman,
are hereby chosen by the Class A Members and designated as the Directors, and
the Chairman, of the Company on the date hereof. A Director need not be a
Member, a Delaware resident or a United States Citizen.
SECTION 5.4 Acts of the Directors, Management Procedures and
Delegation.
(a) An act of a Director which is not apparently for the
carrying on of the business of the Company in the usual way does not bind the
Company unless authorized by a Majority of the Directors.
(b) Any Director may exercise any of the authority
provided hereunder to the Directors or under the Delaware Act to one or more
managers.
(c) The Directors may (but need not) exercise their
authority hereunder by resolution in such manner as they may determine. A
resolution of the Directors certified by a Director, the Secretary or an
Assistant Secretary of the Company to have been adopted in accordance with this
Agreement and contained in the books and
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records of the Company shall be conclusive evidence of the act of the Directors
set forth therein.
(d) The Directors on behalf of the Company shall have the
power and authority to designate one or more Persons for the Company (who may be
designated as Officers, agents, employees, representatives or otherwise) who
shall have such authority as may be conferred upon them by the Directors and who
may perform any of the duties, and exercise any of the powers and authority,
conferred upon the Directors, subject to the supervision and control of the
Directors.
SECTION 5.5 Compensation of the Directors. No Director shall be
entitled to any compensation for services as Director. Each Director shall be
entitled to reimbursement for reasonable and, necessary out-of-pocket expenses
incurred by such Director during the course of conducting the business of the
Company. Notwithstanding the foregoing, the Directors may compensate and
reimburse from the funds of the Company, the Directors and their designees and
representatives, agents, employees and Officers appointed by the Directors in
furtherance of the business or purposes of the Company.
SECTION 5.6 Books and Records; Accounting. The Directors shall keep or
cause to be kept at the principal office of the Company (or at such other place
as the Directors shall advise the Members in writing) true and complete books
and records regarding the status of the business and financial condition and
results of operations of the Company. The books and records of the Company shall
be kept in accordance with the Federal income tax accounting methods and rules
determined by the Directors, which methods and rules shall reflect all Company
transactions and be appropriate and adequate for the Company's business. The
Company shall also keep books and records in accordance with GAAP.
SECTION 5.7 Reliance by Third Parties; Officers. Persons dealing with
the Company are entitled to rely conclusively upon the power and authority of
the Directors as set forth herein and upon a certificate of any Secretary or
Assistant Secretary as to the incumbency of any Director, Officer or other
personnel of the Company.
SECTION 5.8 Expenses. Except as otherwise provided in this Agreement,
the Company shall be responsible for all and shall pay out of funds of the
Company determined by the Directors to be available for such purpose, all
expenses and obligations of the Company, including those incurred by the Company
or the Directors or their respective Affiliates in connection with the
formation, operation or management
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of the Company, in organizing the Company and preparing, negotiating, executing,
delivering, amending and modifying this Agreement.
SECTION 5.9 Company Tax and Information Returns.
(a) The Tax Matters Partner shall cause to be prepared
and timely filed all tax and information returns required to be filed for the
Company. The Tax Matters Partner may, in its discretion, make or refrain from
making any federal, state, local or foreign income or other tax elections for
the Company that it deems necessary or advisable, including, without limitation:
(i) any election under Section 754 of the Code or any successor provision, and
(ii) any election under Regulations Section 301.7701-3 or any successor
provision; provided, however, that the Tax Matters Partner may not elect to have
the Company treated as a corporation for tax purposes without the Class A
Approval.
(b) Fortress Investment Holdings LLC is hereby designated
as the Company's "Tax Matters Partner" under the Section 6231(a)(7) of the Code
and shall have all the powers and responsibilities of such position as provided
in the Code. Fortress Investment Holdings LLC is specifically directed and
authorized to take whatever steps Fortress Investment Holdings LLC, in its
discretion, deems necessary or desirable to perfect such designation, including
filing any forms or documents with the Internal Revenue Service and taking such
other action as may from time to time be required under the Regulations.
Expenses incurred by the Tax Matters Partner, in its capacity as such, will be
borne by the Company.
ARTICLE VI
CONTRIBUTIONS AND CAPITAL ACCOUNTS
SECTION 6.1 Capital Contributions.
(a) Each Class A Member is, concurrently with its execution of
this Agreement, contributing to the capital of the Company the amount set forth
opposite such Member's name on Schedule A attached hereto. Each Class B Member
is, concurrently with the execution of this Agreement, contributing to the
capital of the Company the amount set forth opposite its name on Schedule A
attached hereto. The capital contributions made or deemed to have been made by
each Additional Member shall be determined by the Directors and set forth on
Schedule A attached hereto. No Member shall be required to
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make any additional capital contribution to the Company. However, a Member may
make additional capital contributions to the Company with the written consent of
the Directors.
(b) Each Class B Member shall have the right, but not the obligation,
to participate in any additional capital contribution to be made by one or more
Class B Members pursuant to clause (a) above (and proportionally in the number
of Class B Interests issued in consideration therefor) in an amount equal to (I)
the aggregate amount of capital to be contributed times (II) the Proportionate
Share of such Class B Member divided by (III) the sum of the Proportionate
Shares of all of the Class B Members who chose to participate.
(c) If one or more Members participating in a capital contribution
specifies a maximum capital contribution to be made, first, an amount equal to
the lesser of (I) the amount of capital to be contributed by all Class B Members
and (II) the lowest of the amounts, calculated for each Class B Member
participating in the capital contribution, of (1) the maximum capital specified
to be contributed by such Class B Member participating in the capital
contribution divided by (2) such Class B Member's Proportionate Share shall be
made as a capital contribution by the participating Class B Members in
accordance with clause (b) and then any remaining capital to be contributed will
be allocated among the Class B Members in accordance with clause (b) and this
clause (c) as if it were a separate capital contribution, but without the
participation of any Member or Members who have already contributed the maximum
amount so specified.
SECTION 6.2 Capital Accounts.
(a) There shall be established for each Member on the
books of the Company a capital account (a "Capital Account"), which shall be
maintained and adjusted as provided in the Regulations. The Capital Account of a
Member shall be credited with the amount of all cash contributed by such Member
to the Company. The Capital Account of a Member shall be increased by (i) the
amount of any additional cash and the fair market value of any property
contributed (or deemed contributed under the Code) by such Member to the Company
and (ii) the amount of any Net Operating Profits or Net Disposition Profits
allocated to such Member pursuant to Articles VII and IX of this Agreement, and
decreased by (i) the amount of any Net Operating Losses or Net Disposition
Losses allocated to such Member pursuant to Articles VII and IX of this
Agreement, (ii) the amount of any cash distributed (or deemed distributed under
the Code) to such Member, and (iii) the fair market value of any assets (other
than cash)
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distributed to such Member. The Capital Account of each Member shall also be
charged or credited with the amounts allocated to the Member pursuant to
Sections 9.2(c) and (d), and shall be adjusted appropriately to reflect any
other adjustment required pursuant to Regulations Sections 1.704-1 or 1.704-2.
(b) Upon the occurrence of any event specified in
Regulations Section 1.704-1(b)(2)(iv)(f), the Directors may cause the Capital
Accounts of the Members to be adjusted to reflect the fair market value of the
Company's assets at such time as determined in good faith by the Directors. The
adjustments shall reflect the manner in which the unrealized income, gains,
loss, or deduction inherent in such property would be allocated among the
Members if there were a taxable disposition of such property for such fair
market value determined in good faith by the Directors on the date of the
occurrence of such event.
SECTION 6.3 Withdrawal of Capital; Return of Capital; Deficit Balance
in Capital Account.
(a) Except as otherwise specifically set forth in this
Agreement, no Member shall have the right to (i) withdraw such Member's capital
contribution or to demand or receive the return of a capital contribution or
make any claim to any portion of Company capital or (ii) demand or receive
property other than cash in return for a capital contribution or to receive any
distribution in return for a capital contribution that is not required by this
Agreement.
(b) Except as expressly provided in this Agreement, no
Member shall have personal liability to make any capital contribution.
(c) A deficit Capital Account of a Member shall not be
deemed to be a liability of such Member or an asset or property of the Company
or any other Member. Furthermore, no Member shall have any obligation to the
Company or any other Member for any deficit balance in such Member's Capital
Account.
ARTICLE VII
ALLOCATIONS
SECTION 7.1 Allocation of Net Operating Profits and Net Operating
Losses for Book Accounting Purposes.
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(a) Net Operating Profits shall be allocated for book
accounting purposes to the Class B Members, in proportion to their Proportionate
Shares.
(b) Net Operating Losses shall be allocated for book
accounting purposes to the Class B Members, in proportion to their Proportionate
Shares.
SECTION 7.2 Allocation of Net Disposition Profits and Net Disposition
Losses for Book Accounting Purposes.
(a) Net Disposition Profits shall be allocated for book
accounting purposes to the Class B Members, in proportion to their Proportionate
Shares.
(b) Net Disposition Losses shall be allocated for book
accounting purposes to the Class B Members, in accordance with their
Proportionate Shares.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8.1 Distributions from Operations. Subject to Sections 8.3 and
11.1, Cash Flow for any period shall be distributed to the Class B Members, at
times determined by the Directors, in accordance with their Proportionate
Shares.
SECTION 8.2 Distributions of Capital Receipts. Subject to Sections 8.3
and 11.1, Capital Receipts shall be distributed to the Class B Members, at
times, and in cash or in kind (as determined by the Directors but subject to
Section 8.5), in accordance with their Proportionate Shares.
SECTION 8.3 Treatment of Insufficiency. If the amounts available for
distribution pursuant to Section 8.1 or 8.2 hereof are not sufficient to allow
for the distribution to each Class B Member of the amounts provided for in such
Sections, then the amount distributable pursuant to each such Section shall be
apportioned among the Class B Members in proportion to the amounts that would be
distributed to them under that Section if the amounts available for distribution
thereunder were sufficient to allow for the distribution to the Class B Members
of the amounts required to be distributed pursuant to such Section.
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SECTION 8.4 Distributions in Kind. The Directors may cause the Company
to make distributions of assets in kind only after obtaining Class A Approval.
Whenever the distribution provided for in Section 8.1 or Section 8.2 shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property determined by the Directors in good faith,
and in the event of such a distribution there shall be allocated to the Members
in accordance with Article VI the amount of Net Operating Profits or Losses and
the amount of Net Disposition Profits or Losses that would result if the
distributed asset had been sold for an amount in cash equal to its fair market
value at the time of the distribution. No Member shall have the right to demand
that the Company distribute any assets in kind to such Member.
ARTICLE IX
SPECIAL ALLOCATION RULES
SECTION 9.1 Certain Definitions. The following terms have the
definitions hereinafter indicated whenever used in this Article IX with initial
capital letters:
(a) "Adjusted Capital Account Deficit" means, with
respect to any Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the relevant Fiscal Year or other period, after giving
effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such
Member is treated as obligated to restore to the Company pursuant to
Section 1.704-1(b)(2)(ii)(c) of the Regulations or is deemed to be
obligated to restore pursuant to Section 1.704-2(g)(1) or Section
1.704- 2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (d)(5), and (d)(6) of the
Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
(b) "Company Minimum Gain" means the aggregate gain, if
any, that would be realized by the Company for purposes of computing Profits and
Losses with respect to each Company asset if each Company asset subject to a
Nonrecourse Liability
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were disposed of for the amount outstanding on the Nonrecourse Liability by the
Company in a taxable transaction. Company Minimum Gain with respect to each
Company asset shall be further determined in accordance with Regulations Section
1.704-2(d) and any subsequent rule or regulation governing the determination of
minimum gain. A Member's share of Company Minimum Gain at the end of any Fiscal
Year shall equal the aggregate Nonrecourse Deductions allocated to such Member
(or its predecessors in interest) up to that time, less such Member's (and
predecessors') aggregate share of decreases in Company Minimum Gain determined
in accordance with Regulations Section 1.704-2(g).
(c) "Depreciation" means, for each Fiscal Year, an amount
equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year, except that
if the Gross Asset 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 Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year bears to such beginning adjusted tax basis;
provided that if the federal income tax depreciation, amortization, or other
cost recovery deductions for such year is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any reasonable method
selected by the Directors.
(d) "Gross Asset Value" means, with respect to any asset
of the Company, such asset's adjusted basis for federal income tax purposes,
except as follows:
(i) the initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market value of
such asset at the time of contribution determined by the Directors using such
reasonable method of valuation as they may adopt;
(ii) in the discretion of the Directors, the Gross Asset
Values of all the Company's assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the
Directors, immediately prior to the following events:
(A) the making of a capital contribution (other than
a de minimis capital contribution) to the Company by a new or
existing Member as consideration for an Interest;
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(B) the distribution by the Company to a Member of
more than a de minimis amount of Company property as
consideration for the redemption of an Interest; and
(C) the liquidation of the Company within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g); and
(iii) the Gross Asset Values of the Company assets
distributed to any Member shall be the gross fair market values of such
assets as reasonably determined by the Directors as of the date of
distribution.
At all times, Gross Asset Values shall be adjusted by any Depreciation
taken into account with respect to the Company's assets for purposes of
computing Profits and Losses. Gross Asset Values shall be further adjusted to
reflect adjustments to Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m) to the extent not otherwise reflected in adjustments to
Gross Asset Values. Any adjustment to the Gross Asset Values of the Company
property shall require an adjustment to the Members' Capital Accounts as
described in the definition of Capital Account.
(e) "Nonrecourse Deductions" means the nonrecourse
deductions as defined in Regulations Section 1.704-2(b)(1). The amount of
nonrecourse deductions for a Fiscal Year equals the net increase, if any, in the
amount of Company Minimum Gain during such Fiscal Year reduced by any
distributions during such Fiscal Year of proceeds of a Nonrecourse Liability
that are allocable to an increase in Company Minimum Gain, determined according
to the provisions of Regulations Sections 1.704- 2(c) and 1.704-2(h).
(f) "Nonrecourse Liability" means a nonrecourse liability
as defined in Regulations Section 1.704-2(b)(3).
(g) "Member Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to Company Minimum Gain that would result
if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
(h) "Member Nonrecourse Debt" means a liability as
defined in Regulations Section 1.704-2(b)(4).
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(i) "Member Nonrecourse Deductions" means the "partner
nonrecourse deductions" as defined in Regulations Section 1.704-2(i)(2). The
amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse
Debt for a Fiscal Year equals the net increase, if any, in the amount of Member
Minimum Gain during such Fiscal Year attributable to such Member Nonrecourse
Debt, reduced by any distributions during that Fiscal Year to the Member that
bears the economic risk of loss for such Member Nonrecourse Debt to the extent
that such distributions are from the proceeds of such Member Nonrecourse Debt
and are allocable to an increase in Member Minimum Gain attributable to such
Member Nonrecourse Debt, determined according to the provisions of Regulations
Sections 1.704-2(h) and 1.704-2(i).
(j) "Profits" and "Losses" shall mean, respectively, Net
Operating Profits plus Net Disposition Profits, and Net Operating Losses plus
Net Disposition Losses.
SECTION 9.2 Allocations. The following provisions are incorporated in
the Agreement.
(a) Allocations for U.S. Federal Income Tax Purposes.
(i) For each Fiscal Year or other relevant period, except
as otherwise provided in this Section 9.2(a), for federal income tax
purposes, each item of income, gain, loss and deduction shall be
allocated among the Class B Members in the same manner as its
correlative item of Net Operating Profits, Net Operating Losses, Net
Disposition Profits or Net Disposition Losses is allocated pursuant to
Article VII of this Agreement.
(ii) In accordance with Code Sections 704(b) and 704(c)
and the Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company
shall, solely for federal income tax purposes, be allocated among the
Class B Members so as to take into account any variation between the
adjusted basis of such property to the Company for federal income tax
purposes and the initial Gross Asset Value of such property.
(iii) If the Gross Asset Value of any Company property is
adjusted as described in the definition of Gross Asset Value,
subsequent allocations of income, gain, loss and deduction with respect
to such asset
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shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and the Gross Asset Value of such
asset in the manner prescribed under Code Sections 704(b) and 704(c)
and the Regulations thereunder. In furtherance of the foregoing, the
Company shall employ any reasonable method selected by the Directors.
The Directors are specifically authorized to select the traditional
method described in Regulation Section 1.704-3(b).
(b) Allocations with Respect to Transferred or Additional
Interests. Profits and Losses allocable to an Interest assigned, issued or
reissued during a Fiscal Year shall be allocated to each Person who was the
holder of such Interest during such Fiscal Year on the basis of an interim
closing of the books of the Company.
(c) Mandatory Allocations for Federal Income Tax
Purposes.
(i) No Excess Deficit. To the extent that any Class B
Member has or would have, as a result of an allocation of Loss (or item
thereof), an Adjusted Capital Account Deficit, such amount of Loss (or
item thereof) shall be allocated to the other Class B Members in
accordance with Section 9.2(a), but in a manner which will not produce
an Adjusted Capital Account Deficit as to such Class B Members. To the
extent such allocation would result in all Class B Members having
Adjusted Capital Account Deficits, such Loss shall be allocated to the
Class B Members in the manner required by the Regulations under Section
704 of the Code. Where the Company is entitled to select an allocation
method under such Regulations, the method shall be selected by the
Directors.
(ii) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article IX, if there is a net decrease in Company
Minimum Gain during any Fiscal Year, then, subject to the exceptions
set forth in Regulations Sections 1.704-2(f)(2), (3), (4) and (5), each
Class B Member shall be specially allocated items of the Company income
and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Class B Member's share of the net decrease in
Company 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 Class B Member pursuant thereto. The items to be so allocated
shall be
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determined in such section of the Regulations in accordance with
Regulations Section 1.704-2(f). This Section 9.2(c)(ii) is intended to
comply with the minimum gain chargeback requirements in Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith.
(iii) Member Minimum Gain Chargeback. Notwithstanding any
other provision of this Article IX except Section 9.2(c)(ii), if there
is a net decrease in Member Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year, then, subject to the
exceptions set forth in Regulations Section 1.704-2(i)(4), each Member
who has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of the Company income
and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Member's share of the net decrease in Member
Minimum Gain attributable to such Member Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 9.2(c)(iii) is
intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently
therewith.
(iv) Qualified Income Offset. Notwithstanding any other
provision of this Article IX, except Sections 9.2(c)(ii) and
9.2(c)(iii), in the event any Class B Member receives any adjustments,
allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), or (6), that cause or increase an
Adjusted Capital Account Deficit of such Class B Member, items of
Company income and gain shall be specially allocated to such Member in
an amount and manner sufficient to eliminate, to the extent required by
the Regulations, the Adjusted Capital Account Deficit of such Class B
Member as quickly as possible.
(v) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse
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Deductions are attributable in accordance with Regulations Section
1.704-2(i)(1).
(vi) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to
Code Section 734(b) or 743(b) 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
Members in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
Each Class B Member hereby agrees to provide the Company with all
information necessary to give effect to an election made under Code Section 754
if the Tax Matters Partner determines to make such an election; provided that
the cost associated with such an election shall be borne by the Company as a
whole. With respect to such election:
(A) Any change in the amount of the depreciation
deducted by the Company and any change in the gain or loss of
the Company, for federal income tax purposes, resulting from
an adjustment pursuant to Code Section 743(b) shall be
allocated entirely to the transferee of the Interest or
portion thereof so transferred. Neither the capital
contribution obligations of, nor the Interest of, nor the
amount of any cash distributions to, the Class B Members
shall be affected as a result of such election, and except as
provided in Regulations Section 1.704- 1(b)(2)(iv)(m), the
making of such election shall have no effect except for
federal and (if applicable) state and local income tax
purposes.
(B) Solely for federal and (if applicable) state and
local income tax purposes and not for the purpose of
maintaining the Members' Capital Accounts (except as provided
in Regulations Section 1.704- 1(b)(2)(iv)(m)), the Company
shall keep a written record for those assets, the bases of
which are adjusted as a result of such election, and the
amount at which such assets are carried on such record shall
be debited (in the case of an increase in basis) or credited
(in the case of a decrease in basis) by the amount of such
basis adjustment. Any change
27
<PAGE> 33
in the amount of the depreciation deducted by the Company and
any change in the gain or loss of the Company, for federal and
(if applicable) state and local income tax purposes,
attributable to the basis adjustment made as a result of such
election shall be debited or credited, as the case may be, on
such record.
(vii) Curative Allocations. The allocations set forth in
this Section 9.2 (the "Regulatory Allocations") are intended to comply
with certain requirements of Regulations Section 1.704-1(b). The
Regulatory Allocations shall be taken into account for the purpose of
equitably adjusting subsequent allocations of Profits and Losses, and
items of income, gain, loss, and deduction among the Class B Members so
that, to the extent possible, the net amount of such allocations of
Profits and Losses and other items to each Class B Member shall be
equal to the net amount that would have been allocated to each such
Class B Member if the Regulatory Allocations had not occurred.
(viii) Nonrecourse Debt Distribution. To the extent
permitted by Regulations Sections 1.704-2(h)(3) and 1.704-2(i)(6), the
Directors shall endeavor to treat distributions as having been made
from the proceeds of Nonrecourse Liabilities or Member Nonrecourse Debt
only to the extent that such distributions would cause or increase a
deficit balance in any Class B Member's Capital Account that exceeds
the amount such Class B Member is otherwise obligated to restore
(within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) as of
the end of the Company's taxable year in which the distribution occurs.
ARTICLE X
RESIGNATION AND ASSIGNMENT OF INTERESTS
SECTION 10.1 Resignation of Member. A Member may resign from the
Company prior to the dissolution and winding up of the Company only upon, and
shall be deemed to have resigned upon, any redemption, exchange or other
repurchase by the Company or an assignment of its interests in compliance with
the provisions of Section 10.3 and Section 10.4.
28
<PAGE> 34
SECTION 10.2 No Distribution Upon Resignation. Upon resignation, no
resigning Member shall be entitled to receive any distribution or otherwise be
entitled to receive the fair value of its Interest; provided, however, that upon
any redemption, exchange or other repurchase by the Company, such Member shall
be entitled to receive the amount payable by the Company in connection with such
redemption, exchange or other repurchase.
SECTION 10.3 Assignment of Interests.
(a) General. No Transfer of all or any portion of a
Member's Interest (including some or all of its rights or obligations hereunder)
may be made except as permitted by this Section 10.3. For purposes of this
Agreement, "Transfer" shall mean any sale, exchange, assignment, bequeath,
creation of an encumbrance, or any other transfer or disposition of any kind,
whether voluntary or involuntary. No Transfer of all or any portion of a
Member's Interest (including some or all of its rights or obligations hereunder)
may be made without Class A Approval.
(b) The Company shall not recognize for any purpose any
purported Transfer of all or any portion of a Member's Class A Membership
Interests or Class B Membership Interests (including some or all of its rights
or obligations hereunder) unless:
(i) the Directors shall have been furnished with the
documents effecting such Transfer executed and acknowledged by both
transferor and transferee, together with the written agreement of the
transferee to become a party to and be bound by this Agreement, all of
which shall be in form and substance reasonably satisfactory to the
Directors;
(ii) such Transfer shall have been made in accordance with
all applicable laws and regulations and all necessary governmental
consents shall have been obtained and requirements satisfied, including
without limitation, compliance with the Securities Act of 1933, as
amended, and applicable state blue sky and securities laws;
(iii) such Transfer will not cause the Company to have more
than 100 partners (as determined for purposes of Treasury Regulations
Section-1.7704-1(h)(1)(ii));
29
<PAGE> 35
(iv) all necessary instruments reflecting such admission
shall have been filed in each jurisdiction in which such filing is
necessary in order to qualify the Company to conduct business or to
preserve the limited liability of the Members; and
(v) such transfer or assignment will not cause the
Company to be required to register as an "investment company" under the
Investment Company Act of 1940.
SECTION 10.4 Right of Assignee to Become a Substitute Member. If the
provisions of Section 10.3 have been complied with, such Transfer shall,
nevertheless, not entitle the assignee to become a Member or to be entitled to
exercise or receive any of the rights, powers or benefits of a Member other than
the right to receive distributions to which the assigning Member would be
entitled, unless (i) the assigning Member designates, in a written instrument
delivered to the Directors, its assignee to become a Substitute Member, and (ii)
the transferee has executed and acknowledged such instruments, in form and
substance reasonably satisfactory to the Directors, as the Directors reasonably
deem necessary or desirable in their sole discretion to effectuate such
admission and to confirm the agreement of such transferee to be bound by all the
terms and provisions of this Agreement with respect to any rights and/or
obligations represented by the Class A Membership Interests or Class B
Membership Interests acquired by such transferee. The admission of any
transferee of a Member as a Substitute Member shall not require the approval of
any Member, provided that the transferor and transferee have complied, to the
Directors' reasonable satisfaction, with the provisions of Section 10.3 and this
Section 10.4. If a Member assigns all of its Class A Membership Interests or
Class B Membership Interests and the assignee of such Class A Membership
Interests or Class B Membership Interests is entitled to become a Substitute
Member pursuant to this Section 10.4, such assignee shall be admitted to the
Company effective immediately prior to the effective date of the assignment,
and, immediately following such admission, the assigning Member shall cease to
be a member of the Company.
SECTION 10.5 Recognition of Transfer by Company. No Transfer, or any
part thereof, that is in violation of this Article X shall be valid or
effective, and neither the Company nor the Directors shall recognize the same
for the purpose of making distributions pursuant to Article VIII hereof with
respect to Class B Membership Interests or part thereof. Neither the Company nor
the Directors shall incur any liability as a result of refusing to make any such
distributions to the assignee of any such invalid assignment. In the event that
a Transfer of a Class B Membership Interest is made in
30
<PAGE> 36
compliance with Article X, the transferee shall succeed to the portion of the
Capital Account of the assigning Member attributable to the Class B Membership
Interests or portion thereof transferred or assigned, and, except as provided in
Section 8.3, to the right to receive distributions and allocations attributable
to the Class B Membership Interests or the portion thereof transferred or
assigned, made or allocated after the date of the interim closing of the books
of the Company relating to such transfer or assignment.
ARTICLE XI
DISSOLUTION
SECTION 11.1 Duration and Dissolution. The Company shall be dissolved
and its affairs shall be wound up upon the first to occur of the following:
(a) the entry of a decree of judicial dissolution of the
Company under Section 18-802 of the Delaware Act; and
(b) the dissolution or liquidation of Fortress Investment
Holdings LLC, if Fortress Investment Holdings LLC is then a Member, unless the
business of the Company is continued by the consent of all remaining Members
within 90 days following the occurrence of such event. The remaining Members
agree that they shall continue the Company.
Except as provided in clause (b) above, the death, retirement,
resignation, expulsion, bankruptcy or dissolution of any Member or the
occurrence of any other event which terminates the continued membership of any
Member in the Company shall not cause the Company to be dissolved or its affairs
wound up.
SECTION 11.2 Winding Up. Subject to the provisions of the Delaware Act,
the Directors shall have the exclusive right to wind up the Company's affairs in
accordance with Section 18-803 of the Delaware Act (and shall promptly do so
upon dissolution of the Company), and shall also have the exclusive right to act
as or to appoint a liquidating trustee in connection therewith.
SECTION 11.3 Distribution of Assets. Upon the winding up of the
Company, the assets shall be distributed to the Members in accordance with their
positive capital account balances, subject to the applicable terms of Section
18-804 of the Delaware Act.
31
<PAGE> 37
SECTION 11.4 Notice of Liquidation. The Directors shall give each of
the Members at least 10 days' prior written notice of any Liquidation.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Tax Reports and Financial Statements. After the end of
each fiscal year, the Directors shall, as promptly as possible and in any event
within 90 days after the close of the fiscal year, cause to be prepared and
transmitted to each Member federal income tax form K-1.
SECTION 12.2 Amendment to the Agreement. This Agreement may be amended
or supplemented by the written consent of the Class A Members; provided, that no
such amendment or supplement shall adversely affect the rights of the Class B
Members without the Class B Approval; and provided further, that the Company may
issue classes and series of Interests that were not previously outstanding and
amend this Agreement in connection therewith as long as such issuance is
permitted by Section 3.1 of this Agreement.
SECTION 12.3 Successors, Counterparts. This Agreement and any amendment
hereto in accordance with Section 12.2 shall be binding as to executors,
administrators, estates, heirs and legal successors, or nominees or
representatives, of the Members, and (b) may be executed in several counterparts
with the same effect as if the parties executing the several counterparts had
all executed one counterpart.
SECTION 12.4 Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflict of laws thereof. In
particular, this Agreement shall be construed to the maximum extent possible to
comply with all of the terms and conditions of the Delaware Act. If,
nevertheless, it shall be determined by a court of competent jurisdiction that
any provisions or wording of this Agreement shall be invalid or unenforceable
under said Delaware Act or other applicable law, such invalidity or
unenforceability shall not invalidate the entire Agreement. In that case, this
Agreement shall be construed so as to limit any term or provision to make it
enforceable or valid within the requirements of applicable law, and, in the
event such term or provisions cannot be so Limited, this Agreement shall be
construed to omit such
32
<PAGE> 38
invalid or unenforceable provisions. If it shall be determined by a court of
competent jurisdiction that any provisions relating to the distributions and
allocations of the Company or to any fee payable by the Company is invalid or
unenforceable, this Agreement shall be construed or interpreted so as (a) to
make it enforceable or valid and (b) to make the distributions and allocations
as closely equivalent to those set forth in this Agreement as is permissible
under applicable law.
SECTION 12.5 Filings. Following the execution and delivery of this
Agreement, the Directors or their designee shall promptly prepare any documents
required to be filed and recorded under the Delaware Act, and the Directors or
such designee shall promptly cause each such document to be filed and recorded
in accordance with the Delaware Act and, to the extent required by local law, to
be filed and recorded or notice thereof to be published in the appropriate place
in each jurisdiction in which the Company may hereafter establish a place of
business. The Directors or such designee shall also promptly cause to be filed,
recorded and published such statements of fictitious business name and any other
notices, certificates, statements or other instruments required by any provision
of any applicable law of the United States or any state or other jurisdiction
which governs the conduct of its business from time to time.
SECTION 12.6 Power of Attorney. Each Member does hereby constitute and
appoint each Director as its true and lawful representative and
attorney-in-fact, in its name, place and stead, to make, execute, sign, deliver
and file (a) a Certificate of Formation of the Company, any amendment thereof
required because of an amendment to this Agreement or in order to effectuate any
change in the membership of the Company, (b) this Agreement, (c) any amendments
to this Agreement and (d) all such other instruments, documents and certificates
which may from time to time be required by the laws of the United States of
America, the State of Delaware or any other jurisdiction, or any political
subdivision or agency thereof, to effectuate, implement and continue the valid
and subsisting existence of the Company or to dissolve the Company or for any
other purpose consistent with this Agreement and the transactions contemplated
hereby. The power of attorney granted hereby is coupled with an interest and
shall (i) survive and not be affected by the subsequent death, incapacity,
disability, dissolution, termination or bankruptcy of the Member granting the
same or the transfer of all or any portion of such Member's Interest and (ii)
extend to such Member's successors, assigns and legal representatives.
33
<PAGE> 39
SECTION 12.7 Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope or intent of this Agreement or any
provision hereof.
SECTION 12.8 Additional Documents. Each Member, upon the request of the
Directors, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement.
SECTION 12.9 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given to such party (and any other person designated by such party)
at its address or facsimile number set forth in a schedule filed with the
records of the Company or such other address or facsimile number as such party
may hereafter specify to the Directors or Officers of the Company. Each such
notice, request or other communication shall be effective (a) if given by
facsimile, when transmitted to the number specified pursuant to this Section and
the appropriate confirmation is received, (b) if given by mail, seventy-two
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, of (c) if given by any other means,
when delivered at the address specified pursuant to this Section.
SECTION 12.10 Waiver of Right to Partition and Bill of Accounting. To
the fullest extent permitted by applicable law, each of the Members covenants
that it will not, and hereby waives any right to (except with the consent of the
Directors), file a bill for partnership accounting. Each of the Members
irrevocably waives any right that it may have to maintain any action for
partition with respect to any of the Company's assets.
IN WITNESS WHEREOF, this Agreement is executed and delivered as of the
date first written above by the undersigned, being all of the Members, do hereby
agree to be bound by the terms and provisions set forth in this Agreement.
FORTRESS INVESTMENT HOLDINGS LLC
By: /s/ Randal A. Nardone
----------------------
Name: Randal A. Nardone
Title: Director
34
<PAGE> 40
SCHEDULE A
INITIAL MEMBERS
<TABLE>
<CAPTION>
Number of
Class A Initial Capital
Class A Member Membership Contribution
--------------- Interests -----------------
----------
<S> <C> <C>
Fortress Investment $
Holdings, LLC
</TABLE>
<TABLE>
<CAPTION>
Number of
Class B Initial Capital
Class B Member Membership Contribution
------------- Interests ----------------
------------
<S> <C> <C>
Fortress Investment $
Holdings, LLC
</TABLE>
35
<PAGE> 41
SCHEDULE B
INITIAL DIRECTORS
Wesley R. Edens (Chairman)
Robert I. Kauffman
Randal A. Nardone
Erik P. Nygaard
36
<PAGE> 42
SCHEDULE C
INITIAL OFFICERS
Name Offices Held
---- ------------
Wesley R. Edens Chief Executive Officer
Robert I. Kauffman President
Randal A. Nardone Chief Operating Officer
Erik P. Nygaard Chief Information Officer and Treasurer
37
<PAGE> 1
Exhibit 10.4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of July 1,
1998, between (UBS SECURITIES (SWAPS) INC., successor-by-merger to UBS Mortgage
Finance, Inc. (the "Seller"), and FORTRESS GSA PROPERTIES LLC (the "Buyer").
RECITALS
A. The Seller is the owner of the assets (the "Assets") listed on
Schedule 1.
B. The Seller desires to sell the Assets to the Buyer, and the Buyer
desires to purchase the Assets from the Seller, on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Sale of the Assets. On the terms and subject to the conditions of
this Agreement. the Seller shall sell, transfer and deliver the Assets to the
Buyer, and the Buyer shall purchase the Assets (together with any and all
liabilities of the Seller associated with such Assets) from the Seller, for a
purchase price equal to $279,355,041.00 (the "Purchase Price").
2. Conditions. (a) The obligations of the Buyer to purchase and pay
for the Assets is subject to the condition (which may be waived by the Buyer in
the Buyer's sole discretion) that at the time of the Closing referred to in
Section 3 each of the representations of the Seller made in this Agreement shall
be true and correct as though made as of such time.
(b) The obligation of the Seller to sell the Assets to the Buyer is
subject to the condition (which may be waived by the Seller in the Seller's sole
discretion) that at the time of the Closing each of the representations of the
Buyer made in this Agreement shall be true and correct as though made as of such
time.
3. Closing. The closing (the "Closing") of the purchase and sale of
the Assets shall be held, at such time and place as the parties may mutually
agree upon, on or before July 1, 1998. The Seller shall deliver to the Buyer at
the Closing (i) an assignment, substantially in the form of Exhibit A (the
"Assignment and Assumption"), executed by the Seller, (ii) if the Asset is a
loan made by the Seller, the related original promissory note or notes endorsed
by the Seller, without recourse, to the Buyer or its designee, together with all
loan agreements, security agreements, guarantees and other agreements that
evidence or secure such loan, (iii) for all Assets,
<PAGE> 2
all documents listed on the index attached hereto as Exhibit B previously
delivered to Seller, (iv) if requested by the Buyer (a) a letter (prepared by
and in form satisfactory to the Buyer and Seller) executed by the Seller that
directs LaSalle National Bank or other document custodian to either confirm that
it holds all Asset files for the benefit of the Buyer as successor to the Seller
under the applicable agreement for the custody thereof or to ship all Asset
files held by it to the Buyer and (b) a letter or other document (prepared by
and in form satisfactory to the Buyer and Seller) executed by the Seller as
necessary to effect the recognition of the Buyer as the owner of the Assets
under any one or more agreements that relate to the administration of the
Assets, and (v) such other instruments of transfer executed by the Seller as the
Buyer shall reasonably request, provided that the Buyer shall prepare any such
instruments and deliver the same to the Seller at least one business day prior
to Closing; and the Buyer shall deliver to the Seller (i) the Assignment and
Assumption executed by the Buyer and (ii) the Purchase Price by wire transfer of
immediately available funds to an account designated by the Seller.
4. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the Buyer as follows:
(a) Authority. The Seller has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Seller and the
consummation by the Seller of the transactions contemplated hereby have
been duly authorized by all necessary corporate (or its equivalent) action
on the part of the Seller. This Agreement has been duly executed and
delivered by the Seller and constitutes a valid and binding obligation of
the Seller enforceable in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency, and other similar laws affecting
the enforcement of creditors' rights generally. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default under, any
provision of the Seller's organizational documents or of any agreement
applicable to the Seller or to the Seller's property or assets. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, or any other person or entity,
is required by or with respect to the Seller in connection with the
execution and delivery of this Agreement or the consummation by the Seller
of the transactions contemplated hereby.
(b) Ownership of the Assets. The Seller has, and the transfer by the
Seller of the Assets will pass to the Buyer, good title to the Assets,
free and clear of any claims, liens, encumbrances and security interests
whatsoever.
(c) Asset Information. The information pertaining to the Assets set
forth on Schedule 1 is, to the best of the Seller's knowledge, true and
correct in all material respects.
-2-
<PAGE> 3
5. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Seller as follows:
Authority. The Buyer has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Buyer and the consummation by the Buyer of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Buyer. This Agreement has been duly executed and delivered by
the Buyer and constitutes a valid and binding obligation of the Buyer
enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally.
6. Survival of Representations and Warranties. All representations
and warranties contained in this Agreement shall survive the Closing.
7. Specific Performance. The Seller and the Buyer acknowledge that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agree that the obligations of the parties hereunder shall be
specifically enforceable.
8. Expenses. Whether or not the Closing occurs, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Seller.
9. Further Assurances. From time to time following the Closing, the
Seller shall execute and deliver, or cause to be executed and delivered, to the
Buyer such other bills of sale, deeds, endorsements, assignments and other
documents or instruments of conveyance and transfer as the Buyer may reasonably
request or as may be otherwise necessary to more effectively convey and transfer
to, and vest in, the Buyer, the Assets, or in order to fully effectuate and to
implement the purposes, terms and provisions of this Agreement. To the extent
that hereafter the Seller receives any payments in respect of the Assets on or
after the date of the Closing, the Seller shall forward the same to the Buyer
within five (5) business days.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
11. Governing Law. This Agreement shall be deemed to be made in and
in all respects shall be interpreted, construed and governed by and in
accordance with the law of the state of New York without regard to the conflict
of law principles thereof.
-3-
<PAGE> 4
12. Notices. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Buyer
Fortress GSA Properties LLC
1 Penn Plaza
250 West 34th Street, Suite 3600
New York, New York 10119
Attention: Randal A. Nardone
Facsimile: (212) 629-4524
Confirmation: (212) 849-6810
if to the Seller
UBS Securities (Swaps) Inc.
(successor-by-merger to UBS Mortgage Finance, Inc.)
299 Park Avenue
New York, New York 10171
Attention: Sandra Ward Costin
Facsimile: (212) 821-3915
Confirmation: (212) 821-6025
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
13. Entire Agreement: No Other Representations. Except as expressly
agreed in a separate writing signed by the parties hereto on or after the date
of this Agreement, this Agreement constitutes the entire agreement, and
supersede all other prior agreements and understandings, both written and oral,
between the parties, with respect to the subject matter hereof. Except as set
forth herein, the Seller makes no representation, express or implied, with
respect to the Assets or the enforceability, collectability, suitability or
value thereof.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity
-4-
<PAGE> 5
or unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
15. Interpretation. The section references and headings herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
16. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns. The
Buyer shall have the right to assign its rights under this agreement as respects
any Asset to any purchaser of such Asset. Nothing in this Agreement, expressed
or implied, is intended or shall be construed to confer upon any person or
entity other than the parties and their successors and assigns any right, remedy
or claim under or by reason of this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
UBS SECURITIES (SWAPS) INC., successor-by-merger
to UBS Mortgage Finance, Inc.
By: /s/ Thomas Lally
----------------------------------------------
Name: Thomas Lally
Title: Director
By: /s/ Gary Hain
----------------------------------------------
Name: Gary Hain
Title: Attorney-in-Fact
FORTRESS GSA PROPERTIES LLC,
a Delaware limited liability company
By: Fortress Partners, L.P., its managing member
By: Fortress Investment Corp., its sole
general partner
By: /s/ Randal A. Nardone
------------------------------------
Name: Randal A. Nardone
Title: Vice President and Secretary
-6-
<PAGE> 7
SCHEDULE 1
ASSET SCHEDULE
UBS Mortgage Finance Inc. ("UBS") originated a $300 million investment loan (the
"Investment Loan") and a $10 million working capital loan (the "Working
Capital Loan") to Alpine Realty Investments, LLC ("Alpine") to fund the purchase
of properties leased by, amongst other lessees, the US General Services
Administration. The Investment Loan and the Working Capital Loan were issued
pursuant to that certain Participating Loan Agreement dated as of August 4,
1997, as amended March 20, 1998 (the "Loan"). Said amendment, among other
things, increased the maximum aggregate principal amount of the Investment Loan
to $500,000 million. The Loan is secured by Alpine's interest in 12 commercial
properties located throughout the United States (see Exhibit A attached hereto)
The unpaid principal balance of the Loan as of April 30, 1998 is $255,488,448.
<PAGE> 8
Exhibit A
to Schedule 1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
City ST Size Purchase Price All-In Cost Cap Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Burlington NJ 1,048,631 88,000,000 88,121,528 9.62%
Sacramento CA 355,300 58,500,000 58,655,000 9.63%
Suffolk VA 320,000 34,045,000 34,299,880 8.92%
Kansas City KS 200,000 33,567,000 33,902,670 9.45%
San Diego CA 134,285 24,325,604 24,502,518 9.39%
Providence RI 130,600 17,875,000 17,892,829 9.85%
Concord MA 104,527 15,000,000 15,376,750 9.14%
Philadelphia PA 93,553 12,300,000 12,589,050 10.54%
Aurora CO 116,500 11,700,000 12,030,000 9.01%
Huntsville AL 125,000 11,550,000 11,828,150 9.70%
Lakewood CO 82,000 5,900,000 5,960,000 8.57%
Norfolk VA 58,600 5,355,000 5,395,120 8.16%
- --------------------------------------------------------------------------------
Total: 12 Properties 2,768,996 318,117,604 320,553,495 9.47%
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ___________,
1998, is executed and delivered pursuant to that certain Asset Purchase
Agreement dated as of ___________, 1998 (the "Asset Purchase Agreement"), by and
between UBS SECURITIES (SWAPS) INC., successor-by-merger to UBS Mortgage
Finance, Inc. (the "Seller"), and FORTRESS GSA PROPERTIES LLC (the "Buyer").
RECITAL
Pursuant to the Asset Purchase Agreement, the Buyer has agreed to
purchase from the Seller, and the Seller has agreed to sell to the Buyer, upon
the terms and conditions specified in the Asset Purchase Agreement, the Assets
listed on Schedule 1 to the Asset Purchase Agreement and on Schedule 1 hereto.
NOW, THEREFORE, in consideration of the promises contained in the
Asset Purchase Agreement and for other good and valuable consideration, the
Buyer and the Seller agree as follows:
1. The Seller does hereby sell, transfer, convey, assign and deliver to
the Buyer, and the Buyer hereby accepts from the Seller, all of the right, title
and interest of the Seller in, to and under (a) the Assets listed on Schedule 1
hereto (including all promissory notes, security agreements, guarantees and
other agreements that evidence or secure such Assets) and (b) any and all of the
following: (i) any purchase agreement that was executed by the Seller, and/or in
which rights were assigned to the Seller, in connection with the Seller's
acquisition of the Assets (in either case including any rights in respect of
breaches of representations and warranties), (ii) any agreement for the custody
of documents pertaining to the Assets, and (iii) any agreement for the
administration of the Assets, in each case to have and hold unto the Buyer, its
successors and assigns forever.
2. The Buyer hereby assumes all of the liabilities and agrees to perform
any and all duties and obligations of the Seller under the documents that
evidence or otherwise govern the rights and obligations of the Seller and the
obligor(s) with respect to such Assets and under any agreement referred to in
clause (b) of the preceding paragraph 1.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings assigned to them in the Asset Purchase Agreement. The terms
and provisions of this Assignment and Assumption Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns.
Exhibit A-1
<PAGE> 10
This Assignment and Assumption Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to principles of conflicts of laws.
Exhibit A-2
<PAGE> 11
IN WITNESS WHEREOF, each of the Buyer and the Seller have caused
this Assignment and Assumption Agreement to be duly executed and attested to by
its officer hereunto duly authorized as of the day and year first above written.
UBS SECURITIES (SWAPS) INC., successor-by-merger
to UBS Mortgage Finance, Inc.
By:
----------------------------------------------
Name:
Title:
("SELLER")
FORTRESS GSA PROPERTIES LLC,
a Delaware limited liability company
By: Fortress Partners, L.P., its managing member
By: Fortress investment Corp., its sole
general Partner
By:
------------------------------------
Name:
Title:
("BUYER')
Exhibit A-3
<PAGE> 12
SCHEDULE 1
ASSETS
Exhibit A-4
<PAGE> 13
EXHIBIT B
INDEX
<PAGE> 14
EXHIBIT B
GSA PROPERTIES
P&S AGMT
PROPERTY MGMT AGMT
LEASE
APPRAISAL
ENVIRONMENTAL
ENGINEERING
TITLE & SURVEY
OVEIEW BOOKS
PARTICIPATING LOAN AGMT W/ ALPINE
755 PARFET STREET
ACQUISITION DOCS
AGMT OF P&S BY & BTWN SELLER AND ALPINE REALTY INV
LTR AGMT EXTENDING APPROVAL DATE
APPROVAL NOTICE FROM BUYER TO SELLER
ASSIGNMENT & ASSUMPTION OF SALE AGRMT BY & BTWM ALPINE AND BUYER
SPECIAL WARRANTY DEED MADE BY SELLER IN FAVOR OF BUYER
ASSIGNMENT & ASSUMPTION OF LEASES BY SELLER IN FAVOR OF BUYER
SIDELETTER re: WARRANTIES FROM BUYER TO SELLER
NOVATION AGMTS IN RESPECT OF GSA LEASES FROM BUYER TO SELLER
NOTICES OF TRANSFER TO TENANTS FROM SELLER & BUYER
OMNIBUS ASSIGNMENT MADE BY SELLER TO BUYER
BILL OF SALE
STMTS OF LEASE
TENANT ESTOPPELS IN RESPECT OF NON-GSA LEASES
TAXPAYERS ID & FIRPTA CERT FROM SELLER TO BUYER
SELLER AFFIDAVIT-TO TITLE CO
OWNERS AFFIDAVIT TO TITLE CO
SELLER'S CERTIFICATION re: FIN STMTS & REPRESENTATION & WARRANTIES
FORM 1099-S
COLORADO REAL PROPERTY TRANSFER DECLARATION BY SELLER & BUYER
MARKED OWNER'S PRO FORMA TITLE INSURANCE POLICY
BROKERS RECEIPTS
JOINT CLOSING INSTRUCTION LTR TO ESCROW HOLDER FROM BUYER TO SELLER AND LENDER
DELIVERIES
CERT OF THE ZONING OFFICER OF LAKEWOOD
ORIGINAL LEASES
<PAGE> 15
ORIGINAL SERVICE CONTRACTS
COPY OF SELLERS CHECK FOR $1,179. TRANSFERRING SECURITY DEPOSIT
SELLERS ORGANIZATIONAL DOCS
BUYERS ORGANIZATIONAL DOCS
GSA LTR TO BUYER re: VACANT SPACE
RELIANCE LTRS
LTR re: DELIVERY OF CLOSING DOCS TO ESCROW HOLDER
ACQUISITION LOAN
DEED OF TRUST BTWN BUYER & THE PUBLIC TRUSTEE OF JEFFERSON CNTY. CO FOR THE
BENEFIT OF LENDER
UCC-1 FINANCING STMT BY BUYER IN FAVOR OF LENDER TO BE FILED IN THE COLORADO SEC
OF STATE
UCC-1 FINANCING STMT BY BUYER IN FAVOR OF LENDER TO BE FILED IN THE REAL ESTATE
RECORDS OF JEFFERSON CNTY
MISCELLANEOUS
LTR re: TRANSFER OF ESCROW AMT FROM CHICAGO TITLE TO ESCROW HOLDER
LTR FROM ESCROW HOLDER TO CRAIG BROWN ESQ. (FRIED FRANK et al) ACKNOWLEDGING
RCPT OF CONTRACTS & ESCROW AGMT
BURLINGTON
PRINCIPAL DOCS
CONTRACT OF SALE
LTR AGMT AMENDING CONTRACT TO EXTEND FEASIBILITY PERIOD & CLOSING DATE
LTR AGMT AMENDING CONTRACT TO INCLUDE DELIVERY OF PROPERTY ROOF WARRANTY &
SELLER
LTR AGMT AMENDING CONTRACT TO REDUCE PURCHASE PRICE BY $200,000
ASSIGNMENT OF CONTRACT
NOTICE OF ASSIGNMENT OF RIGHTS UNDER P&S AGMT
TRANSFER DOCS
BARGAIN & SALE DEED WITH COVENANTS AGAINST GRANTORS ACTS
BILL OF SALE
ASSIGNMENT & ASSUMPTION OF LEASES
ASSIGNMENT & ASSUMPTION AGMT re: SERVICE CONTRACTS
US GOV LEASE FOR REAL PROPERTY
ESTOPPEL STMT BY LESSEE
NOVATION AGMT CONFIRMING TRANSFER OF GSA LEASE FROM SELLER TO BUYER
CERT OF SELLER
ASSIGNMENT OF ROOF WARRANTY
ENVIRONMENTAL INDEMNITY BY SELLER TO BUYER RELATING TO THE DISPOSAL OF CERTAIN
WASTE FROM THE PROPERTY
<PAGE> 16
TITLE RELATED DOCS
TITLE INSURANCE COMMITMENTS #TS-115655 ISSUED 11-3-97
TITLE INSURANCE COMMITMENTS #TS-115655 RE-ISSUED 24-98
AFFIDAVIT OF OWNER
TITLE ESCROW LTR
BOND DEFEASANCE DOCS
OPINION OF McCARTER & ENGLISH LLP STATING BOND DEFEASANCE DOES NOT REQUIRE
REGISTRATION UNDER SEC ACT OF 1933
OPINION OF SMITH, STRATTON, WISE, HEHER, AND BRENNAN re: TRUSTEE TAX REPORTING
REQUIREMENTS FOLLOWING BOND DEFEASANCE
VERIFICATlON REPORT OF DELOITTE & TOUCHE VERIFYING THAT AMT DEPOSITED BY SELLER
WITH BOND ESCROW AGENT IS SUFFICIENT TO DEFEASE BONDS
ESCROW DEPOSIT GMT DATED 2-24-98
WRITTEN CONSENT OF CAPITAL MARKETING ASSURANCE CORP ("CapMac") TO BOND
DEFEASANCE
LTR FROM UBS MORT FIN INC re: AAA RATING & NONCALLABILITY OF DEFEASANCE
SECURITIES
COPY OF CANCELED NOTE FROM SELLER TO NJEDA
DISCHARGE OF MORTGAGE
RELEASE OF ASSIGNMENT OF RENTS & LEASE
RELEASE OF ASSIGNMENT OF GOVERNMENT LEASE
RELEASE OF COLLATERAL TRUST AGMT
UCC-3 TERMINATION STMTS
NOTICE TO BONDHOLDERS OF BOND DEFEASANCE
SIDE LTR AGMT DATED 2-24-98 BTWN SELLER & TRUSTEE re: INDEMNITIES
UNDER BOND DOCS
SIDE LTR AGMT BTWN ALPINE & TRUSTEE re: PAYMENT OF TRUSTEE FEES AS ESCROW AGENT
UNDER ESCROW DEPOSIT AGMT
PAYMENT DOCS
SETTLEMENT STMT - PRORATIONS TO PURCHASE PRICE
PYMT INSTRUCTIONS TO TITLE CO AS ESCROW AGENT re: RELEASE OF DEPOSIT
COPY OF ESCROW AGMT
COPY OF AMENDMENT OF ESCROW AGMT
BUYER ORGANIZATIONAL DOCS
CERT OF FORMATION OF ALPINE REALTY BURLINGTON LLC
GOOD STANDING CERT OF ALPINE REALTY BURLINGTON LLC
CERT AUTHORIZING ALPINE REALTY BURLINGTON LLC TO DO BUSINESS IN STATE OF NJ AS A
FOREIGN LTD LIABILITY CO
OPERATING AGMT OF ALPINE REALTY BURLINGTON LLC
1185 MORTGAGE FINANCE LOAN DOCS
PROMISSORY NOTE MADE BY ALPINE IN PRINCIPAL AMT OF $$310MM
GUARANTY AGMT
<PAGE> 17
MORTGAGE BTWN ASSIGNEE AND LENDER AS MORTGAGE RELATING TO THE PROPERTY
SECURING THE GUARANTY
SUBSIDIARY PLEDGE AGMT
SUBSIDIARY PLEDGE AGMT
INITIAL TRANSACTION STMT OF ASSIGNEE CONFIRMING SUBSIDIARY PLEDGE AGMTS
16401 CENTRE TECH
INVESTMENT COMM MEMO
PROPERTY SUMMARY REPORT
FUNDING REQUEST
P&S AGMT (unexecuted draft)
LEASE DOCS
TITLE INSURANCE
WARRANTY DEED
PERFORMANCE BOND
CERT OF GENERAL CONTRACTOR
1325 J STREET
LOI
INV COMM MEMO
LEASE DOCS
P&S AGMT
FUNDING REQUEST
SETTLEMENT STMT
TITLE POLICY
4820 UNIVERSITY ROAD
PROPERTY SUMM REPORT
LEASE DOCS
P&S AGMT
TITLE POLICY
ENDORSEMENT
380 WESTMINSTER
LOI
MORTGAGE & SECURITY AGMT
<PAGE> 18
FUNDING REQUEST
P&S AGMT
TITLE POLICY
LEASE
901 NORTH 5 STREET
LOI (and 8/26/97 letter modifying LOI)
ESCROW AGMNT
INVESTMENT COMM MEMO
LEASE
PURCHASE AGMT
ASSIGNMENT OF ESCROW AGMT
DEVELOPMENT BUDGET AND REAL ESTATE CONTRACT
PRO FORMA TITLE INSURANCE ENDORSEMENT
STADIUM WAY - SAN DIEGO
LOI
INVESTMENT COMM MEMO
LEASE
FUNDING REQUEST
PURCHASE AGMT
TITLE INS
696 VIRGINIA ROAD - CONCORD
LOI
INVESTMENT COMM MEMO
LEASE
P&S AGMT & AMENDMENT
FUNDING REQUEST LTR
ESCROW AGMT
TITLE COMMITMENT
116 LAKE VIEW - SUFFOLK, VA
INVESTMENT COMM MEMO
LEASE SUPPLEMENT
PURCHASE AGMT & AMENDMENT
<PAGE> 19
TITLE COMMITMENT, DEED, LEGAL DESCRIPTION
150 CORPORATE DRIVE - NORFOLK, VA
ASSIGNMENT AGMT
INVESTMENT COMM MEMO
LEASE
FUNDING REQUEST LTR
PURCHASE AGMT & AMENDMENT
ASSIGNMENT AGMT
TITLE POLICY
ESTOPPEL CERTIFICATE
LEASE SUMMARY
<PAGE> 1
Exhibit 10.5
EXECUTION COPY
LOAN AGREEMENT
Dated as of July 31, 1998
by and among
THE BORROWERS LISTED ON SCHEDULE 1 HERETO
as joint and several Borrowers,
MERIDIAN FUNDING COMPANY, LLC,
as the Lender
and
BANKERS TRUST COMPANY
as the Collateral Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CERTAIN DEFINITIONS........................................................ 2
Section 1.1. Definitions...................................................... 2
ARTICLE II GENERAL TERMS............................................................. 33
Section 2.1. Amount of the Loan; Amounts of Advances.......................... 33
Section 2.2. Use of Proceeds.................................................. 33
Section 2.3. Security for the Loan............................................ 33
Section 2.4. Borrower's Note.................................................. 33
Section 2.5. Principal, Interest and Fees..................................... 34
Section 2.6. Voluntary Prepayment............................................. 34
Section 2.7. Mandatory Prepayment............................................. 35
Section 2.8. Application of Payments.......................................... 37
Section 2.9. Method and Place of Payment...................................... 37
Section 2.10. Taxes............................................................ 37
Section 2.11. Release of Collateral............................................ 37
Section 2.12. Central Cash Management.......................................... 38
Section 2.13. Security Agreement............................................... 45
Section 2.14. Supplemental Mortgage Affidavits................................. 48
ARTICLE III CONDITIONS PRECEDENT..................................................... 48
Section 3.1. Conditions Precedent to Effectiveness............................ 48
Section 3.2. Execution and Delivery of Agreement.............................. 50
Section 3.3. Conditions Precedent to Disbursement of an Advance............... 50
Section 3.4. Acceptance of Borrowings......................................... 54
Section 3.5. Form of Loan Documents and Related Matters....................... 55
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................ 55
Section 4.1. Closing Date Borrower Representations............................ 55
Section 4.2. Advance Closing Date Borrower Representations.................... 59
Section 4.3. Survival of Representations...................................... 66
ARTICLE V AFFIRMATIVE COVENANTS...................................................... 66
Section 5.1. Borrower Covenants............................................... 66
ARTICLE VI NEGATIVE COVENANTS........................................................ 78
Section 6.1. Borrower Negative Covenants...................................... 78
ARTICLE VII DEFAULTS................................................................. 81
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 7.1. Event of Default................................................. 81
Section 7.2. Remedies......................................................... 84
Section 7.3. Remedies Cumulative.............................................. 85
ARTICLE VIII MISCELLANEOUS........................................................... 85
Section 8.1. Survival......................................................... 85
Section 8.2. Lender's Discretion.............................................. 86
Section 8.3. Governing Law.................................................... 86
Section 8.4. Modification, Waiver in Writing.................................. 87
Section 8.5. Delay Not a Waiver............................................... 87
Section 8.6. Notices.......................................................... 87
Section 8.7. TRIAL BY JURY.................................................... 88
Section 8.8. Headings......................................................... 88
Section 8.9. Assignment....................................................... 88
Section 8.10. Severability..................................................... 88
Section 8.11. Preferences...................................................... 88
Section 8.12. Waiver of Notice................................................. 88
Section 8.13. Remedies of Borrower............................................. 89
Section 8.14. Exhibits Incorporated............................................ 89
Section 8.15. Offsets, Counterclaims and Defenses.............................. 89
Section 8.16. No Joint Venture or Partnership.................................. 89
Section 8.17. Waiver of Marshaling of Assets Defense........................... 89
Section 8.18. Waiver of Counterclaim........................................... 90
Section 8.19. Conflict; Construction of Documents.............................. 90
Section 8.20. Brokers and Financial Advisors................................... 90
Section 8.21. Counterparts..................................................... 90
Section 8.22. Estoppel Certificates............................................ 90
Section 8.23. Payment of Expenses.............................................. 90
Section 8.24. Bankruptcy Waiver................................................ 91
Section 8.25. Limited Recourse................................................. 92
Section 8.26. Borrower's Agent................................................. 92
Section 8.27. Regarding the Collateral Agent................................... 92
</TABLE>
-ii-
<PAGE> 4
Schedules
1 - Borrowers
2 - Initial Advance Amounts, Appraised Values, Purchase Prices and
All-In Costs
3 - Capital Structure of Borrower
4 - Survey Requirements
5 - Title Insurance Requirements
Exhibits
A - Promissory Note (Form)
B - Contribution Agreement (Form)
C - Collateral Agency Agreement (Form)
D - Guarantee (Form)
E - Pledge and Security Agreement (Form)
F - Indemnity Agreement (Form)
G - Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing (Form)
H - Present Assignment of Rents (Form)
I - Assignment of U.S. Government Contract (Form)
J - Notice of Assignment (Form)
K - Collateral Assignment of Interest Rate Protection Agreement (Form)
L - Property Manager's Consent and Subordination of Management
Agreement (Form)
M - Estoppel Certificate (Form)
N - Nonconsolidation Opinion of Skadden, Arps, Slate, Meagher & Flom
LLP (Form)
O - Closing Date Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (Form)
P - Advance Closing Date Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(Form)
Q - Opinion of Local Counsel (Form)
R - Description of Hedging Policy
S - Required Debt Service Payment Certificate (Form)
T - Request for Borrowing (Form)
U - Partnership Pledge Agreement (Form)
V - Substantive Consolidation Certificate (Form)
-iii-
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of July 31, 1998, is by and among MERIDIAN
FUNDING COMPANY, LLC, a Delaware limited liability company, having an address at
25 West 43rd Street, New York, New York 10036 (the "Lender"), each of the
borrowers listed on Schedule 1 hereto, as such schedule may be amended from time
to time, having the respective addresses listed on such Schedule 1 (each, a
"Borrower" and collectively, the "Borrowers"), and BANKERS TRUST COMPANY, having
an address at Four Albany Street, New York, New York 10006, as collateral agent
for the equal and ratable benefit of the Secured Parties defined below (in such
capacity, the "Collateral Agent").
RECITALS
WHEREAS, the Borrowers desire to obtain, on a joint and several basis,
a series of loans (each, an "Advance"; collectively, the "Loan") from the Lender
in an aggregate amount of up to $234,155,624.00 (the "Loan Amount") to finance
or refinance the acquisition by the respective Borrowers of various commercial
real estate properties leased to the federal General Services Administration
and, subject to certain conditions, other properties;
WHEREAS, the Lender is unwilling to make the Loan unless the Borrowers
join in the execution and delivery of this Agreement which shall establish the
terms and conditions of the Loan and of each Advance;
WHEREAS, the Borrowers have agreed to establish certain accounts and
subaccounts and to grant to the Collateral Agent on behalf of the Secured
Parties defined below, including the Lender, a security interest therein upon
the terms and conditions of the security agreement set forth in Section 2.13;
and
WHEREAS, Bankers Trust Company, in its capacity as the Collateral
Agent, is willing to join in the security agreement set forth in Section 2.13 by
execution and delivery of this Agreement in that capacity;
NOW, THEREFORE, in consideration of the making of the Loan by the
Lender and the covenants, agreements, representations and warranties set forth
in this Agreement, the parties hereby covenant, agree, represent and warrant as
follows:
<PAGE> 6
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions. For all purposes of this Agreement:
(1) the capitalized terms defined in this Article I have the meanings
assigned to them in this Article I, and include the plural as well as the
singular;
(2) all accounting terms have the meanings assigned to them in
accordance with generally accepted accounting principles in effect in the United
States of America on the date hereof;
(3) the term "including" shall mean "including without limitation";
(4) all references to a contract, agreement or lease herein shall mean
such contract, agreement or lease and all exhibits, schedules and other
attachments thereto, as any such contract, agreement or lease may be amended,
supplemented or otherwise modified from time to time in a manner that does not
violate the provisions of this Agreement;
(5) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(6) the following terms have the following meanings:
"Account Collateral" has the meaning provided in Section 2.13(a).
"Accounts" means all accounts (as defined in the UCC), now owned or
hereafter acquired by any Borrower, and arising out of or in connection with,
the operation of the Facilities and shall also mean and include the Collection
Account, the Sub-Accounts and the Basic Carrying Costs Account, and all other
accounts described in the Property Management Agreements and all present and
future accounts receivable, inventory accounts, contract rights, chattel paper,
notes, acceptances, insurance policies, Instruments, Documents or other rights
to payment and all forms of obligations owing at any time to any Borrower
thereunder, whether now existing or hereafter created or otherwise acquired by
such Borrower, and all Proceeds thereof and all liens, security interests,
guaranties, remedies, privileges and other rights pertaining thereto, and all
rights and remedies of any kind forming the subject matter of any of the
foregoing. Without limiting the generality of the foregoing, the term "Accounts"
shall include (i) all income, rents, issues, profits, revenues, deposits and
other benefits from the Facilities, including, without limitation, all revenues
and credit card receipts collected from restaurants, bars, meeting rooms,
banquet rooms and recreational facilities, all receivables, customer
obligations, installment payment obligations and other obligations now existing
or hereafter arising or created out of the sale, lease, sublease, license,
2
<PAGE> 7
concession or other grant of the right of the use and occupancy of property or
rendering of services by any Borrower or any operator or manager of the
Facilities or other commercial space located at the Facilities or acquired from
others including, without limiting the generality of the foregoing, from rental
of space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease and
concession fees and rentals, food and beverage wholesale and retail sales of
merchandise, service charges, vending machine sales and proceeds, if any, from
business interruption or other loss of income insurance; (ii) all sums of money,
and all instruments, documents and securities held in any accounts in connection
therewith, or any demand, time, savings or other account maintained with any
bank or certificate of deposit issued by any bank with the proceeds of such
account; and (iii) all of the records and books of account now or hereafter
maintained by or on behalf of any Borrower in connection with the operation of
the Facilities.
"Adjusted Cash Flow" means for any period (and calculated for either a
Facility or the Facilities) the Net Operating Income thereof for such period
reduced by (i) an annual allowance for Capital Improvement Costs equal to the
greater of (x) the product of (1) $0.15 and (2) the aggregate area of all
improvements in all Facilities, measured in square feet, and (y) the amount
identified in the Engineering Report(s) as the annual amount needed to be
reserved for ongoing capital expenditures; (ii) annual property or asset
management fees with respect thereto equal to the greater of (x) actual property
or asset management fees paid pursuant to the Property Management Agreements and
(y) 2.5% of Gross Revenue per annum, to the extent that such costs have not been
included in Operating Expenses; (iii) costs of environmental audits and
monitoring, environmental remediation work or any other expenses incurred with
respect to compliance with Environmental Laws for the Facilities (or any
Facility); and (iv) an amount equal to any actual leasing commissions and tenant
improvements with respect thereto or leasing commissions and tenant improvements
with respect thereto projected by the Borrowers (which projections shall be
approved by the Lender) on the basis of Lease maturities. For each Facility, the
initial calculation of Adjusted Cash Flow and all other calculations of Adjusted
Cash Flow made prior to the first anniversary of the Advance Closing Date with
respect to such Facility shall be made on an annualized basis using existing
Adjusted Cash Flow, and using the further assumptions, described on Schedule 1
attached hereto. All calculations of Adjusted Cash Flow for a Facility made
after such time shall be based on Net Operating Income for the prior three-month
and 12-month period.
"Advance" has the meaning provided in the Recitals hereto.
"Advance Closing Date" means each date on which an Advance is made
hereunder with respect to a Facility pursuant to Section 3.3.
"Advance Rate" means, with respect to any Advance or with respect to
all Advances, 75%, or such other amount as shall be determined by the Lender and
the Rating Agencies.
"Advisor" has the meaning provided in Section 8.20.
3
<PAGE> 8
"Affiliate" of any specified Person means any other Person Controlling
or Controlled by or under common Control with such specified Person.
"Affiliated Entities" means, collectively, the Borrowers, the
Borrower's Agent, the Guarantor, the Manager, the Operating Partnership and the
Indemnitors.
"Agreement" means this Loan Agreement, as the same may from time to
time hereafter be modified, supplemented or amended.
"All-In Costs" means, with respect to each Facility, the costs
associated with the acquisition of such Facility (including legal expenses,
brokerage fees, financing costs, third party due diligence and other transaction
costs), as set forth on Schedule 2, or with respect to the Facilities financed
after the initial Advance Closing Date, as certified by the Borrowers and
approved by the Lender.
"Allocated Loan Amount" means the portion of the Loan Amount allocated
to each Facility (which initially shall be the amount of the Advance with
respect to such Facility, as set forth on Schedule 2), as such amounts shall be
adjusted from time to time as set forth in this Agreement. Upon each adjustment
in the amount of Principal Indebtedness due to a prepayment of principal
pursuant to Section 2.6, Section 2.7(c), Section 2.7(d) or Section 2.7(e), each
Allocated Loan Amount shall be decreased by an amount equal to the product of
(i) the amount of such principal payment and (ii) a fraction, the numerator of
which is the applicable Allocated Loan Amount (prior to the adjustment in
question) and the denominator of which is the total of all Allocated Loan
Amounts prior to the adjustment to the Principal Indebtedness resulting in the
recalculation of the Allocated Loan Amount. When the Principal Indebtedness is
reduced as a result of (x) the Lender's receipt of Net Proceeds or Loss Proceeds
with respect to a Taking or casualty affecting 100% of a Facility or (y) the
Lender's receipt of the Release Price with respect to an Individual Property
pursuant to a Transfer of such Individual Property pursuant to Section 2.7(a),
the Allocated Loan Amount for the Individual Property with respect to which the
Net Proceeds, Loss Proceeds or Release Price was received shall be reduced to
zero (such Allocated Loan Amount prior to such reduction being referred to as
the "Withdrawn Allocated Amount"), and each other Allocated Loan Amount shall
(i) if the Withdrawn Allocated Amount exceeds such Net Proceeds, Loss Proceeds
or Release Price, as the case may be (such excess being referred to as the
"Proceeds Deficiency"), be increased by an amount equal to the product of (1)
the Proceeds Deficiency and (2) a fraction, the numerator of which is the
applicable Allocated Loan Amount (prior to the adjustment in question) and the
denominator of which is the aggregate of all of the Allocated Loan Amounts other
than the Withdrawn Allocated Amount or (ii) if such Net Proceeds, Loss Proceeds
or Release Price, as the case may be, are greater than or equal to the Withdrawn
Allocated Amount, remain unadjusted.
"Appraisals" means the appraisals with respect to each Facility
delivered to the Lender in connection with the Loan and any more recent
appraisal of any Facility delivered to the Lender (whether or not required to be
delivered pursuant to the terms and conditions of this
4
<PAGE> 9
Agreement, but provided, however, that nothing herein shall be deemed to require
any Individual Property to be appraised subsequent to the Appraisal relied upon
by the Lender in connection with the Advance made with respect to such
Individual Property), each made by an Appraiser at the request of any Borrower
or the Lender, as any of the same may be updated by recertification from time to
time by the Appraiser performing such Appraisal.
"Appraised Value" of any Facility means the fair market value of such
Facility as set forth in its Appraisal.
"Appraiser" means a duly qualified, appropriately licensed appraiser
meeting each of the relevant requirements set forth in the federal Financial
Institutions Reform, Recovery and Enforcement Act of 1989, and approved in
writing by the Lender.
"Assignment of Rents" means, with respect to a Facility, a first
priority Present Assignment of Rents, in the form attached hereto as Exhibit H,
dated as of the applicable Advance Closing Date, from a Borrower, as assignor,
to the Collateral Agent, as assignee, assigning to the Collateral Agent such
Borrower's interest in and to the Leases and the Rents with respect to such
Facility as collateral security for the Loan, as the same may thereafter from
time to time be supplemented, amended, modified or extended by one or more
agreements supplemental thereto, and "Assignments of Rents" means all such
instruments collectively.
"Assignment of Interest Rate Protection Agreement" means, a Collateral
Assignment of Rate Protection Agreement required pursuant to the terms of this
Agreement, in the form attached hereto as Exhibit K, from the Borrowers, as
assignors, to the Collateral Agent, as assignee, and consented to by the
counterparty to the applicable Interest Rate Protection Agreement.
"Assignment of U.S. Government Contract" means, with respect to each
GSA Lease, an Assignment of U.S. Government Contract required pursuant to the
terms of this Agreement, in the form attached hereto as Exhibit I, from the
applicable Borrower, as assignor, to the Collateral Agent, as assignee, and
"Assignments of U.S. Government Contract" means all such instruments
collectively.
"Basic Carrying Costs" means the following costs with respect to the
Mortgaged Property: (i) Impositions and (ii) insurance premiums for policies of
insurance required to be maintained by the Borrowers pursuant to this Agreement
or the other Loan Documents.
"Basic Carrying Costs Account" has the meaning provided in Section
2.12(a).
"Basic Carrying Costs Monthly Installment" means the Borrowers'
reasonable, good faith estimate of 1/12th of the annual amount of Basic Carrying
Costs. Should the Basic Carrying Costs for the current Fiscal Year or payment
period not be ascertainable at the time a monthly deposit is required to be
made, the Basic Carrying Costs Monthly Installment shall be the Borrowers'
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<PAGE> 10
estimate based on 1/12th of the aggregate Basic Carrying Costs for the prior
Fiscal Year or payment period with reasonable adjustments for additional
Facilities. As soon as the Basic Carrying Costs are fixed for the current Fiscal
Year or period, the next ensuing Basic Carrying Costs Monthly Installment shall
be adjusted to reflect any deficiency or surplus in prior Basic Carrying Costs
Monthly Installments.
"Basic Carrying Costs Sub-Account" means the Sub-Account of the
Collection Account established and maintained pursuant to Section 2.12 relating
to the payment of Basic Carrying Costs.
"Borrower" has the meaning provided in the first paragraph of this
Agreement.
"Borrower's Agent" has the meaning provided in Section 8.26.
"Breakage Costs" means, collectively, each loss or expense which the
Lender may sustain or incur as a consequence of (a) a default by the Borrowers
in payment when due of the principal amount of the Loan; (b) default by the
Borrowers in making a borrowing of an Advance after the Borrowers have delivered
a Request for Borrowing in accordance with the provisions of this Agreement; (c)
default by the Borrowers in making any prepayment after the Borrowers have given
a notice thereof in accordance with the provisions of this Agreement; or (d) the
making of a payment or prepayment of the Loan on any date other than a Payment
Date or the Maturity Date; which losses and expenses shall include, without
limitation, in each case, any such loss (including, without limitation, loss of
margin) or expense arising from the employment of funds obtained by it from
issuance of MTNs or otherwise or from fees payable to prepay MTNs or to
terminate the deposits or other liabilities from which such funds were obtained.
"Business Day" means any day other than (i) a Saturday and a Sunday,
and (ii) a day on which federally insured depository institutions in (x) New
York State or (y) a state in which the Collateral Agent is located are
authorized or obligated by law, governmental decree or executive order to be
closed. When used with respect to an Interest Determination Date, "Business Day"
shall mean a day on which banks are open for dealing in foreign currency and
exchange in London and New York City.
"Capital Improvement Costs" means costs incurred by the Borrowers in
connection with replacements and capital repairs required to be made to the
Facilities, including without limitation, repairs to the Facilities' structural
components, roofs, building systems and parking lots.
"Capital Reserve Amount" means, at any time, the aggregate amount of
the annual replacement reserves for Capital Improvement Costs for each Facility
which may be increased by the Borrowers but may not be less than an amount equal
to the greater of (y) the product of (1) $0.15 and (2) the aggregate area of all
improvements in all Facilities, measured in square feet, and (z) the amount
identified in the Engineering Report for such Facility as the annual amount
needed to be reserved for on-going capital expenditures.
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<PAGE> 11
"Capital Reserve Monthly Installment" means an amount equal to l/12th
of the Capital Reserve Amount.
"Capital Reserve Sub-Account" means the Sub-Account of the Collection
Account established and maintained pursuant to Section 2.12 relating to the
deposit of Capital Reserve Amounts and the payment of Capital Improvement Costs.
"Ceiling Cap Rate" means the then-applicable interest rate ceilings
under each of the Interest Rate Protection Agreements.
"Change of Control" means (a) a change in the direct or indirect
ownership of the Borrowers as set forth in Schedule 3 or (b) the failure of any
Key Person to be actively involved in the management of the Borrowers, either
directly or as an employee of an Affiliate of the Borrowers.
"Charter Document" means (a) with respect to a corporation, such
corporation's articles of incorporation or certificate of incorporation, as
applicable; (b) with respect to a limited liability company, such limited
liability company's articles or certificate of organization or formation, as
applicable; and (c) with respect to a limited partnership, such limited
partnership's certificate of limited partnership or other similar document.
"Closing Date" means the date on which this Agreement shall become
effective pursuant to Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"Collateral" means, collectively, the Land, Improvements, Contracts,
Documents, Equipment, Rents, Accounts, General Intangibles, Instruments,
Inventory, Money (other than security deposits) and rights to payment from
guests and patrons arising from the operation of each Facility, and (to the full
extent assignable) Permits and all Proceeds, all whether now owned or hereafter
acquired and all other property which is or hereafter may become subject to a
Lien in favor of the Collateral Agent as security for the Loan.
"Collateral Agency Agreement" means the Collateral Agency Agreement
dated as of the Closing Date and entered into by the Collateral Agent, the
Lender, Insurer and the Borrowers, substantially in the form attached hereto as
Exhibit C.
"Collateral Agent" means Bankers Trust Company or such Person's
successor in interest.
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<PAGE> 12
"Collateral Security Instrument" means any right, document or
instrument, other than a Mortgage, given as security for the Loan (including,
without limitation, the Collateral Agency Agreement, the Assignments of Rents,
the Pledge and Security Agreement, the Assignment of Interest Rate Protection
Agreement, the Assignments of U.S. Government Contract, the Notices of
Assignment and the Partnership Pledge Agreement), as same may be amended or
modified from time to time.
"Collection Account" has the meaning provided in Section 2.12(a).
"Condemnation Proceeds" has the meaning provided in Section 2.12(g).
"Contingent Obligation" means any obligation of any Borrower
guaranteeing any indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Borrower, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of such primary obligation against loss in
respect thereof. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determinable amount of the primary obligation
in respect of which such Contingent Obligation is made (taking into account the
nonrecourse or limited recourse nature of such Contingent Obligation, if
applicable) or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Borrower is required to
perform thereunder) as determined by the Lender in good faith (taking into
account the nonrecourse or limited recourse nature of such Contingent
Obligation, if applicable).
"Contracts" means the Property Management Agreements, and all other
agreements to which any Borrower is a party executed in connection with the
operation and management of the Facilities, including, without limitation,
agreements for the sale, lease or exchange of goods or other property and/or the
performance of services by or for it, in each case whether now in existence or
hereafter arising or acquired, as any such agreements have been or may be from
time to time amended, supplemented or otherwise modified.
"Contribution Agreement" means the Contribution Agreement of even date
herewith entered into by the Borrowers, substantially in the form of Exhibit B.
"Control" means, with respect to any Person, the power to direct or
veto (other than with respect to the power to veto major decisions that
typically require the unanimous written consent of the owners) the management
and policies of such Person, directly or indirectly, whether
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<PAGE> 13
through the ownership of voting securities or other beneficial interests, by
contract or otherwise; and the terms "Controlling" and "Controlled" have the
meanings correlative to the foregoing.
"Controlling Party" has the meaning assigned to such term in the
Collateral Agency Agreement.
"Counterparty" means each party (other than the Borrowers) to an
Interest Rate Protection Agreement.
"Debt Service" means the principal and interest payments that would be
due and payable to the Lender or Insurer in accordance with the Note or the
Insurance and Indemnity Agreement, respectively, during an applicable period.
"Debt Service Coverage Ratio" means, as of any date, the Debt Service
Coverage Ratio (Actual) or the Debt Service Coverage Ratio (Imputed).
"Debt Service Coverage Ratio (Actual)" means, as of any date, the
lesser of (a) the quotient obtained by dividing the aggregate Adjusted Cash Flow
for all of the Facilities for the three-month period ending on such date by Debt
Service (calculated without regard to the effect of any Interest Rate Protection
Agreement) during such three-month period and (b) the quotient obtained by
dividing the aggregate Adjusted Cash Flow for all of the Facilities for the
12-month period ending on such date by Debt Service (calculated without regard
to the effect of any Interest Rate Protection Agreement) during such 12-month
period.
"Debt Service Coverage Ratio (Imputed)" means, as of any date, the
lesser of (a) the quotient obtained by dividing the aggregate Adjusted Cash Flow
for all of the Facilities for the three-month period ending on such date by
Imputed Debt Service during such three-month period and (b) the quotient
obtained by dividing the aggregate Adjusted Cash Flow for all of the Facilities
for the 12-month period ending on such date by Imputed Debt Service during such
12-month period.
"Debt Service Payment Sub-Account" means the Sub-Account of the
Collection Account established and maintained pursuant to Section 2.12 relating
to the payment of Debt Service.
"Deed of Trust Trustee" means each of the trustees, if any, under the
Mortgages.
"Default" means the occurrence of any event which, but for the giving
of notice or the passage of time, or both, would be an Event of Default.
"Default Rate" means the per annum interest rate equal to the lesser of
(i) the Maximum Amount or (ii) the greater of (A) the sum of LIBOR determined as
of the immediately
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<PAGE> 14
preceding Interest Determination Date plus 5% and (B) 4% per annum in excess of
the rate otherwise applicable hereunder.
"Documents" means all "documents" as defined in the UCC or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by any Borrower.
"Eligible Account" means an account that is: (i) an account maintained
with a federal or state chartered depository institution or trust company, the
long-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the long-term unsecured debt obligations of such holding company) are
rated by the Rating Agencies in one of the two highest rating categories at the
time of the deposit therein, or, if such depository institution or trust company
(or holding company) does not have a long-term unsecured debt rating, the
short-term unsecured debt obligations of such depository institution or trust
company (or holding company), as the case may be, are rated A-1 by Standard &
Poor's and P-1 by Moody's, (ii) an account the deposits in which are fully
insured by the FDIC, or (iii) a trust account maintained with the trust
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity.
"Eligible Property" means a commercial real estate property located in
the United States of America (a) which is leased pursuant to a Lease which is in
form and substance reasonably satisfactory to the Lender and which does not
expire by its terms on or before the Maturity Date; and (b) which, if added as
an Individual Property, would not cause all of the Individual Properties, taken
as a whole, to violate any of the Pool Requirements.
"Engineer" means an Independent Engineer as shall be approved by the
Lender.
"Engineering Reports" means the structural engineering reports with
respect to each Facility prepared by an engineer for a Borrower and delivered by
such Borrower to the Lender in connection with an Advance and any amendments or
supplements thereto delivered to the Lender.
"Environmental Claim" means any notice, notification, request for
information, demand or other communication (whether written or oral) or
administrative or regulatory action by any Governmental Authority or any claim,
judicial action, suit or judgment by any Person or Governmental Authority
alleging or asserting liability with respect to any Borrower or any Facility,
whether for damages, contribution, indemnification, cost recovery, compensation,
injunctive relief, investigatory, response, remedial or cleanup costs, damages
to natural resources, personal injuries, fines or penalties arising out of,
based on or resulting from (i) the presence, Use or Release into the environment
of any Hazardous Substance at any location, whether or not owned, leased or
operated by such Borrower, (ii) any fact, circumstance, condition or occurrence
forming the basis of any violation, or alleged violation, of any Environmental
Law or (iii) any alleged injury or threat of injury to health, safety or the
environment.
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<PAGE> 15
"Environmental Laws" means any and all present and future federal,
state, regional, local and foreign laws, rules or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the environment, human health or safety,
or the Release or threatened Release of Hazardous Substances or otherwise
relating to the Use of Hazardous Substances.
"Environmental Reports" means the environmental audit reports with
respect to each Facility delivered to the Lender, each prepared for a Borrower
by an environmental auditor in connection with an Advance and any amendments or
supplements thereto delivered to the Lender.
"Equipment" means all "equipment" as defined in the UCC, now or
hereafter owned by any Borrower or in which such Borrower has or shall acquire
an interest, now or hereafter located on, attached to or contained in or used or
usable in connection with the Mortgaged Properties, and shall also mean and
include all building materials, construction materials, personal property
constituting furniture, fittings, appliances, apparatus, leasehold improvements,
machinery, devices, interior improvements, appurtenances, equipment, plant,
furnishings, fixtures, computers, electronic data processing equipment,
telecommunications equipment and other fixed assets now owned or hereafter
acquired by such Borrower and also all items of the following types used in the
operation of the business conducted at the Facilities: advertising and promotion
literature, upholstery material, curtains, draperies, carpets and rugs, screens,
awnings, shades and blinds, furniture, furnishings, chairs, chests, desks,
bookcases, tables, hangings, pictures, divans, couches, ornaments, bars, bar
fixtures, safes, stoves, ranges, refrigerators, radios, televisions, electrical
equipment, lamps, mirrors, heating and lighting fixtures and equipment, steam
and hot water boilers, engines, generators, ice machines, cooling systems, air
conditioning machines, fire prevention and extinguishing apparatus, security
systems, elevators, escalators and fittings, printing presses, individual motor
drives for machines, pipes, radiators, plumbing fixtures, and all similar and
related articles located in the halls, closets, offices, lobbies, basements and
cellars, vaults and other portions of the Facilities, and paper goods,
brochures, office supplies and stationery in the Facilities, and all Proceeds
thereof and as well as all additions to, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, and wherever located, now or hereafter owned by such
Borrower and used or intended to be used in connection with, or with the
operation of, the Facilities or the buildings, structures or other improvements
now or hereafter located at the Mortgaged Properties, or intended for the use or
convenience of tenants and other occupants thereof or in connection with any
construction being conducted or which may be conducted thereon, all regardless
of whether the same are located on the Mortgaged Properties or are located
elsewhere (including without limitation, in warehouses or other storage
facilities or in the possession of or on the premises of a bailee, vendor or
manufacturer) for purposes of manufacture, storage, fabrication or
transportation and all extensions, additions, improvements, betterments,
renewals, substitutions and replacements to, and proceeds of, any of the
foregoing; provided, however, that, with respect to any items which are leased
and not owned by such Borrower, the Equipment shall include the leasehold
interest only of
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<PAGE> 16
such Borrower, together with any options to purchase any of said items and any
additional or greater rights with respect to such items which such Borrower may
hereafter acquire.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated thereunder. Section
references to ERISA are to ERISA, as in effect at the date of this Agreement
and, as of the relevant date, any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" means any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which is a member and (ii) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which any Borrower is a
member.
"Estoppel Certificate" means an Estoppel Certificate, substantially in
the form of Exhibit M attached hereto or, in the case of the GSA, in the form
approved by the GSA, to be executed in favor of the Collateral Agent by each
lessee of a Facility.
"Event of Default" has the meaning provided in Section 7.1.
"Excess Cash Flow" means, on any Payment Date, all available cash from
the operation of the Facilities after payment of amounts required to be paid
pursuant to Section 2.12(e), Debt Service, Insurer Obligations, amounts payable
with respect to Interest Rate Protection Agreements, Basic Carrying Costs and
Capital Improvement Costs (to the extent not paid from the Sub-Accounts) and
payment of Operating Expenses.
"Excess Cash Flow Reserve Sub-Account" means the Sub-Account of the
Collection Account established and maintained pursuant to Section 2.12 relating
to the reserve of Preliminary Excess Cash Flow.
"Facility" means the Land, the Improvements and the Equipment (to the
extent same shall be deemed to be fixtures) encumbered by a Related Mortgage and
"Facilities" means all Land, Improvements and Equipment (to the extent same
shall be deemed to be fixtures) covered by the Mortgages.
"Final Operating Budget" has the meaning provided in Section 5.1(X).
"Financing Period" has the meaning provided in Section 2.1.
"Fiscal Year" means the 12-month period ending on December 31st of each
year or such other fiscal year of the Affiliated Entities as the Affiliated
Entities may select from time to time with the prior consent of the Lender
(which consent shall not be unreasonably withheld).
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"GAAP" means generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"General Intangibles" means all "general intangibles" as defined in the
UCC, now owned or hereafter acquired by any Borrower, including, without
limitation, (i) all obligations or indebtedness owing to such Borrower from
whatever source arising (other than Accounts, Rents, Instruments, Inventory,
Money, Contracts, Documents and Permits), (ii) all unearned premiums accrued or
to accrue under all insurance policies for the Mortgaged Properties obtained by
such Borrower, all proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance, condemnation awards, and all rights of such Borrower to
refunds of real estate taxes and assessments, (iii) all royalties and license
fees, (iv) all trademark licenses, trademarks, rights in intellectual property,
goodwill, trade names, service marks, trade secrets, copyrights, permits and
licenses, together with the registrations therefor and the goodwill appurtenant
thereto, (v) all rights or claims in respect of refunds for taxes paid and (vi)
all rights in respect of any pension plan or similar arrangement maintained for
employees of such Borrower.
"Governmental Authority" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Gross Revenue" means with respect to a Facility, the total dollar
amount of all income and receipts whatsoever received by the Borrower that owns
such Facility in the ordinary course of its business with respect to such
Facility, including all Rents, Money and proceeds of any Accounts.
"GSA" means the General Services Administration, an agency of the
federal government of the United States of America.
"GSA Lease" means a Lease with the GSA as lessee.
"Guarantee" means the Guarantee of even date herewith executed by the
Guarantor in favor of the Collateral Agent, substantially in the form of Exhibit
D.
"Guarantor" means Fortress GSA Properties LLC, a Delaware limited
liability company, as guarantor under the Guarantee.
"Guarantor Side Letter" means the letter agreement dated as of the
Closing Date between the Guarantor and the Lender.
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<PAGE> 18
"Hazardous Substance" means, collectively, (i) any petroleum or
petroleum products or waste oils, explosives, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
drinking water, and lead-based paint, (ii) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law.
"Impositions" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, to the extent not discharged prior to the applicable Advance Closing
Date, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of the Related Mortgage), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of an Individual Property, including any Rents and Accounts
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (i) any Borrower (including, without limitation,
all income, franchise, single business or other taxes imposed on such Borrower
for the privilege of doing business in the jurisdiction in which such Individual
Property, or any other collateral delivered or pledged to the Collateral Agent
in connection with the Loan, is located) or any Secured Party, (ii) an
Individual Property, or any other collateral delivered or pledged to the
Collateral Agent in connection with the Loan, or any part thereof or any Rents
therefrom or any estate, right, title or interest therein, or (iii) any
occupancy, operation, use or possession of, or sales from, or activity conducted
on, or in connection with such Individual Property or the leasing or use of such
Individual Property or any part thereof, or the acquisition or financing of the
acquisition of such Individual Property by any Borrower. Nothing contained in
this Agreement shall be construed to require any Borrower to pay any tax,
assessment, levy or charge imposed on any Secured Party in the nature of a
franchise, capital levy, estate, inheritance, succession, income or net revenue
tax.
"Improvements" means all buildings, structures and improvements of
every nature whatsoever situated on the Land on the applicable Advance Closing
Date or thereafter, including, but not limited to, all gas and electric
fixtures, radiators, heaters, engines and machinery, boilers, ranges, elevators
and motors, plumbing and heating fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes, and cleaning apparatus which are or
shall be attached to the Land or said buildings, structures or improvements.
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<PAGE> 19
"Imputed Debt Service" means, for any period, the amount of Debt
Service that would be payable during such period assuming that the Principal
Indebtedness outstanding as of the beginning of such period was to be amortized
in equal monthly installments over a 25-year period, payable on the first
Business Day of each month along with interest accruing at a rate per annum
equal to the Treasury Rate plus the Imputed Margin.
"Imputed Margin" means, with respect to the calculation of Imputed Debt
Service, (a) 1.50%, if such calculation is made during Year 1; (b) 2.00%, if
such calculation is made during Year 2; and (c) 2.50%, if such calculation is
made during Year 3.
"Indebtedness" means the Principal Indebtedness, together with all
other obligations and liabilities due or to become due to the Lender pursuant
hereto, under the Note or in accordance with any of the other Loan Documents,
and all other amounts, sums and expenses paid by or payable to the Lender
hereunder or pursuant to the Note or any of the other Loan Documents.
"Indemnitors" means, collectively, Fortress Investment Corp., a
Maryland corporation and Fortress GSA Properties LLC, a Delaware limited
liability company, as indemnitors under the Indemnity Agreement.
"Indemnitors Side Letter" means the letter agreement dated as of the
Closing Date between the Indemnitors and the Lender.
"Indemnity Agreement" means the Indemnity Agreement, in the form
attached hereto as Exhibit F, dated as of the Closing Date, from the Indemnitors
to the Collateral Agent.
"Independent" means, when used with respect to any Person, a Person who
(i) does not have any direct financial interest or any material indirect
financial interest in any Borrower or in any Affiliate of any Borrower, and (ii)
is not connected with any Borrower or any Affiliate of any Borrower as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Individual Property" means that portion of the Mortgaged Property
located at or otherwise pertaining to one of the Facilities. All of the
"Individual Properties" collectively comprise the Mortgaged Property.
"Initial Capital Requirement" means, with respect to each Facility,
120% of the amount specified in the Engineering Report for such Facility as
being necessary to complete the deferred capital improvements identified
therein.
"Instruments" means (i) all "instruments" as defined in the UCC,
"chattel paper" as defined in the UCC, or letters of credit, evidencing,
representing, arising from or existing in respect of, relating to, securing or
otherwise supporting the payment of, any of the Collateral, including,
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<PAGE> 20
without limitation, promissory notes, drafts, bills of exchange and trade
acceptances and (ii) notes or other obligations of indebtedness owing to any
Borrower from whatever source arising, in each case now owned or hereafter
acquired by such Borrower.
"Insurance and Indemnity Agreement" means the Insurance and Indemnity
Agreement entered into among the Borrowers, the Insurer, the Lender and the
Collateral Agent.
"Insurance Proceeds" has the meaning provided in Section 2.12(g).
"Insurance Requirements" means all material terms of any insurance
policy required pursuant to this Agreement or a Mortgage and all material
regulations and then current standards applicable to or affecting the applicable
Individual Property or any part thereof or any use or condition thereof, which
may, at any time, be recommended by the Board of Fire Underwriters, if any,
having jurisdiction over such Individual Property, or such other body exercising
similar functions.
"Insurer" means MBIA Insurance Corporation, or any successor thereto as
issuer of the Policy.
"Insurer Obligations" means, as of any date, all amounts owing to the
Insurer under the Insurance and Indemnity Agreement, under any Interest Rate
Protection Insurance and Indemnity Agreement or otherwise under the Loan
Documents.
"Insurer Sub-Account" means the Sub-Account of the Collection Account
established and maintained pursuant to Section 2.12 relating to Insurer
Obligations.
"Interest Accrual Period" means the three-month period (or, with
respect to the first Interest Accrual Period, a period beginning on the initial
Advance Closing Date and ending on November 23, 1998) that any particular
interest rate equal to LIBOR shall be in effect, subject to the following
provisions:
(i) in the case of immediately successive Interest Accrual
Periods, each successive Interest Accrual Period shall commence on the
day on which the next preceding Interest Accrual Period expires; and
(ii) each successive Interest Accrual Period shall end on the
twenty-third day of the third calendar month after the month in which
such Interest Accrual Period commenced; provided, however, that if any
Interest Accrual Period would otherwise expire on a day which is not a
Business Day, such Interest Accrual Period shall be extended to expire
on the next succeeding Business Day if the next succeeding Business Day
occurs in the same calendar month, and if there will be no
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<PAGE> 21
succeeding Business Day in such calendar month, the Interest Accrual
Period shall expire on the immediately preceding Business Day.
"Interest Determination Date" means, in connection with the calculation
of LIBOR for any Interest Accrual Period, the second Business Day preceding the
first day of such Interest Accrual Period.
"Interest Rate Protection Agreement" means the interest rate agreement
or similar agreement between a counterparty and the Borrowers, as supplemented
by a related confirmation between such parties, more particularly described in
Section 5.1(T), and "Interest Rate Protection Agreements" means all such
instruments collectively.
"Interest Rate Protection Insurance and Indemnity Agreement" means any
agreement to which the Insurer may become a party from to time pursuant to which
the Insurer is or may become entitled to reimbursement for amounts paid by the
Insurer pursuant to a guaranty, surety, insurance policy or other accommodation
with respect to any Interest Rate Protection Agreement.
"Interest Rate Protection Sub-Account" means the Sub-Account of the
Collection Account established and maintained pursuant to Section 2.12 relating
to the reserve of funds for the purchase of an Interest Rate Protection
Agreement.
"Inventory" means all "inventory" as defined in the UCC, whether now or
hereafter existing or acquired, and which arises out of or is used in connection
with, directly or indirectly, the ownership and operation of the Facilities, all
Documents representing the same and all Proceeds and products of such Inventory.
The term "Inventory" shall include, without limitation, all goods, merchandise,
raw materials, work in process and other personal property, wherever located,
now or hereafter owned or held by any Borrower for manufacture, processing, the
providing of services or sale, use or consumption in the operation of the
Facilities, including without limitation, provisions in storerooms,
refrigerators, kitchens, pantries, beverages in wine cellars or bars, fuel,
supplies and similar items and all substances commingled therewith or added
thereto, and shall also include all rights and claims of such Borrower against
anyone who may store or acquire the Inventory for the account of such Borrower,
or from whom such Borrower may purchase the Inventory.
"Investment Grade Advance Rate" means, with respect to each Rating
Agency, the aggregate Advance Rate for all Advances required in order for such
Rating Agency to provide an investment grade rating for the Loan, as determined
by such Rating Agency upon completion of its final due diligence with respect to
the Transactions.
"Key Person" means Wesley R. Edens.
"Land" has the meaning provided in the Mortgages.
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"Lease Reserve Sub-Account" means the Sub-Account of the Collection
Account established and maintained pursuant to Section 2.12 relating to the
payment of certain Operating Expenses, tenant improvement costs and leasing
commissions.
"Leases" means all leases, lettings, occupancy agreements, tenancies
and licenses by any Borrower as landlord of a Facility or any part thereof now
or hereafter entered into, and all amendments, extensions, renewals and
guarantees thereof, and all security therefor.
"Legal Requirements" means all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including without limitation Environmental Laws)
affecting either an applicable Individual Property or any part thereof or the
construction, use, alteration or operation thereof, or any part thereof, whether
now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, at any time in force
affecting such Individual Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or alterations in
or to such Individual Property or any part thereof, or (ii) in any way limit the
use and enjoyment thereof.
"Lender" has the meaning provided in the first paragraph of this
Agreement.
"LIBOR" means the interest rate calculated as set forth below.
(a) For the first Interest Accrual Period, LIBOR shall be the
rate determined on the first Interest Determination Date through
straight-line interpolation of the rates for three- and four-month U.S.
dollar deposits which appear on Page 3750 of the Dow Jones Telerate
Service, as of 11:00 a.m., London time, on such Interest Determination
Date; provided, however, that if such rate does not appear on Page 3750
of the Dow Jones Telerate Service, LIBOR shall be the Reserve Interest
Rate.
(b) On the second Interest Determination Date and on each
Interest Determination Date thereafter, LIBOR for the next succeeding
Interest Accrual Period shall be the rate for three-month U.S. dollar
deposits which appears on Page 3750 of the Dow Jones Telerate Service,
as of 11:00 a.m., London time, on such Interest Determination Date;
provided, however, that if such rate does not appear on Page 3750 of
the Dow Jones Telerate Service, LIBOR shall be the Reserve Interest
Rate.
(c) The establishment of LIBOR or, if applicable, the Reserve
Interest Rate, by the Lender and the Lender's subsequent calculation of
the rates of interest applicable to the Loan for each related Interest
Accrual Period shall (in the absence of manifest error) be final and
binding.
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(d) In determining LIBOR, or, if applicable, the Reserve
Interest Rate, the Lender may (absent manifest error) conclusively rely
and shall be protected in relying upon the offered quotation (whether
electronic, written or oral) from the Reference Banks or, if
applicable, the New York City banks referred to in the definition of
the term "Reserve Interest Rate". The Lender shall have no liability or
responsibility to any Person for (i) its selection of Reference Banks
or, if applicable, such New York City banks or (ii) its inability,
following a good faith reasonable effort, to obtain such quotations
from the Reference Banks or, if applicable, such New York City banks,
all as provided in the definitions of the terms "LIBOR" and "Reserve
Interest Rate".
"Lien" means any mortgage, deed of trust, lien (statutory or other),
pledge, hypothecation, assignment, preference, priority, security interest, or
any other encumbrance or charge on or affecting an Individual Property or any
portion thereof or any Borrower, or any interest therein, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement or similar instrument under the
Uniform Commercial Code or comparable law of any other jurisdiction, domestic or
foreign, and mechanic's, materialmen's and other similar liens and encumbrances.
"Loan" has the meaning provided in the Recitals hereto.
"Loan Amount" has the meaning provided in the Recitals hereto.
"Loan Documents" means this Agreement, the Note, the Contribution
Agreement, the Mortgages, the Collateral Agency Agreement, the Assignments of
Rents, the Assignments of U.S. Government Contract, the Notices of Assignment,
the Guarantee, the Pledge and Security Agreement, the Indemnity Agreement, the
Interest Rate Protection Agreements, the Assignments of Interest Rate Protection
Agreement, the Insurance and Indemnity Agreement, each Interest Rate Protection
Insurance and Indemnity Agreement, the Policy, the Indemnitors Side Letter, each
Interest Rate Protection Insurance and Indemnity Agreement, Side Letter, the
Partnership Pledge Agreement and all other agreements, instruments, certificates
and documents delivered by or on behalf of any Borrower or an Affiliate to
evidence or secure the Loan or otherwise in satisfaction of the requirements of
this Agreement, the Mortgages or the other documents listed above as same may be
amended or modified from time to time.
"Loss Proceeds" has the meaning provided in Section 2.12(g).
"Manager" means Fortress Investment Group LLC.
"Material Adverse Effect" means a material adverse effect upon (i) the
business operations, properties, assets or condition (financial or otherwise) of
any Borrower, (ii) the ability of any Borrower to perform, or of any Secured
Party to enforce, any of the Loan Documents or (iii) the value of the
Collateral, taken as a whole.
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<PAGE> 24
"Maturity Date" means the Payment Date occurring in February, 2008, or
such earlier date resulting from acceleration.
"Maximum Rate" means the maximum rate of interest designated by
applicable Legal Requirements.
"Money" means all moneys, cash, rights to deposit or savings accounts
or other items of legal tender obtained from, or for use in connection with, the
operation of the Facilities.
"Monthly Date" means, during any Interest Accrual Period, (a) the
Payment Date with respect to such Interest Accrual Period, (b) the date which is
one month prior to such Payment Date (or, if such date is not a Business Day,
the first Business Day thereafter) and (c) the date which is two months prior to
such Payment Date (or, if such date is not a Business Day, the first Business
Day thereafter).
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means, with respect to a Facility, a first priority
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing or Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing or Deed to
Secure Debt, Assignment of Rents, Security Agreement and Fixture Filing, in the
form attached hereto as Exhibit G, dated as of the applicable Advance Closing
Date, granted by a Borrower to the Collateral Agent (or, in the case of a Deed
of Trust, to Deed of Trust Trustee for the benefit of the Collateral Agent) with
respect to such Individual Property as security for the Loan, as same may
thereafter from time to time be supplemented, amended, modified or extended by
one or more agreements supplemental thereto, but shall exclude any such
instrument released by the Collateral Agent pursuant to Section 2.11, and
"Mortgages" means all such instruments collectively.
"Mortgaged Property" means, at any time, all of the Individual
Properties encumbered by the Mortgages then outstanding.
"MSA" means "Metropolitan Statistical Area", as defined as of the date
hereof by the Director of the federal Office of Management and Budget.
"MTN" means a medium-term note "Series 1998B" issued by the Lender
pursuant to the MTN Facility Agreement for the purpose of funding Advances
pursuant to this Agreement.
"MTN Facility Agreement" means the Facility Agreement, dated as of
August 28, 1997, between the Lender and Capital Markets Assurance Corporation,
as amended by the Assignment, Amendment and Assumption Agreement, dated as of
May 27, 1998, among the Lender;
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<PAGE> 25
Capital Markets Assurance Corporation; Bankers Trust Company; Bankers Trust
Company, London Branch; Bankers Trust Luxembourg S.A.; and MBIA Insurance
Corporation.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by any Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Operating Income" means for any period (and calculated either for
a Facility or for the Facilities) the excess, if any, of aggregate Operating
Income for all of the Facilities for such period over aggregate Operating
Expenses for all of the Facilities for such period.
"Net Proceeds" means, with respect to any Individual Property, (i)
either (x) unless clause (y) below applies, the purchase price actually received
by the Collateral Agent from a third party purchaser with respect to such
Individual Property as a result of the exercise by the Collateral Agent of its
rights, powers, privileges and other remedies after the occurrence of an Event
of Default or (y) in the event that the Collateral Agent is the purchaser at
foreclosure of such Individual Property, the amount of the Collateral Agent
credit bid, in either case less (ii) all reasonable costs and expenses,
including, without limitation, all attorneys' fees and disbursements and any
brokerage fees, if applicable, incurred by the Collateral Agent in connection
with the exercise of such remedies; provided, however, that such costs and
expenses shall not be deducted to the extent such amounts previously have been
added to the Indebtedness in accordance with the terms of the Mortgages or
applicable law.
"Non-Controlling Equity Interest" means, with respect to any Borrower,
an equity interest in such Borrower held by a Person that does not have Control
over such Borrower.
"Note" means, a promissory note substantially in the form of Exhibit A
hereto, made by the Borrowers on a joint and several basis to the Lender
pursuant to this Agreement, as such note may be modified, amended, supplemented,
extended or consolidated.
"Notice of Assignment" means, with respect to each GSA Lease, a Notice
of Assignment required pursuant to the terms of this Agreement, in the form
attached hereto as Exhibit J, executed by the appropriate contracting officer of
the GSA, and "Notices of Assignment" means all such instruments collectively.
"Notice For Payment" has the meaning given to such term in the Policy.
"Officer's Certificate" means a certificate delivered to the Lender by
an Affiliated Entity which is signed by an authorized officer of such Affiliated
Entity.
"Operating Budget" has the meaning provided in Section 5.1(X).
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"Operating Expenses" means, for any period, all expenditures by the
Borrowers reasonably required to be expended during such period in connection
with the ownership, operation, maintenance, repair or leasing of the Facilities
(or of any Facility), including, without limitation:
(i) expenses in connection with cleaning, repair and
maintenance of the Facilities (or of any Facility);
(ii) wages, benefits, payroll taxes, insurance costs and all
other related expenses for employees of any Borrower or any Affiliate
engaged in the repair, operation and maintenance of the Facilities (or
of any Facility);
(iii) any management fees, franchise fees and expenses
incurred with respect to the Facilities (or of a y Facility);
(iv) the cost of all electricity, oil, gas, water, steam,
heat, ventilation, air conditioning and any other energy, utility or
similar item and overtime services for the Facilities (or any
Facility);
(v) the cost of cleaning supplies for the Facilities (or any
Facility);
(vi) Impositions with respect to the Facilities (or any
Facility);
(vii) business interruption, liability, casualty and fidelity
insurance premiums (which, in the case of any policies covering more
than one Facility, shall be allocated among the Facilities pro rata in
proportion to the insured value of the Facilities covered by such
policies);
(viii) legal, accounting and other professional fees and
expenses incurred in connection with the ownership and operation of the
Facilities (or of any Facility) including, without limitation,
collection costs and expenses;
(ix) costs and expenses of security and security systems
provided to and/or installed and maintained with respect to the
Facilities (or any Facility);
(x) trash removal and exterminating costs and expenses for the
Facilities (or any Facility);
(xi) advertising and marketing costs for the Facilities (or
any Facility);and
(xii) all other ongoing expenses which in accordance with GAAP
should be included in any Borrower's annual financial statements as
operating expenses of the Facilities (or of any Facility).
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<PAGE> 27
Notwithstanding the foregoing, Operating Expenses shall not include (w) any
Capital Improvement Costs, (x) depreciation, amortization and other non-cash
charges, (y) any extraordinary items or (z) Debt Service and other payments in
connection with the Secured Obligations. Operating Expenses shall be calculated
on the accrual basis of accounting and in accordance with GAAP.
"Operating Income" means, for any period, all regular ongoing income of
the Borrowers during such period from the Permitted Investments or the operation
of the Facilities (or of any Facility), including, without limitation, all
amounts payable to any Borrower by any Person as Rent and other income pursuant
to leases relating to the Facilities (or any Facility). Notwithstanding the
foregoing, Operating Income shall not include (a) any condemnation or insurance
proceeds, (b) any proceeds resulting from the sale, exchange, transfer,
financing or refinancing of all or any portion of one or more Individual
Properties, (c) any Rent attributable to a Lease prior to the date on which the
actual payment of Rent is required to be made thereunder, (d) any item of income
otherwise includable in Operating Income but paid directly to a Person other
than a Borrower, or (e) security deposits received from tenants until forfeited.
Operating Income shall be calculated on the accrual basis of accounting and in
accordance with GAAP.
"Operating Partnership" means Fortress Partners, L.P., a Delaware
limited partnership.
"Organizing Document" means, (a) in the case of a corporation, such
corporation's bylaws; (b) in the case of a limited liability company, such
limited liability company's operating agreement, limited liability company
agreement or other similar document; and (c) in the case of a limited
partnership, such limited partnership's partnership agreement or other similar
document.
"Other Borrowings" means, with respect to any Borrower, without
duplication (but not including the Secured Obligations or any deferred fees
payable in connection with any Transaction) (i) all indebtedness of such
Borrower for borrowed money or for the deferred purchase price of property or
services, (ii) all indebtedness of such Borrower evidenced by a note, bond,
debenture or similar instrument, (iii) the face amount of all letters of credit
issued for the account of such Borrower and, without duplication, all
unreimbursed amounts drawn thereunder, (iv) all indebtedness of such Borrower
secured by a Lien on any property owned by such Borrower whether or not such
indebtedness has been assumed, (v) all Contingent Obligations of such Borrower,
and (vi) all payment obligations of such Borrower under any interest rate
protection agreement (including, without limitation, any interest rate swaps,
caps, floors, collars or similar agreements) and similar agreements (except the
Interest Rate Protection Agreements).
"Payment Date" means, with respect to each Interest Accrual Period, the
date which is five Business Days prior to the last day of such Interest Accrual
Period.
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"Partnership Pledge Agreement" means the Pledge and Security Agreement,
dated as of the Closing Date between Fortress GSA Houston Properties, LP, a
Delaware limited partnership, and Fortress Houston GP Corp., a Delaware
corporation, as assignors, and the Collateral Agent, as assignee, substantially
in the form of Exhibit U.
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA, or any successor thereto.
"Permits" means all licenses, permits, variances and certificates used
in connection with the ownership, operation, use or occupancy of the Mortgaged
Property, including, without limitation, business licenses, state health
department licenses, food service licenses, liquor licenses, licenses to conduct
business, certificates of need and all such other permits, licenses and rights,
obtained from any Governmental Authority or private Person concerning ownership,
operation, use or occupancy of the Mortgaged Property.
"Permitted Encumbrances" means, with respect to an Individual Property,
collectively, (i) the Lien created by the Related Mortgage or the other Loan
Documents of record, (ii) all Liens and other matters disclosed in the Title
Insurance Policy concerning such Individual Property or any part thereof, (iii)
Liens, if any, for Impositions imposed by any Governmental Authority not yet due
or delinquent or being contested in good faith and by appropriate proceedings in
accordance with any applicable requirements set forth in the Mortgages, (iv)
rights of existing and future tenants as tenants only pursuant to Leases, (v)
Liens securing indebtedness permitted pursuant to Section 6.1(C)(ii), provided
that the priority of such Lien is subordinate to the Lien in favor of the
Collateral Agent and that the beneficiary of such Lien shall not be entitled to
exercise any remedy with respect thereto until the Secured Obligations has been
indefeasibly repaid in full and the Financing Period has expired, (vi)
purchase-money Liens arising in the ordinary course of business; provided,
however, that the aggregate indebtedness secured by such Liens shall not at any
time exceed $1,000,000 and (vii) statutory Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other Liens imposed by law
created in the ordinary course of business for amounts not yet due or which are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; provided, however, that the aggregate indebtedness secured
by such Liens shall not at any time exceed $1,000,000.
"Permitted Investments" means any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
including those issued by the Lender or any of its Affiliates:
(i) direct obligations of, or obligations fully guaranteed as
to payment of principal and interest by, (x) the United States or any
agency or instrumentality thereof provided such obligations are backed
by the full faith and credit of the United States of
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<PAGE> 29
America, or (y) FHLMC, FNMA, the Federal Farm Credit System or the
Federal Home Loa Banks;
(ii) fully FDIC-insured demand and time deposits in or
certificates of deposit of, or bankers' acceptances issued by, any bank
or trust company, savings and loan association or savings bank;
provided, that the commercial paper is rated at the highest rating
level b the Rating Agencies and the long-term unsecured debt
obligations of such depository institution or trust company have one of
the two highest ratings available for such securities by the Rating
Agencies;
(iii) repurchase obligations with respect to any security
described in clause (i) above entered into with a depository
institution or trust company (acting as principal) described in clause
(ii) above; provided, that the commercial paper of such depository
institution or trust company is rated at the highest rating level by
the Rating Agencies and the long-term unsecured debt obligations of
such depository institution or trust company have one of the two
highest ratings available for such securities by the Rating Agencies;
(iv) general obligations of or obligations guaranteed by any
State of the United States or the District of Columbia receiving one of
the two highest long-term unsecured debt rating available for such
securities by the Rating Agencies;
(v) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United
States of America or any State thereof or the District of Columbia and
rated by the Rating Agencies in one of their two highest long-term
unsecured rating categories at the time of such investment or
contractual commitment providing for such investment; provided,
however, that securities issued by any such corporation will not be
Permitted Investments to the extent that investment therein will cause
the then outstanding principal amount of securities issued by such
corporation and held as part of the Collection Account to exceed 20% of
the aggregate principal amount of all Permitted Investments held in the
Collection Account;
(vi) commercial or finance company paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one
year after the date of issuance thereof) that is rated A-1 by Standard
& Poor's and P-1 by Moody's, and is issued by a corporation the
outstanding senior long-term debt obligations of which are then rated
by the Rating Agencies in one of their two highest ratings available in
their long-term unsecured debt ratings;
(vii) guaranteed reinvestment agreements acceptable to the
Rating Agencies issued by any bank, insurance company or other
corporation rated in one of the two highest long-term unsecured rating
levels available to such issuers by the Rating Agencies throughout the
duration of such agreements; and
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<PAGE> 30
(viii) money market or mutual funds rated AAAm-G by Standard &
Poor's and P-1 by Moody's (including funds for which the Collateral
Agent or any of its Affiliates is investment manager or advisor);
provided, however, that no instrument or security shall be a Permitted
Investment if the right to receive principal and interest payments derived from
the underlying investment provide a yield to maturity in excess of 120% of the
yield to maturity at par of such underlying investment; provided further that
the downgrade or withdrawal of any rating required pursuant to this definition
shall not require the Borrowers to dispose of or sell any such investment in a
manner that would not be commercially practicable; provided further that each
Permitted Investment (a) shall not have an "r" highlighter affixed to its
rating; (b) shall have a predetermined fixed-dollar amount of principal due at
maturity that cannot vary or change; and (c) shall have interest tied to a
single interest rate index plus a single fixed-priced spread, if any, and move
proportionately with that index.
"Person" means any individual, corporation, partnership, joint venture,
estate, trust, unincorporated association, any federal, state, county or
municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"Pledge and Security Agreement" means that certain first priority
Pledge and Security Agreement, in the form attached hereto as Exhibit E, dated
as of the initial Advance Closing Date, made by the Guarantor, as pledgor, in
favor of the Collateral Agent, as pledgee, with respect to collateral security
for the Loan.
"Plan" means an employee benefit or other plan established or
maintained by any Borrower or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Policy" means the Financial Guaranty Insurance Policy issued by the
Insurer with respect to principal and interest payable by the Borrowers under
this Agreement.
"Pool Requirements" means each of the following requirements:
(i) GSA Leases must account or not less than 90% of the net
present value of remaining scheduled payments under all existing Leases
(for the purposes of this definition, all net present values shall be
calculated on the basis of a discount rate of 9.5%);
(ii) GSA Leases must account for not less than 90% of the
aggregate Allocated Loan Amount (if a Facility is subject to more than
one Lease, the Allocated Loan Amount for such Facility shall, for the
purposes of this definition, be allocated among each such Lease pro
rata on the basis of the net present value of Lease payments scheduled
to be paid under each Lease);
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<PAGE> 31
(iii) the average term to maturity of all GSA Leases, weighted
on the basis of the net present value of remaining scheduled payments
under each such Lease, shall be not less than nine years during Year 1,
not less than eight years during Year 2 and not less than seven years
during Year 3;
(iv) the average term to maturity of all GSA Leases, weighted
on the basis of the Allocated Loan Amount attributable to each such
Lease, shall be not less than nine years during Year 1, not less than
eight years during Year 2 and not less than seven years during Year 3;
(v) the average percentage by which the Rent under each GSA
Lease exceeds the market rent for similar properties in the same MSA
(as reasonably determined by the Lender), weighted on the basis of the
net present value of remaining scheduled payments under each Lease,
shall not exceed 5%;
(vi) the average percentage by which the Rent under each GSA
Lease exceeds the market rent for similar properties in the same MSA
(as reasonably determined by the Lender), weighted on the basis of the
Allocated Loan Amount attributable to each Lease, shall not exceed 5%;
(vii) GSA Leases with respect to Facilities located within a
single MSA (other than the MSA's that include Burlington, New Jersey
and Sacramento, California, respectively) shall account for not more
than 15% of the net present value of remaining scheduled payments under
all existing Leases;
(viii) GSA Leases with respect to Facilities located within a
single MSA (other than the MSA that includes Burlington, New Jersey)
shall account for not more than 15% of the aggregate Allocated Loan
Amount;
(ix) Leases with respect to a single Facility (other than the
Facilities located in Burlington, New Jersey Facility or Sacramento,
California, respectively) shall account for not more than 15% of the
net present value of remaining scheduled payments under all existing
Leases;
(x) Leases with respect to a single Facility (other than the
Facilities located in Burlington, New Jersey Facility or Sacramento,
California, respectively) shall account for not more than 15% of the
aggregate Allocated Loan Amount;
(xi) the amount obtained by dividing Net Operating Income for
the preceding 12-month period, measured as of any Advance Closing Date
or date on which any
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<PAGE> 32
Individual Property is Transferred by any Borrower, by the Principal
Indebtedness shall not be less than 0.12;
(xii) Leases with lessees that do not have investment grade
long-term unsecured debt ratings from each of the Rating Agencies may
account for not more than 5% of the net present value of remaining
scheduled payments under all existing Leases; and
(xiii) Leases with lessees that do not have investment grade
long-term unsecured debt ratings from each of the Rating Agencies may
account for not more than 5% of the aggregate Allocated Loan Amount.
"Preliminary Excess Cash Flow" means all available cash from the
operation of the Facilities aft r the monthly funding of the Sub-Accounts
pursuant to Section 2.12(f)(i), (ii), (iii), (iv) and (v).
"Prepayment Fee" means (a) during Year 1, 1.0%; (b) during the first
six months of Year 2, 0.50%; (c) during the second six months of Year 2 and the
first six months of Year 3, 0.25%; and (d) thereafter, zero; multiplied in each
case by the principal amount of the Loan being prepaid.
"Pricing Spread" means with respect to each Advance, (a) prior to the
beginning of Year 4, 0.68% and (b) thereafter, 4.00%.
"Principal Indebtedness" means the principal amount of the Loan
outstanding as the same may be increased, by additional Advances or otherwise,
or decreased, as a result of prepayment or otherwise, from time to time.
"Proceeds" shall have the meaning given in the UCC and, in any event,
shall include, without limitation, all proceeds, product, rents, profits or
receipts, in whatever form, arising from the Collateral, including, without
limitation, (i) Money, Instruments and other property received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Collateral or the Mortgaged Properties, (ii) the collection, sale, lease,
sublease, concession, exchange, assignment, licensing or other disposition of,
or realization upon, any item or portion of the Collateral or the Mortgaged
Properties, including, without limitation, all claims of any Borrower against
third parties for loss of, damage to, destruction of, or for proceeds payable
under, or unearned premiums with respect to, policies of insurance in respect
of, any Collateral or the Mortgaged Properties now existing or hereafter
arising, (iii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to any Borrower from time to time with respect to any of the
Collateral or the Mortgaged Properties, (iv) any and all payments (in any form
whatsoever) made or due and payable to any Borrower from time to time in
connection with the requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral or the Mortgaged Properties by
any governmental authority (or any person acting under color of governmental
authority) and (v) any and
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<PAGE> 33
all other amounts from time to time paid or payable under or in connection with
any of the Collateral or the Mortgaged Properties.
"Proceeds Deficiency" has the meaning provided in the definition of
"Allocated Loan Amount".
"Property Management Agreement" means, with respect to a Facility, the
management agreement entered into between the applicable Property Manager and
the Borrower that owns such Facility pertaining to the management of such
Facility in a form approved by the Lender, and "Property Management Agreements"
means all such agreements collectively.
"Property Manager" means, with respect to a Facility, the party
responsible for managing such Facility pursuant to the Property Management
Agreement with respect to such Facility.
"Property Manager's Subordination" means, with respect to a Facility,
the Property Manager's Consent and Subordination of Management Agreement in the
form attached hereto as Exhibit L, dated as of the applicable Advance Closing
Date, executed by the applicable Property Manager, the Borrower that owns such
Facility and the Collateral Agent, and "Property Manager's Subordinations" means
all such agreements collectively.
"Proposed Operating Budget" has the meaning provided in Section 5.1(X).
"Rating Agencies" means Moody's and Standard & Poor's.
"Reference Banks" means four major banks, selected by the Lender, in
the London interbank market.
"Related Mortgage" means, with respect to a particular Individual
Property, the Mortgage encumbering such Individual Property.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Substances through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"Release Price" means, with respect to the sale of any Individual
Property, an amount equal to the greatest of (a) the Allocated Loan Amount with
respect to such Individual Property; (b) the minimum sale price such that the
sale of such Individual Property will not result in the violation of any Pool
Requirement; (c) the minimum sale price such that the sale of such Individual
Property will not result in any Debt Service Coverage Ratio decreasing below the
applicable Required Debt Service Coverage Ratio; (d) in the event that, after
accounting for the sale of such Individual
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Property, (i) there will be five or fewer Individual Properties or (ii) the
Principal Indebtedness will be less than or equal to $100,000,000, 100% of the
proceeds of such sale.
"Remedial Work" has the meaning provided in Section 5.1(D)(i).
"Rents" means all income, rents, issues, profits, revenues (including
all oil and gas or other mineral royalties and bonuses), deposits and other
benefits from the Facilities, including, without limitation, all revenues and
credit card receipts collected from guest rooms, restaurants, bars, meeting
rooms, banquet rooms and recreational facilities, all receivables, customer
obligations, installment payment obligations and other obligations now existing
or hereafter arising or created out of the sale, lease, sublease, license,
concession or other grant of the right of the use and occupancy of property or
rendering of services by any Borrower or any operator or manager of the
Facilities, including, without limiting the generality of the foregoing, from
the rental of any office space, retail space (including, without limitation,
rights to payment earned under Leases for space in the Improvements for the
operation of ongoing retail businesses such as news stands, barber shops, beauty
shops, physicians' offices, pharmacies and specialty shops), halls, stores, and
offices, and deposits securing reservations of such space, exhibit or sales
space of every kind, license, lease, sublease and concession fees and rentals,
health club membership fees, food and beverage wholesale and retail sales,
service charges, vending machine sales and proceeds, if any, from business
interruption or other loss of income insurance relating to the use, employment
and occupancy of the Facilities.
"Request for Borrowing" means a Request for Borrowing, substantially in
the form of Exhibit T.
"Required Debt Service Coverage Ratio" means, as of any date, the
Required Debt Service Coverage Ratio (Actual) or the Required Debt Service
Coverage Ratio (Imputed).
"Required Debt Service Coverage Ratio (Actual)" means (a) 1.35 during
Year 1 and (b) 1.50 thereafter.
"Required Debt Service Coverage Ratio (Imputed)" means (a) 1.15 during
Year 1 and Year 2 and (b) 1.20 thereafter.
"Required Debt Service Payment" has the meaning provided in Section
2.12(e).
"Required Lease Reserve Sub-Account Balance" means, as of any date, the
aggregate amount of Operating Expenses, tenant improvement costs and leasing
commissions that will, according to reasonable projections prepared by or on
behalf of the Borrowers and approved by the Lenders, be payable in the 12-month
period commencing on such date with respect to each Lease that, as of such date,
(a) will expire by its terms (without giving effect to any renewals of such
Lease)
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on or before the date which is 12 months after such date and (b) has not been
renewed for a period of three years after such date of expiration.
"Required Interest Rate Protection Sub-Account Balance" means, as of
any Monthly Date, if the Interest Rate Protection Agreements in form and
substance satisfactory to the Lender are not in place, the current market price
for the purchase of an Interest Rate Protection Agreement with (a) a notional
amount equal to the amount of the Principal Indebtedness, (b) a term expiring on
the Maturity Date and (c) a strike price that would enable each Required Debt
Service Coverage Ratio to be satisfied, if calculated with the maximum interest
rate under the Interest Rate Protection Agreement.
"Reserve Interest Rate" means a rate determined on the basis of the
rates at which U.S. Dollars are offered by the Reference Banks at approximately
11:00 a.m., London time, on the Interest Determination Date to prime banks in
the London interbank market for the period coinciding with the next succeeding
Interest Accrual Period in the amount of the Principal Indebtedness to be
outstanding as of the first day of such Interest Accrual Period, in accordance
with the following procedure: the Lender will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for the next succeeding
Interest Accrual Period will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for the next succeeding
Interest Accrual Period will be the arithmetic mean of the rates quoted by major
banks in New York City, selected by the Lender, at approximately 11:00 a.m., New
York City time, on the Interest Determination Date for loans in U.S. Dollars to
leading European banks for the period coinciding with the next succeeding
Interest Accrual Period and in the amount of the Principal Indebtedness to be
outstanding as of the first day of the such Interest Accrual Period.
"Secured Obligations" has the meaning provided in the Collateral Agency
Agreement.
"Secured Parties" means, collectively, the Lender, Insurer, each
Counterparty and the Collateral Agent.
"Single-Purpose Entity" means a Person, other than an individual, which
(i) is formed or organized solely for the purpose of acquiring and directly (or,
in the case of the Guarantor, indirectly) holding an ownership interest in the
Mortgaged Property; (ii) does not engage in any business unrelated to the
Mortgaged Property; (iii) does not have any assets other than those related to
its interest in the Mortgaged Property or any indebtedness other than as
permitted by this Agreement, the Mortgages or the other Loan Documents; (iv) has
its own separate books and records and has its own accounts, in each case which
are separate and apart from the books and records and accounts of any other
Person; (v) at all times has two Independent directors (mutually acceptable to
the Borrowers and the Lender; the present Independent directors being acceptable
to the Borrowers and the Lender); provided, however, that the requirement set
forth in this clause (v) shall be deemed
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to be satisfied with respect to a Borrower if the sole member or manager of such
Borrower is a Single-Purpose Entity; and (vi) holds itself out as being a Person
separate and apart from any other Person.
"Standard & Poor's" means Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, Inc.
"Sub-Account" has the meaning provided in Section 2.12(b).
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company or other entity (a) of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions are at the time
directly or indirectly owned by such Person or (b) that is directly or
indirectly controlled by such Person within the meaning of "control" under
Section 15 of the Securities Act of 1933, as amended, and any regulations
promulgated thereunder.
"Substantive Consolidation Certificate" means an Officer's Certificate
jointly executed by the Borrowers, the Guarantor and the Indemnitors, dated as
of the Closing Date, substantially in the form of Exhibit V.
"Survey" means a certified as-built title survey of an Individual
Property prepared by a registered Independent surveyor and in form and content
satisfactory to the Lender and the company issuing the Title Insurance Policy
for that Individual Property.
"Taking" means a taking or voluntary conveyance during the term hereof
of all or part of a Facility, or any interest therein or right accruing thereto
or use thereof, as the result of, or in settlement of, any condemnation or other
eminent domain proceeding by any Governmental Authority affecting a Facility or
any portion thereof whether or not the same shall have actually been commenced.
"Tangible Net Worth" means, as of the day of determination, all items
which in conformity with GAAP would be included under shareholders' equity on a
balance sheet of a Person on such day ("marked to market" in the case of
securities and other financial assets), less (i) all Contingent Obligations and,
without duplication, other contingent liabilities that would be required to be
noted under GAAP, and (ii) all goodwill, intellectual property and other
intangible assets.
"Title Insurance Policy" means the loan policy (or policies) of title
insurance on Form-B 1970 (revised 10-17-70 and 10-17-84), if available, or such
other form reasonably satisfactory to the Lender, issued by one or more title
companies reasonably satisfactory to the Lender with respect to each Individual
Property and insuring the first priority lien in favor of the Collateral Agent
created by the Related Mortgage in an amount satisfactory to the Lender, subject
only to such exceptions as are satisfactory to the Lender for that Individual
Property and containing
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such endorsements and affirmative assurances as the Lender shall reasonably
require, and "Title Insurance Policies" means all such policies collectively.
"Transaction Costs" means all costs and expenses paid or payable by the
Borrowers relating to the Transactions, including, without limitation, appraisal
fees, legal fees and accounting fees and the costs and expenses described in
Section 8.23.
"Transactions" means each of the transactions contemplated by the Loan
Documents, including each Advance.
"Transfer" means any transfer, sale, assignment or conveyance of a
Facility.
"Transfer Agreement" means the Transfer, Services, Distributions and
Termination Agreement, dated as of July 7, 1998, among Alpine Realty
Investments, LLC, Fortress GSA Properties LLC and certain other parties named
therein.
"Treasury Rate" means, as of the date of determination, the yield as
reported in the current Federal Reserve Statistical Release H.15-Selected
Interest Rates under the heading "U.S. Government Securities/Treasury Constant
Maturities", of U.S. Treasury constant maturities with maturity dates 10 years
from the date of issuance. (In the event Release H.15 is no longer published,
the Lender may select a comparable publication reasonably acceptable to the
Borrowers to determine the Treasury Rate.)
"UCC" means with respect to a Facility, the Uniform Commercial Code as
in effect on the date hereof in the state where such Facility is located, as
amended from time to time; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
security interest in any item or portion of the Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the state
where such Facility is located, "UCC" shall mean the Uniform Commercial Code as
in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
"UCC Searches" has the meaning specified in Section 3.3(G).
"Use" means, with respect to any Hazardous Substance, the generation,
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance or transportation of such Hazardous
Substance.
"Year" means, by number, (a) the period commencing on the Closing Date
and ending on the first anniversary thereof (Year 1) and (b) each consecutive
one-year period thereafter.
ARTICLE II
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GENERAL TERMS
Section 2.1. Amount of the Loan; Amounts of Advances.
(a) From and including the Closing Date to and including the date that
is 36 months after the date hereof (the "Financing Period"), subject to the
terms and conditions of this Agreement, the Lender may, or, if, in the Lender's
determination, required by applicable law, may cause an accommodation lender to,
lend to the Borrowers, on a joint and several basis, a total amount up to the
Loan Amount in one or more Advances. Notwithstanding any other provision of this
Agreement, the Lender shall have no obligation to fund any Advance, and the
conditions set forth in this Agreement for the Lender to make an Advance shall
be necessary but not sufficient conditions to the making of an Advance.
(b) The amount of each Advance to be made on the initial Advance
Closing Date is set forth on Schedule 2. The amount of any Advance to be made
after the initial Advance Closing Date shall not exceed the Advance Rate
multiplied by the lesser of (i) the purchase price of the Facility to be
acquired with the proceeds of such Advance or (ii) the Appraised Value of such
Facility, and the Borrowers shall provide the balance of such purchase price.
After any Principal Indebtedness is repaid, the Lender shall have no obligation
to re-advance the amount repaid.
Section 2.2. Use of Proceeds. Proceeds of each Advance shall be used
for the following purposes: (a) to pay the purchase price for an Eligible
Property being acquired by any Borrower and the reasonable costs and expenses
directly related to such acquisition, (b) to repay all existing indebtedness on
such Eligible Property and all related costs and expenses of such repayment, (c)
to pay to the Lender and the Advisor the financing fees and to pay or reimburse
all other Transaction Costs, (d) to purchase an Interest Rate Protection
Agreement, if applicable, and (e) to fund the Capital Reserve Sub-Account in the
amount of the Initial Capital Requirement for such Facility, if required.
Section 2.3. Security for the Loan. The Note and the Borrowers' joint
and several obligations hereunder and under the other Loan Documents shall be
secured by (a) the Mortgages, (b) the Collateral Security Instruments and (c)
the security interests and Liens granted in this Agreement and in the other Loan
Documents.
Section 2.4. Borrower's Note. The Borrowers' joint and several
obligation to pay the principal of and interest on the Loan and the Prepayment
Fee, if any, shall be evidenced on the date hereof by the Note, duly executed
and delivered by the Borrowers. The Lender is hereby authorized, at its option,
(i) to endorse on a schedule attached to the Note (or on a continuation of such
schedule attached to the Note and made a part thereof) an appropriate notation
evidencing the date and amount of each Advance and of each payment of principal,
interest and Prepayment Fee, if any, in respect thereof, and/or (ii) to record
such Advance and such payments in respect thereof in its books and records. Such
schedule and/or such books and records, as the case may be, shall,
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absent manifest error, constitute prima facie evidence of the accuracy of the
information contained therein. The failure of the Lender to make a notation on
the schedule to the Note or its books and records as aforesaid shall not affect
the obligations of the Borrowers hereunder, under the Note or any other Loan
Document in any respect. At no time shall the aggregate original principal
amounts of the Note exceed the Loan Amount. The Note shall be payable as to
principal, interest and Prepayment Fee, if any, as specified in this Agreement.
The final maturity of the Note shall occur on the Maturity Date.
Section 2.5. Principal, Interest and Fees. (a) The principal sum of the
Note shall, except as otherwise provided in this Agreement, be payable only on
the Maturity Date. Interest on the Loan through the end of each Interest Accrual
Period shall be payable in arrears on the Payment Date (other than the Maturity
Date) that precedes the end of such Interest Accrual Period, with the entire
outstanding principal balance of the Loan, together with all accrued but unpaid
interest thereon through the Maturity Date, due and payable to the Lender on the
Maturity Date. Interest shall be computed on the basis of the actual number of
days elapsed and a 360-day year.
(b) Interest on the Principal Indebtedness shall commence to accrue
upon the first Advance Closing Date. Each Advance will bear interest during each
Interest Accrual Period from and including its respective Advance Closing Date
at a rate per annum equal to the lesser of (i) LIBOR determined as of the
Interest Determination Date immediately preceding each such Interest Accrual
Period plus the Pricing Spread and (ii) the Maximum Rate.
(c) Promptly following the end of the calendar month during which such
investment earnings are received by the Lender, the Lender shall remit to the
Collateral Agent, for deposit into the Collection Account, an amount equal to
the amount of investment earnings received by the Lender on interest payments
made by the Borrowers on or after the immediately preceding Payment Date through
but excluding the last day of such Interest Period.
(d) Borrower shall pay lender a fee on the average daily unused amount
of the Loan Amount at a rate per annum equal to 0.175%, payable quarterly in
arrears on each Payment Date.
(e) If the Borrowers fail to make (i) the payment due on the Maturity
Date or (ii) any other payment of principal of or interest on the Loan when due,
the unpaid amount will bear interest at the lesser of the Default Rate and the
Maximum Rate from the date due until paid. The Borrowers will be deemed to have
made a quarterly payment of interest if the funds necessary to make such payment
are in the Debt Service Payment Sub-Account on the Payment Date.
Section 2.6. Voluntary Prepayment. (a) The Borrowers may voluntarily
prepay the Loan at any time in whole or, unless an Event of Default shall have
occurred and be continuing, in part; provided, however, that, any such
prepayment may be made only on a Payment Date and
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must be accompanied by an amount representing a prepayment premium equal to the
Prepayment Fee, together with all accrued interest and other amounts then due
under the Loan Documents.
(b) In the event of any such voluntary prepayment, the Borrowers shall
give the Lender written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay, which notice shall be given at least 30 days
prior to the date upon which prepayment is to be made and shall specify the
Payment Date on which such prepayment is to be made and the amount of such
prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein (unless such notice is
revoked by the Borrowers prior to the date specified therein in which event the
Borrowers shall immediately reimburse the Lender for any costs incurred in
connection with the giving of such notice and its revocation).
Section 2.7. Mandatory Prepayment. (a) A Borrower may Transfer any
Individual Property at any time; provided, however, that (i) such Borrower shall
have given the Lender at least 30 days' prior written notice of the Transfer,
(ii) no Default or Event of Default shall have occurred and be continuing or
shall result from such Transfer, (iii) the Lender shall have received from the
Borrowers financial statements, calculations and other backup information with
respect to the matters referred to in clause (ii) above, all in form and
substance reasonably satisfactory to the Lender and accompanied by an Officer's
Certificate stating that such statements, calculations and information are true,
correct and complete in all material respects, and (iv) upon the date of the
consummation of any such Transfer, the Borrowers shall pay to the Lender (unless
such notice is revoked by the Borrowers prior to the date specified therein in
which event the Borrowers shall immediately reimburse the Lender for any
reasonable costs incurred in connection with the giving of such notice and its
revocation):
(1) all interest accrued on the portion of the Loan being
prepaid through the date of prepayment;
(2) if such prepayment is made on a day other than a Payment
Date, any Breakage Costs incurred or to be incurred by the Lender;
(3) the payment of the Prepayment Fee with respect to the
prepayment of the Note; as of the date of such Transfer; provided,
however, that no Prepayment Fee shall be payable if the aggregate
Release Price required to be paid with respect to such Transfer and all
previous Transfers of Individual Properties does not exceed 20% of the
highest amount of Principal Indebtedness outstanding since the Closing
Date;
(4) an amount equal to the Release Price; and
(5) all other amounts due under the Related Mortgage.
(b) If the Borrowers are required by the Lender under the provisions of
a Mortgage to prepay the Loan or any portion thereof in the event of damage,
destruction or a Taking
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of a Facility, the Borrowers shall prepay a portion of the Loan (such prepayment
to be applied to the Allocated Loan Amount for such Facility to the extent of
such Allocated Loan Amount) such that the principal amount prepaid together with
accrued interest thereon to the date of prepayment exhausts the Insurance
Proceeds or the Condemnation Proceeds available for such prepayment by remitting
the Loss Proceeds from the Collection Account. In the event that the amount of
such Loss Proceeds exceeds the Allocated Loan Amount for such Facility, the
Borrowers shall be required to pay to the Lender an amount equal to the lesser
of (i) the amount of such Loss Proceeds and (ii) the aggregate amount that would
be payable under Section 2.7(a) in the event that the Facility were Transferred
(excluding any Prepayment Fee). No Prepayment Fee shall be applicable in the
event of any prepayment pursuant to this Section 2.7(b).
(c) If, as calculated on any date prior to the beginning of Year 4, (i)
either Debt Service Coverage Ratio is less than the applicable Required Debt
Service Coverage Ratio or (ii) subject to the next succeeding sentence, any Pool
Requirement (other than a Pool Requirement described in clause (v), clause (vi)
or clause (xi) of the definition thereof) has been violated, then the Borrowers
shall, if so directed by the Lender, on each Monthly Date thereafter until the
condition described in clause (i) or clause (ii), as the case may be, is no
longer continuing, (A) prepay the Loan in an aggregate amount equal to the
Preliminary Excess Cash Flow for the prior month, such Preliminary Excess Cash
Flow to be applied by the Lender to the payment of the Loan; or (B) deposit an
amount equal to the Preliminary Excess Cash Flow for the prior month into the
Excess Cash Flow Reserve Sub-Account. Notwithstanding any other provision of
this Agreement, the Lender's decision to fund the initial Advance hereunder
shall constitute a waiver of any noncompliance with Pool Requirements with
respect to the Individual Properties and Leases existing or in effect as of the
initial Advance Closing Date, but only (i) to the extent that any such
noncompliance exists as of such initial Advance Closing Date and (ii) so long as
there is no change in the overall composition of Individual Properties and
Leases subject to the provisions of this Agreement and the other Loan Documents.
No Prepayment Fee shall be applicable in the event of any prepayment pursuant to
this Section 2.7(c).
(d) If an Event of Default shall occur, the Borrowers shall, if so
directed by the Lender, on each Monthly Date thereafter until such Event of
Default has been cured, (i) prepay the Loan in an aggregate amount equal to the
Preliminary Excess Cash Flow for the prior month, such Preliminary Excess Cash
Flow to be applied by the Lender to the payment of the Loan; or (ii) deposit an
amount equal to the Preliminary Excess Cash Flow for the prior month into the
Excess Cash Flow Reserve Sub-Account. This clause shall not be construed as an
agreement or privilege to extend the date of the payment of the Loan, nor as a
waiver of any other right or remedy accruing to the Lender by reason of the
occurrence of any Event of Default.
(e) In the event that any Rating Agency's Investment Grade Advance Rate
shall be less than 75%, the Borrowers shall, within 30 Business Days of receipt
of notice from the Lender of such occurrence, prepay the Loan so that the amount
of Principal Indebtedness that remains outstanding is less than or equal to the
aggregate principal amount of the Loan that would have been
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made on the Mortgaged Property had the Advance Rate been equal to the Investment
Grade Advance Rate at the time of each Advance (and all payments made by the
Borrowers pursuant to this clause (e) shall be applied immediately to reduce the
Principal Indebtedness).
(f) The Borrower shall, if so directed by the Lender, on each Monthly
Date occurring after the end of Year 3, (i) prepay the Loan in an aggregate
amount equal to the Preliminary Excess Cash Flow for the prior month, such
Preliminary Excess Cash Flow to be applied by the Lender to the payment of the
Loan; or (ii) deposit an amount equal to the Preliminary Excess Cash Flow for
the prior month into the Excess Cash Flow Reserve Sub-Account.
(g) Upon prepayment of the Loan in full, the Borrowers shall pay to the
Lender, in addition to the amounts specified in Section 2.6 or this Section 2.7,
as applicable, any other amounts then due and payable to the Lender pursuant to
the Loan Documents. All prepayments made pursuant to Section 2.6 or this Section
2.7 shall be applied in accordance with the provisions of Section 2.8.
Section 2.8. Application of Payments. All proceeds (including any Net
Proceeds, other than those described in clause (i)(y) of the definition thereof)
of any repayment, including prepayments, of the Loan shall be applied to pay:
first, any reasonable out-of-pocket costs and expenses of the Lender arising as
a result of such repayment; second, any accrued and unpaid interest then payable
with respect to the Loan or the portion thereof being repaid; third, the
Prepayment Fee, if any, on the Loan or the portion thereof being repaid; fourth,
the outstanding principal amount of the Loan or the portion thereof being
repaid; and fifth, any other amounts owing by the Borrowers under this Agreement
or any other Loan Document.
Section 2.9. Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments and prepayments under this Agreement
and the Note shall be made to the Lender not later than 10:00 a.m., New York
City time, on the date when due and shall be made in lawful money of the United
States of America in federal or other immediately available funds to an account
specified to the Borrowers by the Lender in writing, and any funds received by
the Lender after such time shall, for all purposes hereof, be deemed to have
been paid on the next succeeding Business Day.
(b) All payments made by the Borrowers hereunder, or by the Borrowers
under the other Loan Documents, shall be made irrespective of, and without any
deduction for, any set-offs or counterclaims.
Section 2.10. Taxes. All payments made by the Borrowers under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority (other than taxes imposed on the income of the Lender).
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Section 2.11. Release of Collateral. (a) Notwithstanding any other
provision of this Agreement or any other Loan Document, upon a prepayment with
respect to any Individual Property as described in Section 2.7(a) or Section
2.12(h) hereof, the Collateral Agent shall, simultaneously with its receipt of,
and pursuant to, written directions from the Lender and confirmation from the
Lender that it has received the full amount of such prepayment (which directions
and confirmation the Lender hereby agrees to deliver to the Collateral Agent
immediately), release the Lien of the Related Mortgage and the related
Assignment of Rents and UCC-1 financing statements, pursuant to documentation
provided to it, and any other Liens in favor of the Lender relating to such
Individual Property and shall release to the Borrowers any portion of the
Sub-Accounts relating to such Individual Property.
(b) If the Lender (i) receives Loss Proceeds with respect to any
Facility (x) in the event of a Taking or casualty affecting 100% of such
Facility or (y) in an amount equal to or exceeding the sum of the Allocated Loan
Amount for such Facility and accrued and unpaid interest thereon and (ii)
applies such Loss Proceeds to reduce the Indebtedness in accordance with Section
2.7(b), the Collateral Agent shall simultaneously with its receipt of, and
pursuant to, written directions from the Lender and confirmation from the Lender
that it has made such application (which directions and confirmation the Lender
hereby agrees to deliver to the Collateral Agent immediately), release the Lien
of the Related Mortgage and related Assignment of Rents and UCC-1 financing
statements, pursuant to documentation provided to it, and any other Liens in
favor of the Lender relating to such Individual Property.
(c) Upon (i) repayment of the Loan and all other amounts due hereunder
and under the Loan Documents (including all Secured Obligations owing to any
Secured Party) in full in accordance with the terms hereof and thereof and the
expiration of the Financing Period or (ii) if the initial Advance Closing Date
shall not occur as a result of a failure to issue the MTNs, the Collateral Agent
shall release its Liens with respect to all Collateral.
Section 2.12. Central Cash Management. (a) (i) shall jointly open and
maintain at the Collateral Agent a non-interest-bearing segregated trust account
(the "Collection Account"). The Collection Account shall each be opened and
maintained in the name of the Collateral Agent. The Borrowers shall direct each
lessee and each other account debtor of any Borrower to remit all payments due
to any Borrower directly to the Collection Account. The Borrowers shall deposit
all Moneys and checks received by the Borrowers in respect of Rent or otherwise
in respect of any Accounts within two Business Days after receipt thereof,
directly into the Collection Account. The Collection Account shall at all times
be an Eligible Account. The Borrowers shall have no right of withdrawal from the
Collection Account, and the Collection Account shall be under the sole dominion
and control of the Collateral Agent.
(ii) The Borrowers shall jointly open and maintain at the Collateral
Agent a demand deposit account (the "Basic Carrying Costs Account") in the name
of the Borrowers "as joint
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and several Debtors and Bankers Trust Company (as Collateral Agent) as Secured
Party pursuant to the Loan Agreement dated as of July 31, 1998". Upon the
occurrence and during the continuance of a Default or Event of Default, the
Collateral Agent shall, upon the receipt of and pursuant to the written
instructions of the Lender, transfer all funds on deposit in the Basic Carrying
Costs Account into the Basic Carrying Costs Sub-Account.
(b) Establishment of Sub-Accounts. The Collection Account shall contain
the Debt Service Payment Sub-Account, the Insurer Sub-Account, the Basic
Carrying Costs Sub-Account, the Capital Reserve Sub-Account, the Interest Rate
Protection Sub-Account, the Lease Reserve Sub-Account and the Excess Cash Flow
Reserve Sub-Account, each of which accounts (individually, a "Sub-Account" and
collectively, the "Sub-Accounts") shall be an Eligible Account to which certain
funds shall be allocated and from which disbursements shall be made pursuant to
the terms of this Agreement. The Collateral Agent shall be permitted to
establish such Sub-Accounts as non-interest bearing trust accounts for
administrative purposes.
(c) Permitted Investments. Upon the request of the Borrowers, the
Lender may direct the Collateral Agent in writing to invest and reinvest any
balance in the Collection Account from time to time in Permitted Investments as
instructed by the Borrowers; provided, however, that (i) if the Borrowers fail
to so instruct the Lender, or upon the occurrence of an Event of Default, the
Lender shall direct the Collateral Agent in writing to invest and reinvest such
balance in Permitted Investments as the Lender shall determine in its sole
discretion, (ii) the maturities of the Permitted Investments on deposit in the
Collection Account shall, to the extent such dates are ascertainable, be
selected and coordinated to become due not later than the day before any
disbursements from the applicable Sub-Accounts must be made, (iii) all such
Permitted Investments shall be held in the name and be under the sole dominion
and control of the Lender, and (iv) no Permitted Investment shall be made unless
the Lender shall retain a perfected first priority Lien in such Permitted
Investment securing the Secured Obligations and all filings and other actions
necessary to ensure the validity, perfection, and priority of such Lien have
been taken. It is the intention of the parties hereto that the entire amount
deposited in the Collection Account (or as much thereof as the Lender may
reasonably arrange to invest) shall at all times be invested in Permitted
Investments, and that the Collection Account shall be a so-called "zero balance"
account. All funds in the Collection Account that are invested in a Permitted
Investment are deemed to be held in the Collection Account for all purposes of
this Agreement and the other Loan Documents. The Lender shall have no liability
for any loss in investments of funds in the Collection Account that are invested
in Permitted Investments (unless invested contrary to Borrowers' request prior
to an Event of Default) and no such loss shall affect the Borrowers' obligation
to fund, or liability for funding, the Collection Account and each Sub-Account,
as the case may be. Each Borrower agrees that such Borrower shall include its
pro-rata share of all such earnings on the Collection Account as income of such
Borrower for federal and applicable state tax purposes. In no event shall the
Collateral Agent be liable for the selection of Permitted Investments or for
investment losses incurred thereon. The Collateral Agent shall have no liability
in respect of losses incurred as a result of the liquidation of any Permitted
Investment prior to its stated maturity or the failure of the Borrowers or the
Lender to provide timely written
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investment direction. The Collateral Agent shall have no obligation to invest or
reinvest any amounts held hereunder in the absence of written investment
direction.
(d) Interest on Accounts. All interest paid or other earnings on the
Permitted Investments made hereunder shall be deposited into the Collection
Account and shall be subject to allocation and distribution like any other
monies deposited therein.
(e) Payments. Not later than three Business Days before each Payment
Date during the term of the Loan, the Lender shall deliver to the Borrowers and
the Collateral Agent a certificate in the form attached hereto as Exhibit S,
setting forth (i) the Debt Service that will be payable to the Lender on such
Payment Date, which amount shall include interest accruing through the end of
the then-current Interest Accrual Period (the "Required Debt Service Payment")
and (ii) whether sufficient funds exist in the Collection Account to fund the
Debt Service Payment Sub-Account, the Insurer Sub-Account, the Interest Rate
Protection Sub-Account, the Basic Carrying Costs Sub-Account, the Excess Cash
Flow Reserve Sub-Account and the Capital Reserve Sub-Account in the required
amounts. If any such certificate states that the funds then allocated to the
Sub-Accounts are less than the amount of funds which are required to be on
deposit therein on such Payment Date, the Borrowers shall be obligated to
deposit funds (in addition to Rents and Money received from Accounts) into the
Collection Account in the amount of such deficiency, and failure to make such
deposit at or before 10:00 a.m. on the Business Day that is two Business Days
after such Payment Date shall be an Event of Default hereunder.
(i) Payment of Basic Carrying Costs. If funds are the
allocated to the Basic Carrying Costs Account, the Borrowers shall
withdraw funds on deposit in such Account from time to time for purpose
of paying Basic Carrying Costs when due. If amounts are then allocated
to the Basic Carrying Costs Sub-Account, to the extent that there are
insufficient funds available in the Basic Carrying Costs Account, at
least five Business Days prior to the due date of any Basic Carrying
Cost, the Borrowers shall notify the Lender in writing and request that
the Lender request the Collateral Agent to release to the Borrowers
from the Basic Carrying Costs Sub-Account funds sufficient to pay such
Basic Carrying Cost prior to the due date thereof. Together with each
such request, the Borrowers shall furnish the Lender with copies of
bills and other documentation as may be reasonably required by the
Lender to establish that such Basic Carrying Cost is then due. Provided
no Event of Default has occurred and is continuing, the Lender will
direct the Collateral Agent in writing to release to the Borrowers from
the Basic Carrying Cost Sub-Account an amount sufficient to pay such
Basic Carrying Cost before same shall be delinquent to the extent that
there are funds available in the Basic Carrying Cost Sub-Account and
the Lender has received appropriate documentation to establish the
amount(s) due and the due date(s).
(ii) Payment of Debt Service. At or before 12:00 noon, New
York City time, on each Payment Date during the term of the Loan and on
the Maturity Date, the Collateral Agent shall transfer from the Debt
Service Payment Sub-Account to the Lender
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an amount equal to the Required Debt Service Payment. The Borrowers
shall be deemed to have timely made the Required Debt Service Payment
pursuant to Section 2.9 regardless of the time the Collateral Agent
makes such transfer to the Lender as long as sufficient funds are then
on deposit in the Debt Service Payment Sub-Account. In the event that
the amount of funds transferred to the Lender on any Payment Date
pursuant to the first sentence of this clause (ii) is less than the
Required Debt Service Payment, the Collateral Agent, at the written
direction of the Lender, shall promptly transfer to the Lender any
amounts received from the Borrowers or applied from any other Account
or Sub-Account specified by the Lender to cure such deficiency after
such transfer but prior to 10:00 a.m. on the Business Day that is two
Business Days after such Payment Date.
(iii) Payments to Insurer. At or before 12:00 noon, New York
City time, on each Payment Date during the term of the Loan and on the
Maturity Date, the Collateral Agent shall transfer from the Insurer
Sub-Account to the Insurer an amount equal to all Insurer Obligations
payable on such Payment Date, as set forth in written instructions
delivered by the Insurer to the Collateral Agent. The Borrowers shall
be deemed to have timely made the payment required under this clause
(iii) pursuant to Section 2.9 regardless of the time the Collateral
Agent makes such transfer to Insurer as long as sufficient funds are
then on deposit in the Insurer Sub-Account.
(iv) Payment for Interest Rate Protection Agreement. The
Collateral Agent shall transfer funds from the Interest Rate Protection
Sub-Account to the appropriate counterparty at any time, pursuant to
the written instructions of the Controlling Party.
(v) Excess Cash Flow Reserve. If, at any time prior to the
beginning of Year 4, (A) all Events of Default that shall have occurred
shall have been waived by the Lender; (B) each Debt Service Coverage
Ratio is greater than or equal to the Required Debt Service Coverage
Ratio, and (C) each Pool Requirement is satisfied, the Lender will
direct the Collateral Agent in writing to transfer all funds on deposit
in the Excess Cash Flow Reserve Sub-Account to the Collection Account.
(vi) Payment of Capital Improvement Costs. Not more frequently
than once each month and provided that no Event of Default has occurred
and is continuing, upon the Borrowers' written request the Lender will
direct the Collateral Agent in writing to transfer funds to the
Borrowers then allocated to the Capital Reserve Sub-Account for payment
of Capital Improvement Costs. Together with each such request, the
Borrowers shall furnish the Lender with copies of bills and other
documentation as may be reasonably required by the Lender to establish
that such Capital Improvement Costs are then due, together with lien
waivers and releases from all parties furnishing materials and/or
services in connection with the requested payment.
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(vii) Payment of Costs from Lease Reserve Sub-Account. Not
more frequently than once each month and provided that no Event of Default
has occurred and is continuing, upon the Borrowers' written request, the
Lender will direct the Collateral Agent in writing to transfer funds to
the Borrowers then allocated to the Lease Reserve Sub-Account for payment
of Operating Expenses, tenant improvement costs and leasing commissions.
Together with each such request, the Borrowers shall furnish the Lender
with copies of bills and other documentation as may be reasonably required
by the Lender to establish that such amounts are then due, together with
lien waivers and releases from all parties furnishing materials and/or
services in connection with the requested payment.
(f) Monthly Funding of Basic Carrying Costs Account and
Sub-Accounts. On each Monthly Date during the term of the Loan, the Collateral
Agent shall in accordance with the written direction of the Lender allocate all
funds then on deposit in the Collection Account as follows and in the following
priority:
(i) first, to the Basic Carrying Costs Account, until an
amount equal to the Basic Carrying Costs Monthly Installment for the
current month has been allocated to the Basic Carrying Costs Account;
provided, however, that following the Collateral Agent's receipt of
written notice from the Lender that a Default or Event of Default has
occurred and is continuing and directing the Collateral Agent to transfer
all funds on deposit in the Basic Carrying Costs Account to the Basic
Carrying Costs Sub-Account, and until the Collateral Agent shall receive
written notice from the Lender that such Default or Event of Default has
been cured, the Collateral Agent shall allocate to the Basic Carrying
Costs Sub-Account all funds that would otherwise be transferred to the
Basic Carrying Costs Account;
(ii) second, to the Debt Service Payment Sub-Account, (A) on
each Monthly Date other than a Payment Date, an amount certified by the
Lender to be equal to (or if such amount cannot be precisely determined,
the Lender's best estimate of) one-third of the Required Debt Service
Payment payable on the next Payment Date; and (B) on each Payment Date,
the amount required to increase the balance of the Debt Service Payment
Sub-Account to the amount certified by the Lender to be the Required Debt
Service Payment for such Payment Date;
(iii) third, to the Insurer Sub-Account, (A) on each Monthly
Date other than a Payment Date, an amount certified by Insurer to be equal
to (or if such amount cannot be precisely determined, Insurer's best
estimate of) one-third of the amount of Insurer Obligations that will be
payable on the next Payment Date; and (B) on each Payment Date, the amount
required to increase the balance of the Insurer Sub-Account to the amount
certified by Insurer to be the amount of Insurer Obligations payable on
such Payment Date;
(iv) fourth, if Interest Rate Protection Agreements in form
and substance satisfactory to the Lender are not in place and if required
by the Lender in its sole discretion,
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to the Interest Rate Protection Sub-Account, the amount certified by the
Lender to be the amount required to bring the balance of such Sub-Account
to the Required Interest Rate Protection Sub-Account Balance;
(v) fifth, to the Lease Reserve Sub-Account, the amount
certified by the Lender to be the amount required to bring the balance of
such Sub-Account to the Required Lease Reserve Sub-Account Balance;
(vi) sixth, to the Excess Cash Flow Reserve Sub-Account, any
amount of Preliminary Excess Cash Flow that the Lender may direct the
Collateral Agent to apply to such Sub-Account pursuant to Section 2.7(c);
and
(vii) seventh, to the Capital Reserve Sub-Account, until an
amount equal to the Capital Reserve Monthly Installment for the current
month has been allocated to the Capital Reserve Sub-Account.
Provided that (i) no Event of Default has occurred and is
continuing, (ii) the Lender has received all financial information described in
Section 5.1(R) for the most recent periods for which the same are due and (iii)
no prepayments of the Loan from Preliminary Excess Cash Flow are then required
pursuant to Section 2.7(c) or (d), the Lender agrees that on each Monthly Date
any amounts deposited into or remaining in the Collection Account after the
minimum amounts set forth in clauses (i), (ii), (iii), (iv), (v) and (vi) above
have been allocated with respect to the current month and any periods prior
thereto, the Lender shall instruct the Collateral Agent in writing to disburse
such amounts to the Borrowers by wire transfer. The Borrowers shall use any
funds distributed to the Borrowers pursuant to the foregoing to first pay all
Operating Expenses, and all Excess Cash Flow may be retained by the Borrowers
and used for, or applied to, any purpose, including, without limitation,
dividends or other distributions. If an Event of Default has occurred and so
long as it is continuing, any amounts deposited into or remaining in the
Collection Account after the Lender has allocated minimum amounts as hereinabove
provided shall be for the account of the Lender and may be withdrawn by the
Lender to be applied as provided in the Loan Documents.
If, on any Payment Date, the balance in the Debt Service Payment
Sub-Account is insufficient to make the payment of Required Debt Service Payment
or the Insurer Obligations then payable, then the Lender may (but shall not be
obligated to) withdraw funds from the Basic Carrying Costs Account, the Interest
Rate Protection Sub-Account, Basic Carrying Costs Sub-Account, the Excess Cash
Flow Reserve Sub-Account or the Capital Reserve Sub-Account to pay such
deficiency. In the event that the Lender elects to apply the proceeds of any
such Sub-Account to pay any Required Debt Service Payment, the Borrowers shall,
upon demand, repay to the Lender the amount of such withdrawn funds to replenish
such Sub-Account, and if the Borrowers shall fail to repay such amounts within
five days after such withdrawal, an Event of Default shall exist hereunder,
which Event of Default shall not be cured unless and until the Borrowers repay
such amount or all Sub-Accounts have again been fully funded from Rents or Money
received from Accounts. The Lender may, at its sole option, replenish such
Sub-Account out of available Rents or Money received
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from Accounts in subsequent months which the Borrowers would have otherwise been
entitled to receive.
(g) Loss Proceeds. In the event of a casualty or Taking with respect
to a Facility, unless pursuant to the Related Mortgage the proceeds received
under any insurance policy ("Insurance Proceeds") or the proceeds in respect of
any Taking ("Condemnation Proceeds") are to be made available to the Borrowers
for restoration, the Lender and the Borrowers shall cause all such Insurance
Proceeds or Condemnation Proceeds (collectively, "Loss Proceeds") to be paid
directly to the Collection Account, whereupon the Lender will apply same to
reduce the Indebtedness in accordance with Section 2.7(b). If the Lender agrees
or is required pursuant to the provisions hereof or of the Mortgage to make Loss
Proceeds available for restoration, then, to the extent permitted in the
applicable Lease(s) (i) all Insurance Proceeds received in respect of business
interruption coverage and (ii) any Condemnation Proceeds received in connection
with a temporary Taking shall be maintained in the Collection Account, to be
applied by the Lender in the same manner as Rent received with respect to the
operation of such Facility; provided, further, that in the event that the
Insurance Proceeds of any such business interruption insurance policy or
Condemnation Proceeds of such temporary Taking are paid in a lump sum in
advance, the Lender will hold such Insurance Proceeds or Condemnation Proceeds
in a segregated non-interest-bearing trust account at the Collateral Agent,
shall estimate, in the Lender's reasonable discretion, the number of months
required for the Borrowers to restore the damage caused by the casualty to such
Facility or that such Facility will be affected by such temporary Taking, as the
case may be, shall divide the aggregate business interruption Insurance Proceeds
or Condemnation Proceeds in connection with such temporary Taking by such number
of months, and shall disburse from such escrow account into the Collection
Account each month during the performance of such restoration or pendency of
such temporary Taking such monthly installment of said Insurance Proceeds or
Condemnation Proceeds. In the event that Insurance Proceeds or Condemnation
Proceeds are to be applied toward restoration, the Lender will hold such funds
in a segregated non-interest-bearing trust account at the Collateral Agent and
shall direct the Collateral Agent in writing to disburse same in accordance with
the provisions of the Related Mortgage. If any Loss Proceeds are received by any
Borrower, such Loss Proceeds shall be received in trust for the Lender, shall be
segregated from other funds of Borrower, and shall be forthwith paid to the
Collection Account, or paid to the Lender to hold in a segregated
interest-bearing trust account, in each case to be applied or disbursed in
accordance with the foregoing, except as provided to the contrary in the Related
Mortgage. Any Loss Proceeds made available to the Borrowers for restoration in
accordance herewith, to the extent not used by the Borrowers in connection with,
or to the extent they exceed the cost of, such restoration, shall be deposited
into the Collection Account, whereupon the Lender will apply the same to reduce
the Allocated Loan Amount applicable to the affected Individual Property in
accordance with Section 2.7(b).
(h) Payment of Basic Carrying Costs. The Borrowers shall pay all
Basic Carrying Costs with respect to the Borrowers and each Individual Property
in accordance with the provisions of the Related Mortgage, subject, however, to
the Borrowers' rights to contest payment of same in
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accordance with the Related Mortgage. The Borrowers' obligation to pay (or cause
the Lender to pay) Basic Carrying Costs pursuant to this Agreement shall
include, to the extent permitted by applicable law, Impositions resulting from
future changes in law which impose upon the Lender or any Deed of Trust Trustee
an obligation to pay any property taxes or other Impositions or which otherwise
adversely affect the Lender's or the Deed of Trust Trustee's interests. (In the
event such a change in law prohibits the Borrowers from assuming liability for
payment of any such Imposition, the Allocated Loan Amount and accrued and unpaid
interest thereon with respect to the affected Facility shall, at the option of
the Lender, become due and payable, without payment of the Prepayment Fee, on
the date that is 120 days after such change in law and failure to pay such
amounts on the date due shall be an Event of Default.) All funds deposited in
the Collection Account relating to the Basic Carrying Costs shall be held by the
Lender pursuant to the provisions of this Agreement and the Lender shall direct
the Collateral Agent in writing to apply such funds in payment of the foregoing
charges when and as payable, provided that no Event of Default shall have
occurred and be continuing. Should an Event of Default occur, the proceeds on
deposit in the Basic Carrying Costs Sub-Account may be applied by the Lender in
payment of any Basic Carrying Costs for all or any portion of the Mortgaged
Property as the Lender in its sole discretion may determine; provided, however,
that no such application shall be deemed to have been made by operation of law
or otherwise until actually made by the Lender as herein provided.
(i) Collateral Agent's Reliance. The Collateral Agent may
conclusively rely and shall be fully protected in acting or refraining from
acting upon any written notice, instruction or request furnished to it hereunder
and believed by it to be genuine and to have been signed or presented by the
proper party or parties. The Collateral Agent may rely on notice from the Lender
as to the occurrence of an Event of Default.
Section 2.13 Security Agreement. (a) Pledge of Accounts. To secure
the full and punctual payment and performance of all of the Secured Obligations,
the Borrowers hereby sell, assign, convey, pledge and transfer to the Collateral
Agent (for the equal and ratable benefit of the Secured Parties, in accordance
with their respective interests as set forth in the Collateral Agency
Agreement), and grant a first and continuing security interest in and to, the
following property, whether now owned or existing or hereafter acquired or
arising and regardless of where located (collectively, the "Account
Collateral"):
(i) all of the Borrowers' right, title and interest in the
Collection Account and the Basic Carrying Costs Account and all Money, if
any, from time to time deposited or held in the Collection Account and the
Basic Carrying Costs Account ;
(ii) all interest, dividends, Money, Instruments and other
property from time to time received, receivable or otherwise payable in
respect of, or in exchange for, any of the foregoing; and
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(iii) to the extent not covered by clause (i), (ii), or (iii)
above, all proceeds (as defined under the UCC of the applicable
jurisdiction) of any or all of the foregoing.
(b) Covenants. The Borrowers covenant that (i) all Rents and Money
(other than tenant security deposits) received from Accounts shall be deposited
into the Collection Account; (ii) so long as any portion of the Secured
Obligations is outstanding, the Borrowers shall not open (or permit any Property
Manager to open) any other account for the collection of Rents (other than
tenant security deposits) or Money received from Accounts; and (iii) the
Borrowers will instruct each counterparty to the Interest Rate Protection
Agreements (if applicable) to deposit any and all payments thereunder into the
Collection Account
(c) Rules Governing Collection Account. The Collection Account and
the Basic Carrying Costs Account shall be subject to such applicable laws, and
such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other banking authority or Governmental Authority, as may now
or hereafter be in effect, and to the rules, regulations and procedures of the
Collateral Agent relating to trust accounts or demand deposit accounts, as
applicable, from time to time in effect.
(d) Financing Statements: Further Assurances. In connection with
each Advance Closing Date, the Borrowers will execute and deliver to the
Collateral Agent for filing a financing statement or statements in connection
with the Account Collateral in the form required to properly perfect the
Collateral Agent's security interest in the Account Collateral to the extent
that it may be perfected by such a filing. The Borrowers agree that at any time
and from time to time, at the expense of the Borrowers, the Borrowers shall
promptly execute and deliver all further instruments, and take all further
action, that is required or that the Collateral Agent may reasonably request, in
order to perfect and protect the pledge and security interest granted or
purported to be granted hereby, or to enable the Collateral Agent to exercise
and enforce the Collateral Agent's rights and remedies hereunder with respect
to, any Account Collateral.
(e) Transfers and Other Liens. Each Borrower agrees that it will not
sell or otherwise dispose of any of the Account Collateral other than pursuant
to the terms hereof, or create or permit to exist any Lien upon or with respect
to all or any of the Account Collateral, except for the Lien granted to the
Collateral Agent under this Agreement.
(f) Collateral Agent's Right to Perform. If the Borrowers or any
Borrower fails to perform any covenant or obligation contained herein and such
failure shall continue for a period of 10 Business Days after the Borrowers'
receipt of written notice thereof from the Collateral Agent, the Collateral
Agent may, but shall have no obligation to, itself perform, or cause performance
of, such covenant or obligation, and the reasonable expenses of the Collateral
Agent incurred in connection therewith shall be payable by the Borrowers to the
Collateral Agent upon demand. Notwithstanding the foregoing, the Collateral
Agent shall have no obligation to send notice to the Borrowers of any such
failure unless directed to do so by the Controlling Party.
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(g) Collateral Agent's Reasonable Care. Beyond the exercise of
reasonable care in the custody thereof, the Collateral Agent shall not have any
duty as to any Account Collateral or any income thereon in its possession or
control or in the possession or control of any agents for, or of the Collateral
Agent, or the preservation of rights against any Person or otherwise with
respect thereto. The Collateral Agent shall be deemed to have exercised
reasonable care in the custody of the Account Collateral in its possession if
the Account Collateral is accorded treatment substantially equal to that which
the Collateral Agent accords its own property, it being understood that the
Collateral Agent shall not be liable or responsible for any loss, damage or
diminution in value by reason of the act or omission of the Collateral Agent, or
the Collateral Agent's agents, employees or bailees, except to the extent that
such loss or damage or diminution in value results from the Collateral Agent's
gross negligence or willful misconduct or the gross negligence or willful
misconduct of any such agent, employee or bailee of the Collateral Agent.
(h) Remedies. The rights and remedies provided in this Section 2.13
are cumulative and may be exercised independently or concurrently, and are not
exclusive of any other right or remedy provided at law or in equity. No failure
to exercise or delay by the Collateral Agent or any Secured Party in exercising
any right or remedy hereunder or under the Loan Documents shall impair or
prohibit the exercise of any such rights or remedies in the future or be deemed
to constitute a waiver or limitation of any such right or remedy or acquiescence
therein.
(i) No Waiver. Every right and remedy granted to the Collateral
Agent under this Agreement or by law may be exercised by the Collateral Agent at
any time and from time to time, and as often as the Collateral Agent may deem it
expedient. Any and all of the Collateral Agent's rights with respect to the
pledge and security interest granted hereunder shall continue unimpaired, and
each Borrower shall be and remain obligated in accordance with the terms hereof,
notwithstanding (i) any proceeding of any Borrower under the United States
Bankruptcy Code or any bankruptcy, insolvency or reorganization laws or statutes
of any state, (ii) the release or substitution of Account Collateral at any
time, or of any rights or interests therein or (iii) any delay, extension of
time, renewal, compromise or other indulgence granted by the Collateral Agent in
the event of any Default with respect to the Account Collateral or otherwise
hereunder. No delay or extension of time by the Collateral Agent in exercising
any power of sale, option or other right or remedy hereunder, and no notice or
demand which may be given to or made upon the Borrowers by the Collateral Agent,
shall constitute a waiver thereof, or limit, impair or prejudice the Collateral
Agent's right, without notice or demand, to take any action against the
Borrowers or to exercise any other power of sale, option or any other right or
remedy.
(j) Collateral Agent Appointed Attorney-In-Fact. Each Borrower
hereby irrevocably constitutes and appoints the Collateral Agent as such
Borrower's true and lawful attorney-in-fact, with full power of substitution, at
any time after the occurrence and during the continuation of an Event of
Default, to execute, acknowledge and deliver any instruments and to exercise and
enforce every right, power, remedy, option and privilege of such Borrower with
respect
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to the Account Collateral, and do in the name, place and stead of such Borrower,
all such acts, things and deeds for and on behalf of and in the name of such
Borrower with respect to the Account Collateral, which such Borrower could or
might do or which the Collateral Agent may deem necessary or desirable to more
fully vest in the Collateral Agent the rights and remedies provided for herein
with respect to the Account Collateral and to accomplish the purposes of this
Agreement. The foregoing powers of attorney are irrevocable and coupled with an
interest.
(k) Continuing Security Interest; Termination. This Section 2.13
shall create a continuing pledge of and security interest in the Account
Collateral and shall remain in full force and effect until payment in full of
the Secured Obligations. Upon payment in full of the Secured Obligations, the
Borrowers shall be entitled to the return, upon its request and at its expense,
of such of the Account Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof, and the Collateral Agent shall execute
such instruments and documents as may be reasonably requested by the Borrowers
to evidence such termination and the release of the pledge and lien hereof;
provided, however, that the Borrowers shall pay on demand all of the Collateral
Agent's expenses in connection therewith.
(l) Collateral Agent's Reliance. The Collateral Agent may
conclusively rely and shall be fully protected in acting or refraining from
acting upon any written notice, instruction or request furnished to it hereunder
and believed by it to be genuine and to have been signed or presented by the
proper party or parties. The Collateral Agent may rely on notice from the
Controlling Party as to the occurrence of an Event of Default.
Section 2.14 Supplemental Mortgage Affidavits. The Lien to be
created by each Mortgage is intended to encumber the Individual Property
described therein to the full extent of all the Secured Obligations and to cross
collateralize the other Individual Properties. As of each Advance Closing Date,
the Borrowers shall have paid all state, county and municipal recording and all
other taxes imposed upon the execution and recordation of the Related Mortgage
and all other Mortgages dated on or prior to such Advance Closing Date. If at
any time the Lender determines, based on applicable law, that the Lender is not
being afforded the maximum amount of security available from any Individual
Property as a direct, or indirect, result of applicable taxes not having been
paid with respect to the Related Mortgage, the Borrowers agree that the
Borrowers will execute, acknowledge and deliver to the Lender, immediately upon
the Lender's request, supplemental affidavits increasing the amount of Secured
Obligations for which all applicable taxes have been paid to an amount
determined by the Lender to be equal to the lesser of (a) the greater of the
fair market value of such Individual Property (i) as of the Advance Closing Date
for such Individual Property and (ii) as of the date such supplemental
affidavits are to be delivered to the Lender, and (b) the amount of the Secured
Obligations, and the Borrowers shall, on demand, pay any such additional taxes.
ARTICLE III
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CONDITIONS PRECEDENT
Section 3.1. Conditions Precedent to Effectiveness. This Agreement
shall become effective on the date that all of the following conditions shall
have been satisfied (or waived in accordance with Section 8.4) (the "Closing
Date"):
(A) Loan Agreement. The Borrowers shall have executed and delivered
this Agreement to the Lender.
(B) Note. The Borrowers shall have executed and delivered to the
Lender the Note.
(C) Indemnity Agreement. The Indemnitors shall have executed and
delivered to the Collateral Agent the Indemnity Agreement.
(D) Collateral Agency Agreement. The Borrowers shall have executed
and delivered to the Collateral Agent the Collateral Agency Agreement.
(E) Guarantee. The Guarantor shall have executed and delivered to
the Collateral Agent the Guarantee.
(F) Pledge and Security Agreement. The Guarantor shall have executed
and delivered to the Collateral Agent the Pledge and Security Agreement.
(G) Contribution Agreement. Each Borrower shall have executed the
Contribution Agreement.
(H) Opinions of Counsel. The Lender shall have received from
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Affiliated Entities,
its legal opinions in substantially the form attached hereto as Exhibit N and
Exhibit O, respectively. Such legal opinions will be addressed to the Lender,
the Insurer and the Rating Agencies, dated the Closing Date, and in form and
substance satisfactory to the Lender and its counsel. Each Borrower hereby
instructs such counsel to deliver such opinions.
(I) The Indemnitors shall have executed and delivered to the Lender
the Indemnitors Side Letter.
(J) Fortress GSA Houston Properties, LP and Fortress Houston GP
Corp. shall have executed and delivered to the Lender the Partnership Pledge
Agreement.
(K) The Borrowers shall have executed and delivered to the Lender
the Substantive Consolidation Certificate.
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(L) The Guarantor shall have executed and delivered to the Lender
the Guarantor Side Letter.
(M) Corporate and LLC Documents. The Lender shall have received with
respect to each Affiliated Entity its Charter Document, as amended, modified or
supplemented to the Closing Date, certified to be true, correct and complete by
the appropriate Secretary of State as of a date not more than 10 days prior to
the Closing Date, together with a good standing certificate from such Secretary
of State dated a date not more than 10 days prior to the Closing Date.
(N) Certified Resolutions, etc. The Lender shall have received a
certificate of the secretary or assistant secretary or other appropriate officer
of each Affiliated Entity dated the Closing Date, certifying (i) the names and
true signatures of its incumbent officers authorized to sign each Loan Document
to which such Affiliated Entity is a party, (ii) its Organizing Document as in
effect on the Closing Date, (iii) the resolutions of its board of directors or
other analogous body approving and authorizing the execution, delivery and
performance of each Loan Document to which such Affiliated Entity is a party and
(iv) that there have been no changes in its Charter Document since the date of
the most recent certification thereof by the appropriate Secretary of State.
(O) Notification of Account Debtors. Each Borrower shall have
provided written notice to each lessee and other account debtor of such Borrower
directing each such Person to remit all payments due to such Borrower directly
to the Collection Account.
(P) Representations and Warranties. The representations and
warranties herein shall be true and correct in all material respects on such
date both before and after the execution and delivery of this Agreement.
(Q) No Default or Event of Defaults. No Default with respect to the
payment of money or Event of Default shall have occurred and be continuing on
such date either before or after the execution and delivery of this Agreement.
(R) No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any Governmental Authority shall have been issued,
and no litigation shall be pending or threatened, which in the good faith
judgment of the Lender would enjoin, prohibit or restrain, or impose or result
in the imposition of any material adverse condition upon, the making or
repayment of the Loan or the consummation of the Transactions.
(S) Transaction Costs. The Borrowers shall have paid all Transaction
Costs for which bills have been submitted.
(T) Required Ratings. The Lender shall have received evidence
reasonably satisfactory to the Lender that each of Standard & Poor's and Moody's
rating the Indebtedness not
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lower than Investment Grade Advance Rate (provided, that this requirement shall
be deemed to be satisfied or waived upon the Lender's execution and delivery of
this Agreement).
(U) Policy. The Insurer shall have delivered the Policy to the
Collateral Agent.
(V) Transfer Agreement. A copy of the Transfer Agreement, certified
to be true, correct and complete by the Indemnitors, shall be delivered to the
Lender.
Section 3.2. Execution and Delivery of Agreement. The execution and
delivery by the Borrowers of this Agreement shall constitute a representation
and warranty by the Borrowers to the Lender that all of the conditions required
to be satisfied under Section 3.1 have been satisfied or waived in accordance
with Section 8.4.
Section 3.3. Conditions Precedent to Disbursement of an Advance. The
Borrowers shall jointly submit a Request for Borrowing with respect to each
Advance and shall submit with such Request for Borrowing the items described in
this Section 3.3. If the Lender approves such request, an Advance shall be made
on the date (each, an "Advance Closing Date") that is 10 Business Days (or such
lesser period of time as shall be agreed to by the parties) after all of the
following conditions shall have been satisfied (or waived in accordance with
Section 8.4). Notwithstanding the foregoing or any other provision of this
Agreement, the funding of any Advance by the Lender shall be subject to the
Lender's sole and absolute discretion.
(A) Loan Documents.
(i) Mortgage. The appropriate Borrower shall have executed and
delivered to the Lender a Mortgage with respect to the Facility being
acquired and such Mortgage shall have been recorded in the appropriate
filing office in the jurisdiction in which such Facility is located or
irrevocably delivered to a title agent for such recordation.
(ii) Estoppel Certificates. Each Lessee of the Facility, other
than the GSA, shall have executed and delivered to the Lender an Estoppel
Certificate with respect to such Person's Lease.
(iii) Assignment of Rents. The appropriate Borrower shall have
executed and delivered to the Lender an Assignment of Rents with respect
to the Facility being acquired and the Assignment of Rents shall have been
filed of record in the appropriate filing office in the jurisdiction in
which such Facility is located or irrevocably delivered to a title agent
for such recordation.
(iv) Financing Statements. The appropriate Borrower shall have
executed and delivered to the Lender all financing statements as shall be
required to perfect the Collateral Agent's security interest in the
Collateral, and such financing statements shall have
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been filed of record in the appropriate filing offices in each of the
appropriate jurisdictions or irrevocably delivered to a title agent for
such recordation.
(v) Assignment of U.S. Government Contract; Notice of
Assignment. In the event that Facility with respect to which the Advance
is to be made is subject to a Lease with the GSA, the appropriate Borrower
shall have (1) executed and delivered to the Lender an Assignment of U.S.
Government Contract and (2) submitted to the GSA a Notice of Assignment
for execution.
(B) The Borrowers shall have executed and delivered to the Lender,
not less than 10 Business Days (or such lesser period of time as shall be agreed
to by the parties) prior to the proposed Advance Closing Date, a Request for
Borrowing.
(C) Opinions of Counsel. The Lender shall have received from
Skadden, Arps, Slate, Meagher & Flom L.L.P., counsel to the Affiliated Entities,
a legal opinion in substantially the form attached hereto as Exhibit P; and from
each local counsel to the Borrowers, its legal opinion in substantially the form
attached hereto as Exhibit Q. Each of such legal opinions will be addressed to
the Lender, the Insurer and the Rating Agencies, dated the Advance Closing Date,
and in form and substance satisfactory to the Lender and its counsel. Each
Borrower hereby instructs such counsel to deliver such opinions.
(D) Corporate and LLC Documents. The Lender shall have received with
respect to each Affiliated Entity its Charter Document, as amended, modified or
supplemented to the Advance Closing Date, certified to be true, correct and
complete by the appropriate Secretary of State as of a date not more than 20
days prior to the Advance Closing Date, together with a good standing
certificate from such Secretary of State and a good standing certificate from
the Secretaries of State (or the equivalent thereof) of each other State in
which such Affiliated Entity is required to be qualified to transact business,
each to be dated a date not more than 20 days prior to the Advance Closing Date.
(E) Certified Resolutions, etc. The Lender shall have received a
certificate of the secretary or assistant secretary of each Affiliated Entity
dated the Advance Closing Date, certifying (i) the names and true signatures of
its incumbent officers authorized to sign the applicable Loan Documents, (ii)
its Organizing Document as in effect on the Advance Closing Date, (iii) the
resolutions of its board of directors or other analogous body approving and
authorizing the execution, delivery and performance of all Loan Documents
executed by it, and (iv) that there have been no changes in its Charter Document
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(F) Insurance. The Lender shall have received certificates of
insurance demonstrating insurance coverage in respect of the Facility of types,
in amounts, with insurers and otherwise in compliance with the terms, provisions
and conditions set forth in the Related Mortgage. Such certificates shall
indicate that the Lender and the Collateral Agent are named additional insured
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as their interests may appear and shall contain a loss payee endorsement in
favor of the Lender and the Collateral Agent with respect to the property
policies required to be maintained under the Mortgage. All insurance policies
required to be maintained hereunder shall be maintained from the Advance Closing
Date throughout the term of this Agreement in the types and amounts required
under the Mortgages.
(G) Lien Search Reports. The Lender shall have received satisfactory
reports of UCC (collectively, the "UCC Searches"), tax lien, judgment and
litigation searches conducted by a search firm acceptable to the Lender with
respect to the Collateral relating to the Advance, each Borrower and the
Guarantor, such searches to be conducted in the state and county in which the
Individual Property to be acquired is located and to be dated not more than 25
days prior to the Advance Closing Date.
(H) Title Insurance Policy. The Lender shall have received a
commitment (in form and substance satisfactory to the Lender) to issue the Title
Insurance Policy which shall, without limitation, include the requirements set
forth on Schedule 5 attached hereto.
(I) Environmental Matters. The Lender shall have received an
Environmental Report with respect to the Facility (which, if prepared on or
after the date of this Agreement, shall be addressed to the Lender as well as
the Borrowers), which Environmental Report shall be acceptable to the Lender and
show no adverse environmental condition on the Facility, such Environmental
Report to be conducted by an Independent environmental engineer acceptable to
the Lender.
(J) Consents, Licenses, Approvals etc. The Lender shall have
received copies of all consents, licenses and approvals, if any, required in
connection with the execution, delivery and performance by the Borrowers, and
the validity and enforceability, of the Loan Documents, and such consents,
licenses and approvals shall be in full force and effect.
(K) Due Diligence. The Lender shall have received the letter of
intent relating to the applicable Borrower's (or prospective Borrower's)
proposed purchase of the Facility, the Lease or Leases relating to such Facility
(or such other written evidence of the terms and conditions of such purchase as
shall be in form and substance satisfactory to the Lender), the Borrowers'
economic and underwriting analysis with respect to such Facility and such other
certificates (including a certificate of occupancy, if available, reflecting the
use of the Facility as of the Advance Closing Date), lease summaries or
abstracts prepared by the Borrowers or the Borrowers' counsel, opinions,
documents (including the purchase agreement pursuant to which the applicable
Borrower intends to acquire the Facility) and instruments (including, if
available, a letter from the appropriate Governmental Authority regarding the
zoning of the Facility) relating to the Advance as may have been reasonably
requested by the Lender, and all corporate and other proceedings, all other
documents (including, without limitation, all documents referred to herein and
not appearing as exhibits hereto) and all legal matters in connection with the
Loan shall be satisfactory in form and substance to the Lender.
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(L) Representations and Warranties. The representations and
warranties herein and in the other Loan Documents shall be true and correct in
all material respects on such date both before and after giving effect to the
making of the Advance.
(M) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on such date either before or after giving
effect to the making of the Advance.
(N) No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any Governmental Authority shall have been issued,
and no litigation shall be pending or threatened, which in the good faith
judgment of the Lender would enjoin, prohibit or restrain, or impose or result
in the imposition of any material adverse condition upon, the making or
repayment of the Advance or the Loan or the consummation of the Transactions.
(O) Survey. The Lender shall have received the Survey with respect
to the Facility which shall, without limitation, include the requirements set
forth on Schedule 4 attached hereto.
(P) Engineering Report. The Lender shall have received the
Engineering Report with respect to the Facility (which, if prepared on or after
the date of this Agreement, shall be addressed to the Lender as well as the
Borrowers) prepared by a firm acceptable to the Lender in its sole discretion
and showing no adverse structural condition.
(Q) Appraisal. The Lender shall have received the Appraisal by an
Appraiser with respect to the Facility (which, if prepared on or after the date
of this Agreement, shall be addressed to the Lender as well as the Borrowers).
(R) Transaction Costs. The Borrowers shall have paid (or agreed to
pay at closing from the proceeds of the Advance) all Transaction Costs for which
bills have been submitted and have not been previously paid.
(S) No Mandatory Prepayment. The Borrowers shall not be required
under Section 2.7(c), either before or after giving effect to the requested
Advance, to apply Preliminary Excess Cash Flow to repay the Loan.
(T) Site Inspection. The Lender shall have performed, or caused to
be performed on its behalf, an on-site due diligence review of the Facility to
be acquired with the Advance satisfactory to the Lender in its sole discretion.
(U) Effect on Mortgaged Property. The inclusion of the Facility to
be acquired with the Advance shall not result in a violation of any Pool
Requirement.
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(V) Financial Information. The Lender shall have received acceptable
financial information relating to the Facility to be acquired with the Advance,
including, but not limited to, operating statements, rent roll, the most recent
audited consolidated financial statements and unaudited quarterly consolidated
financial statements.
(W) Financial Statements. With respect to the first Advance Closing
Date, the Lender shall have received pro forma financial statements for the
first year of operation of the Borrowers reflecting the Borrowers' reasonable
and good faith projections.
(X) Property Management Agreement. The Lender shall have received
the Property Management Agreement with respect to the Facility, certified by the
Borrowers to be true and correct and in full force and effect.
(Y) Leases. The Lender shall have received each Lease with respect
to the Facility, certified by the Borrowers to be true and correct and in full
force and effect.
(Z) MTNs. The Lender shall have issued MTNs in an aggregate
principal amount equal to the amount sufficient for the Lender to realize net
cash proceeds in an amount not less than the amount of such Advance (provided,
that the Lender shall use reasonable efforts to issue MTN's in such amount if
all other conditions precedent set forth in Section 3.1 and this Section 3.3
have been satisfied).
Section 3.4. Acceptance of Borrowings. The acceptance by the
Borrowers or any Borrower of the proceeds of an Advance shall constitute a
representation and warranty by the Borrowers to the Lender that all of the
conditions to be satisfied under Section 3.3 in connection with the making of
the Advance have been satisfied or waived in accordance with Section 8.4.
Section 3.5. Form of Loan Documents and Related Matters. The Note
and all of the certificates, agreements, legal opinions and other documents and
papers referred to in this Article III, unless otherwise specified, shall be
delivered to the Lender, and shall be satisfactory in form and substance to the
Lender in its reasonable discretion (unless the form thereof is prescribed
herein).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Closing Date Borrower Representations. Each Borrower
represents and warrants that, as of the Closing Date:
(A) Organization. Each Borrower (i) is a duly organized and validly
existing limited liability company or limited partnership, as applicable, in
good standing under the laws of its state of formation, (ii) has the requisite
power and authority to carry on its business as now being
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conducted, and (iii) has the requisite power to execute and deliver, and perform
its obligations under, this Agreement and the other Loan Documents to which it
is a party.
(B) Authorization. The execution and delivery by each Borrower of
this Agreement and the other Loan Documents to which it is a party, such
Borrower's performance of its obligations hereunder and thereunder and the
creation of the security interests and liens provided for in this Agreement and
the other Loan Documents to which it is a party (i) have been duly authorized by
all requisite action on the part of such Borrower, (ii) will not violate any
provision of any Legal Requirements, any order of any court or other
Governmental Authority, the Charter Document of such Borrower or any indenture
or material agreement or other instrument to which such Borrower is a party or
by which such Borrower is bound, and (iii) will not be in conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under, or result in the creation or imposition of any Lien of any nature
whatsoever upon any of the property or assets of such Borrower pursuant to, any
such indenture or material agreement or instrument. Other than those obtained or
filed on or prior to the Closing Date, no Borrower is required to obtain any
consent, approval or authorization from, or to file any declaration or statement
with, any Governmental Authority or other agency in connection with or as a
condition to the execution, delivery or performance of this Agreement.
(C) Litigation. There are no actions, suits or proceedings at law or
in equity by or before any Governmental Authority or other agency now pending
and served or, to the knowledge of such Borrower, threatened against any
Borrower.
(D) Agreements. No Borrower is a party to any agreement or
instrument or subject to any restriction which is reasonably likely to have a
Material Adverse Effect. No Borrower is in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a party or
by which any Borrower or any Individual Property is bound.
(E) No Bankruptcy Filing. No Borrower is contemplating either the
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of such Borrower's assets or
property, and such Borrower has no knowledge of any Person contemplating the
filing of any such petition against any Borrower.
(F) Full and Accurate Disclosure. No statement of fact made by any
Affiliated Entity in this Agreement or in any other Loan Document, or contained
in any document supplied by any Affiliated Entity pursuant hereto or thereto
(other than documents that are neither prepared nor executed by any Affiliated
Entity) contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained herein or therein not
misleading. There is no fact presently known to such Borrower which has not been
disclosed to the Lender which could reasonably be expected to have a Material
Adverse Effect.
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(G) Location of Chief Executive Offices. The location of each
Borrower's principal place of business and chief executive office is 1301 Avenue
of the Americas, 42nd Floor, New York, New York 10019.
(H) Compliance. Each Borrower complies in all material respects with
all applicable legal requirements. No Borrower is in default or violation of any
order, writ, injunction, decree or demand of any Governmental Authority, the
violation of which is reasonably likely to have a Material Adverse Effect.
(I) Other Debt. No Borrower has borrowed or received other debt
financing which is not fully repaid as of the date hereof or is not otherwise
permitted hereunder.
(J) ERISA. Each Plan, and, to the knowledge of such Borrower, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, its terms and the
applicable provisions of ERISA, the Code and any other federal or state law
applicable to it, and no event or condition has occurred and is continuing as to
which any Borrower would be under an obligation to furnish a report to the
Lender under Section 5.1(U)(i).
(K) Solvency. Giving effect to the Transactions contemplated hereby,
the fair saleable value of each Borrower's assets exceeds and will, immediately
following the execution and delivery of this Agreement, exceed Borrower's total
liabilities, including, without limitation, subordinated, unliquidated, disputed
or contingent liabilities. The fair saleable value of each Borrower's assets is
and will, immediately following the execution and delivery of this Agreement, be
greater than such Borrower's probable liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become absolute and
matured. No Borrower's assets constitute and, immediately following the
execution and delivery of this Agreement, no Borrower's assets will constitute,
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. No Borrower intends to, or believes that it will, incur debts
and liabilities (including, without limitation, Contingent Liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
such Borrower).
(L) Not Foreign Person. No Borrower is a "foreign person" within the
meaning of Section 1445(f)(3) of the Code.
(M) Single-Purpose Entity.
(i) Each Borrower and the Guarantor at all times since its
formation has been, and will continue to be, a duly formed and existing
limited liability company or limited partnership, as applicable, in the
state of its formation and a Single-Purpose Entity.
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(ii) Each Borrower and the Guarantor at all times since its
formation has complied, and will continue to comply, with the provisions
of its Charter Document and Organizing Document and the laws of its state
of formation relating to limited liability companies or limited
partnerships, as applicable.
(iii) All customary formalities regarding the legal existence
of each Borrower and the Guarantor have been observed at all times since
its formation and will continue to be observed.
(iv) Each Borrower and the Guarantor has at all times since
its formation accurately maintained, and will continue to accurately
maintain, its financial statements, accounting records and other corporate
documents separate from those of its members or partners, Affiliates of
its members or partners and any other Person. Neither any Borrower nor the
Guarantor has at any time since its formation commingled, and neither the
Borrower nor the Guarantor will commingle, its assets with those of its
members or partners, any Affiliates of its members or partners, or any
other Person (other than, in the case of Borrowers only, other Borrowers,
as provided under the Loan Documents). Each Borrower and the Guarantor has
at all times since its formation accurately maintained, and will continue
to accurately maintain, its own bank accounts and separate books of
account (other than, in the case of Borrowers only, bank accounts
maintained jointly with the other Borrowers pursuant to the Loan
Documents).
(v) Each Borrower and the Guarantor has at all times since its
formation paid, and will continue to pay, its own liabilities (including,
in the case of the Borrowers, the joint and several liabilities arising
under the Loan Documents) from its own separate assets.
(vi) Each Borrower and the Guarantor has at all times since
its formation identified itself, and will continue to identify itself, in
all dealings with the public, under such Person's own name and as a
separate and distinct entity. Neither any Borrower nor the Guarantor has
at any time since its formation identified itself, and will not identify
itself, as being a division or a part of any other entity. Neither any
Borrower nor the Guarantor has at any time since its formation identified,
and will not identify its members or partners or any Affiliates of its
members or partners, as being a division or part of such Borrower or the
Guarantor, as the case may be.
(vii) Each Borrower and the Guarantor has been at all times
since its formation and will continue to be adequately capitalized in
light of the nature of its business.
(viii) Neither any Borrower nor the Guarantor has at any time
since its formation assumed or guaranteed, and neither any Borrower nor
the Guarantor will assume or guarantee, the liabilities of its members or
partners (or any predecessor company), any Affiliates of its members or
partners, or any other Persons, except as permitted by or
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pursuant to this Agreement and the other Loan Documents. Neither any
Borrower nor the Guarantor has at any time since its formation acquired,
and neither any Borrower nor the Guarantor will acquire, obligations or
securities of its members or partners (or any predecessor company), or any
Affiliates of its members or partners. Neither any Borrower nor the
Guarantor has at any time since its formation made, and neither any
Borrower nor the Guarantor will make, loans to its members or partners (or
any predecessor company), or any Affiliates of its members or partners.
(ix) Neither any Borrower nor the Guarantor has at any time
since its formation entered into or was a party to, and neither any
Borrower nor the Guarantor will enter into or be a party to, any
transaction with its members or partners (or any predecessor company) or
any Affiliates of its members or partners (other than pursuant to the Loan
Documents) except in the ordinary course of business of such Person on
terms which are no less favorable to such Person than would be obtained in
a comparable arm's length transaction with an unrelated third party.
(N) Enforceability. This Agreement is the legal, valid and binding
obligation of each Borrower, enforceable against each Borrower in accordance
with its terms, subject to bankruptcy, insolvency and other limitations on
creditors' rights generally and to equitable principles.
(O) Investment Company Act; Public Utility Holding Company Act. No
Borrower is (i) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, (ii) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other federal or state law or regulation
which purports to restrict or regulate its ability to borrow money.
(P) Capitalization. Except as set forth on Schedule 3, no Borrower
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is directly or indirectly owned, in whole or in part, by any
other Person. Set forth on Schedule 3 is a description of the Borrowers' capital
structure.
(Q) No Defaults. No Default or Event of Default exists under or with
respect to any Loan Document.
(R) Labor Matters. No Borrower is a party to any collective
bargaining agreements.
(S) Appraised Values, Purchase Prices and All-In Costs. Schedule 2
accurately sets forth the Appraised Value, purchase price and all-in cost
(including legal expenses, brokerage
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fees, financing costs, third party due diligence and other transaction costs) of
each Individual Property to be financed as of the initial Advance Closing Date.
Section 4.2. Advance Closing Date Borrower Representations. As of
each Advance Closing Date, each Borrower shall represent and warrant that:
(A) Organization. Each Borrower (i) is a duly organized and validly
existing limited liability company or limited partnership, as applicable, in
good standing under the laws of its state of formation, (ii) has the requisite
power and authority to own its properties (including, without limitation, the
Mortgaged Property) and to carry on its business as now being conducted and is
qualified to do business in every jurisdiction in which a Facility is located,
and (iii) has the requisite power to execute and deliver, and perform its
obligations under, the Note, the Mortgages and all of the other Loan Documents
to which it is a party.
(B) Authorization. The execution and delivery by each Borrower of
the Note, the Mortgages and each of the other Loan Documents, such Borrower's
performance of its obligations thereunder and the creation of the security
interests and liens provided for in this Agreement and the other Loan Documents
to which it is a party (i) have been duly authorized by all requisite action on
the part of such Borrower, (ii) will not violate any provision of any Legal
Requirements, any order of any court or other Governmental Authority, the
Charter Document or Organizing Document of such Borrower or any indenture or
material agreement or other instrument to which such Borrower is a party or by
which such Borrower is bound, and (iii) will not be in conflict with, result in
a breach of, or constitute (with due notice or lapse of time or both) a default
under, or result in the creation or imposition of any Lien of any nature
whatsoever upon any of the property or assets of such Borrower pursuant to, any
such indenture or material agreement or instrument. Other than those obtained or
filed on or prior to the Advance Closing Date, no Borrower is required to obtain
any consent, approval or authorization from, or to file any declaration or
statement with, any Governmental Authority or other agency in connection with or
as a condition to the execution, delivery or performance of the Note, the
Mortgages or the other Loan Documents executed and delivered by such Borrower on
or prior to the applicable Advance Closing Date.
(C) Litigation. Except for claims that are fully covered by valid
policies of insurance held by the appropriate Borrower, and except as disclosed
in writing to the Lender, there are no actions, suits or proceedings at law or
in equity by or before any Governmental Authority or other agency now pending
and served or, to the knowledge of such Borrower, threatened against any
Borrower or any Individual Property, which actions, suits or proceedings, if
determined against any Borrower or any Individual Property, might result in a
Material Adverse Effect.
(D) Title to the Mortgaged Property. Good, marketable and insurable
fee simple title to each Facility is owned by a Borrower, free and clear of all
Liens, other than the Permitted Encumbrances applicable to that Facility. There
are no outstanding options to purchase or rights of first refusal affecting any
Facility.
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(E) Full and Accurate Disclosure. No statement of fact made by any
Affiliated Entity in this Agreement or in any other Loan Document, or contained
in any document supplied by any Affiliated Entity pursuant hereto or thereto
(other than documents that are neither prepared nor executed by any Affiliated
Entity) contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained herein or therein not
misleading. There is no fact presently known to such Borrower which has not been
disclosed to the Lender which could reasonably be expected to have a Material
Adverse Effect.
(F) Compliance. Except for matters set forth in the Engineering
Reports and in the Environmental Reports and except for matters described in
Section 4.2(L) (as to which the provisions of Section 4.2(L) shall apply), each
Borrower, each Facility and the applicable Borrower's use thereof and operations
thereat comply in all material respects with all applicable Legal Requirements,
including, without limitation, building and zoning ordinances and codes. No
Borrower is in default or violation of any order, writ, injunction, decree or
demand of any Governmental Authority, the violation of which is reasonably
likely to have a Material Adverse Effect.
(G) Use of Proceeds: Margin Regulations. Each Borrower will use the
proceeds of the Advance for the purposes described in Section 2.2. No part of
the proceeds of the Advance will be used for the purpose of purchasing or
acquiring any "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or for any other purpose which would be
inconsistent with such Regulation U or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements.
(H) Financial Information. All financial data concerning the
Borrowers and the Facilities that has been delivered by the Borrowers to the
Lender is true, complete and correct in all material respects and are prepared
in accordance with GAAP. Since the delivery of such data, except as otherwise
disclosed in writing to the Lender, there has been no adverse change in the
financial position of any Borrower or the Facilities, or in the results of
operations of any Borrower. No Borrower has incurred any obligation or
liability, contingent or otherwise, not reflected in such financial data which
might adversely affect its business operations or any Facility.
(I) Condemnation. No Taking has been commenced or, to such
Borrower's knowledge, is contemplated with respect to all or any portion of any
Individual Property or for the relocation of roadways providing access to any
Facility.
(J) Other Debt. Except for the debt to be repaid from the proceeds
of the Advance, no Borrower has borrowed or received other debt financing
whether unsecured or secured by any Individual Property or any part thereof.
(K) Utilities and Public Access. Each Facility has adequate rights
of access to public ways and is served by adequate water, sewer, sanitary sewer
and storm drain facilities. Except
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as otherwise disclosed by the Surveys, all public utilities necessary to the
continued use and enjoyment of each Facility as presently used and enjoyed are
located in the public right-of-way abutting the premises, and all such utilities
are connected so as to serve such Facility without passing over other property.
All roads necessary for the full utilization of each Facility for its current
purpose have been completed and dedicated to public use and accepted by all
Governmental Authorities or are the subject of access easements for the benefit
of the Facility.
(L) Environmental Compliance. After due inquiry, except for matters
set forth in the Environmental Reports delivered to the Lender in connection
with the Advance or prior Advances (true, correct and complete copies of which
have been provided to the Lender by the Borrowers):
(i) Each Borrower is in full compliance with all applicable
Environmental Laws, which compliance includes, but is not limited to, the
possession by such Borrower of all environmental, health and safety
permits, licenses and other governmental authorizations required in
connection with the ownership and operation of the Individual Property
under all Environmental Laws, except where the failure to comply with such
laws is not reasonably likely to result in a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to such
Borrower's knowledge, threatened, and no penalties arising under
Environmental Laws have been assessed, against any Borrower or against any
Person whose liability for any Environmental Claim such Borrower has or
may have retained or assumed either contractually or by operation of law,
and no investigation or review is pending or, to the knowledge of such
Borrower, threatened by any Governmental Authority, citizens group,
employee or other Person with respect to any alleged failure by any
Borrower or any Individual Property to have any environmental, health or
safety permit, license or other authorization required under, or to
otherwise comply with, any Environmental Law or with respect to any
alleged liability of any Borrower for any Use or Release of any Hazardous
Substances.
(iii) There have been and are no past or present Releases of
any Hazardous Substance that are reasonably likely to form the basis of
any Environmental Claim against any Borrower or, to such Borrower's
knowledge, against any Person whose liability for any Environmental Claim
any Borrower has or may have retained or assumed either contractually or
by operation of law.
(iv) Without limiting the generality of the foregoing, there
is not present at, on, in or under the Individual Property, PCB-containing
equipment, asbestos or asbestos containing materials, underground storage
tanks or surface impoundments for Hazardous Substances, lead in drinking
water (except in concentrations that comply with all Environmental Laws),
or lead-based paint.
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(v) No liens are presently recorded with the appropriate land
records under or pursuant to any Environmental Law with respect to the
Individual Property and, to such Borrower's knowledge, no Governmental
Authority has been taking or is in the process of taking any action that
could subject the Individual Property to Liens under any Environmental
Law.
(vi) There have been no environmental investigations, studies,
audits, reviews or other analyses conducted by or that are in the
possession of any Borrower in relation to an Individual Property which
have not been made available to the Lender.
(M) Solvency. Giving effect to the transactions contemplated hereby,
the fair saleable value of each Borrower's assets exceeds and will, immediately
following the making of the Advance, exceed such Borrower's total liabilities,
including, without limitation, subordinated, unliquidated, disputed and
contingent liabilities. The fair saleable value of each Borrower's assets is and
will, immediately following the making of the Advance, be greater than such
Borrower's probable liabilities, including the maximum amount of its contingent
liabilities on its debts as such debts become absolute and matured. No
Borrower's assets constitute and, immediately following the making of the
Advance no Borrower's assets will constitute, unreasonably small capital to
carry out its business as conducted or as proposed to be conducted. No Borrower
intends to, or believes that it will, incur debts and liabilities (including,
without limitation, Contingent Obligations and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts to be payable on or in respect of obligations of such Borrower).
(N) Single-Purpose Entity.
(i) Each Borrower and the Guarantor at all times since its
formation has been, and will continue to be, a duly formed and existing
limited liability company or limited partnership, as applicable, in the
state of its formation and a Single-Purpose Entity.
(ii) Each Borrower and the Guarantor at all times since its
formation has complied, and will continue to comply, with the provisions
of its Charter Document and Organizing Document and the laws of its state
of formation relating to limited liability companies or limited
partnerships, as applicable.
(iii) All customary formalities regarding the legal existence
of each Borrower and the Guarantor have been observed at all times since
its formation and will continue to be observed.
(iv) Each Borrower and the Guarantor has at all times since
its formation accurately maintained, and will continue to accurately
maintain, its financial statements, accounting records and other corporate
documents separate from those of its members or partners, Affiliates of
its members or partners and any other Person. Neither any Borrower
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nor the Guarantor has at any time since its formation commingled, and
neither the Borrower nor the Guarantor will commingle, its assets with
those of its members or partners, any Affiliates of its members or
partners, or any other Person (other than, in the case of Borrowers only,
other Borrowers, as provided under the Loan Documents). Each Borrower and
the Guarantor has at all times since its formation accurately maintained,
and will continue to accurately maintain, its own bank accounts and
separate books of account (other than, in the case of Borrowers only, bank
accounts maintained jointly with the other Borrowers pursuant to the Loan
Documents).
(v) Each Borrower and the Guarantor has at all times since its
formation paid, and will continue to pay, its own liabilities (including,
in the case of the Borrowers, the joint and several liabilities arising
under the Loan Documents) from its own separate assets.
(vi) Each Borrower and the Guarantor has at all times since
its formation identified itself, and will continue to identify itself, in
all dealings with the public, under such Person's own name and as a
separate and distinct entity. Neither any Borrower nor the Guarantor has
at any time since its formation identified itself, and will not identify
itself, as being a division or a part of any other entity. Neither any
Borrower nor the Guarantor has at any time since its formation identified,
and will not identify its members or partners or any Affiliates of its
members or partners, as being a division or part of such Borrower or the
Guarantor, as the case may be.
(vii) Each Borrower and the Guarantor has been at all times
since its formation and will continue to be adequately capitalized in
light of the nature of its business.
(viii) Neither any Borrower nor the Guarantor has at any time
since its formation assumed or guaranteed, and neither any Borrower nor
the Guarantor will assume or guarantee, the liabilities of its members or
partners (or any predecessor company), any Affiliates of its members or
partners, or any other Persons, except as permitted by or pursuant to this
Agreement and the other Loan Documents. Neither any Borrower nor the
Guarantor has at any time since its formation acquired, and neither any
Borrower nor the Guarantor will acquire, obligations or securities of its
members or partners (or any predecessor company), or any Affiliates of its
members or partners. Neither any Borrower nor the Guarantor has at any
time since its formation made, and neither any Borrower nor the Guarantor
will make, loans to its members or partners (or any predecessor company),
or any Affiliates of its members or partners.
(ix) Neither any Borrower nor the Guarantor has at any time
since its formation entered into or was a party to, and neither any
Borrower nor the Guarantor will enter into or be a party to, any
transaction with its members or partners (or any predecessor company) or
any Affiliates of its members or partners (other than pursuant to the Loan
Documents) except in the ordinary course of business of such Person on
terms which are no
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less favorable to such Person than would be obtained in a comparable arm's
length transaction with an unrelated third party.
(O) Separate Lots. Each Facility is comprised of one or more
parcels, each of which constitutes a separate tax lot and none of which
constitutes a portion of any other tax lot.
(P) Assessments. There are no pending or, to the knowledge of such
Borrower, proposed special or other assessments for public improvements or
otherwise affecting any Facility, nor, to the knowledge of such Borrower, are
there any contemplated improvements to any Facility that may result in such
special or other assessments.
(Q) Mortgage and Other Liens. Each Mortgage creates a valid and
enforceable first mortgage Lien on the Individual Property described therein, as
security for the repayment of the Secured Obligations, subject only to the
Permitted Encumbrances applicable to that Individual Property. Each Collateral
Security Instrument establishes and creates a valid, subsisting and enforceable
Lien on and a security interest in, or claim to, the rights and property
described therein. All property covered by any Collateral Security Instrument is
subject to a UCC financing statement filed and/or recorded, as appropriate (or
irrevocably delivered to an agent for such recordation or filing), in all places
necessary to perfect a valid first priority Lien with respect to the rights and
property that are the subject of such Collateral Security Instrument to the
extent governed by the UCC. All continuations and any assignments of any such
financing statements have been or will be timely filed or refiled, as
appropriate, in the appropriate recording offices.
(R) Enforceability. The Note, each Mortgage and each other Loan
Document executed by any Borrower in connection with the applicable Advance,
including, without limitation, any Collateral Security Instrument, is the legal,
valid and binding joint and several obligation of the Borrowers, enforceable
against such Borrower in accordance with its terms, subject to bankruptcy,
insolvency and other limitations on creditors' rights generally and to equitable
principles and the other matters described in the opinions delivered pursuant to
Section 3.3(B). The Note, each such Mortgage and such other Loan Documents are,
as of the Advance Closing Date, not subject to any right of rescission, set-off,
counterclaim or defense by any Borrower, including the defense of usury, nor
will the operation of any of the terms of the Note, each such Mortgage and such
other Loan Documents, or the exercise of any right thereunder, render any of the
Mortgages unenforceable against any Borrower, in whole or in part, or subject to
any right of rescission, set-off, counterclaim or defense by any Borrower,
including the defense of usury, and no Borrower has asserted any right of
rescission, set-off, counterclaim or defense with respect thereto.
(S) Interest Rate Protection Agreements. The Assignments of Interest
Rate Protection Agreement establish and create valid, subsisting and enforceable
Liens on and security interests in, or claims to, the rights and property
described therein. All property covered by the Assignments of Interest Rate
Protection Agreement is subject to UCC financing statements filed and/or
recorded, as appropriate, in all places necessary to perfect a valid first
priority Lien with
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respect to the rights and property that are the subject of such document to the
extent governed by the UCC.
(T) No Prior Assignment. As of the Advance Closing Date, (i) the
Lender is the assignee of each Borrower's interest under the Leases; (ii) with
respect to each Lease which is not a GSA Lease, each Assignment of Rents creates
a valid and enforceable present assignment of the Rents payable under such
Lease, and with respect to each GSA Lease, each Assignment of U.S. Government
Contract will create, upon the execution and delivery by the contracting officer
with respect to such GSA Lease of a Notice of Assignment, a valid and
enforceable present assignment of the Rents payable under such GSA Lease; and
(iii) there are no Notices of Assignment in effect with respect to any GSA Lease
and no prior assignments of the Leases or any portion of the Rent due and
payable or to become due and payable which are presently outstanding.
(U) Property Management Agreements. Each Property Management
Agreement is in full force and effect and there is no default, breach or
violation existing thereunder by any party thereto and no event (other than
payments due but not yet delinquent) which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach or violation by any party thereunder.
(V) Permits; Certificate of Occupancy. Each Borrower has obtained
all Permits necessary to use and operate each Facility for its intended use. The
use being made of each Facility is in conformity in all material respects with
the certificate of occupancy and/or Permits for such Facility and any other
restrictions, covenants or conditions affecting such Facility.
(W) Flood Zone. Except as shown on the Surveys, none of the
Facilities is located in a flood hazard area as defined by the Federal Insurance
Administration.
(X) Physical Condition. Each Facility is free of structural defects
and all building systems contained therein are in good working order in all
material respects subject to ordinary wear and tear, except as disclosed in the
Engineering Reports.
(Y) Security Deposits. Each Borrower is in compliance with all Legal
Requirements relating to all security deposits with respect to the Facilities as
to which failure to comply is reasonably likely to have a Material Adverse
Effect.
(Z) No Defaults. No Default or Event of Default exists under or with
respect to any Loan Document.
(AA) No Encroachments. All of the Improvements which were included
in determining the appraised value of the Individual Property lie wholly within
the boundaries and building restriction lines of the Individual Property, and no
improvements on adjoining properties encroach upon the Individual Property, and
no easements or other encumbrances upon the Individual
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Property encroach upon any of the Improvements, so as to affect the value or
marketability of the Individual Property except those which are insured against
by title insurance. All of the Improvements comply with all material
requirements of any applicable zoning and subdivision laws and ordinances.
Section 4.3. Survival of Representations. Each Borrower agrees that
(i) all of the representations and warranties of the Borrowers set forth in
Section 4.1 and elsewhere in this Agreement (but not in Section 4.2) and in the
other Loan Documents delivered on the Closing Date are made as of the Closing
Date (except as expressly otherwise provided), (ii) all of the representations
and warranties of the Borrowers set forth in Section 4.2 and elsewhere in this
Agreement (including in Section 4.1) and in the other Loan Documents are made,
or reaffirmed, as of each Advance Closing Date, and (iii) all representations
and warranties made by the Borrowers shall survive the delivery of the Note and
making of the Advances and continue for so long as any amount remains owing to
the Lender under this Agreement, the Note or any of the other Loan Documents;
provided, however, that the representations set forth in Section 4.2(L) shall
survive in perpetuity. All representations, warranties, covenants and agreements
made in this Agreement or in the other Loan Documents shall be deemed to have
been relied upon by the Lender notwithstanding any investigation heretofore or
hereafter made by the Lender or on its behalf.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1. Borrower Covenants. Each Borrower covenants and agrees
that, from the date hereof (or, to the extent such covenants relate to a
Facility, from the Advance Closing Date with respect to such Facility) and until
payment in full of the Secured Obligations (or with respect to a particular
Individual Property, the earlier release of its Related Mortgage):
(A) Existence; Compliance with Legal Requirements; Insurance. Each
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence, rights, licenses, Permits
and franchises necessary for the conduct of its business and comply with all
Legal Requirements and Insurance Requirements applicable to it and each
Individual Property. Each Borrower shall at all times maintain, preserve and
protect all franchises and trade names and preserve all the remainder of its
property necessary for the continued conduct of its business and keep each
Facility in good repair, working order and condition, except for reasonable wear
and use, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto,
all as more fully provided in the Mortgages. Each Borrower shall keep each
Individual Property insured at all times, by financially sound and reputable
insurers, to such extent and against such risks, and maintain liability and such
other insurance, as is more fully provided in the Mortgages.
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(B) Impositions and Other Claims. Each Borrower shall pay and
discharge or cause to be paid and discharged all Impositions, as well as all
lawful claims for labor, materials and supplies or otherwise, which could become
a Lien, all as more fully provided in, and subject to any rights to contest
contained in, the Mortgages, including the right to contest Impositions for
which reserves have been maintained in compliance with GAAP.
(C) Litigation. Each Borrower shall give prompt written notice to
the Lender of any litigation or governmental proceedings pending or threatened
(in writing) against any Borrower which is reasonably likely to have a Material
Adverse Effect.
(D) Environmental Remediation.
(i) If any investigation, site monitoring, cleanup, removal,
restoration or other remedial work of any kind or nature is required
pursuant to an order or directive of any Governmental Authority or under
any applicable Environmental Law (collectively, the "Remedial Work"),
because of or in connection with the current or future presence, suspected
presence, Release or suspected Release of a Hazardous Substance on, under
or from a Facility or any portion thereof, the Borrowers shall promptly
commence and diligently prosecute to completion all such Remedial Work. In
all events, such Remedial Work shall be commenced within 30 days after any
demand therefor by the Lender or such shorter period as may be required
under any applicable Environmental Law; provided, however, that the
Borrowers shall not be required to commence such Remedial Work within the
above specified time periods: (x) if prevented from doing so by any
Governmental Authority, (y) if commencing such Remedial Work within such
time periods would result in any Borrower or such Remedial Work violating
any Environmental Law or (z) if the Borrowers, at their expense and after
prior notice to the Lender, are contesting by appropriate legal,
administrative or other proceedings conducted in good faith and with due
diligence the need to perform Remedial Work, as long as (1) the Borrowers
are permitted by the applicable Environmental Laws to delay performance of
the Remedial Work pending such proceedings, (2) neither the Facility nor
any part thereof or interest therein will be sold, forfeited or lost if
the Borrowers perform the Remedial Work being contested, and the Borrowers
would have the opportunity to do so, in the event of the Borrowers'
failure to prevail in the contest, (3) the Lender would not, by virtue of
such permitted contest, be exposed to any risk of any civil liability for
which the Borrowers have not furnished additional security as provided in
clause (4) below, or to any risk of criminal liability, and neither the
Facility nor any interest therein would be subject to the imposition of
any lien for which the Borrowers have not furnished additional security as
provided in clause (4) below, as a result of the failure to perform such
Remedial Work and (4) the Borrowers shall have furnished to the Lender
additional security in respect of the Remedial Work being contested and
the loss or damage that may result from the Borrowers' failure to prevail
in such contest in such amount as may be reasonably requested by the
Lender.
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(ii) If requested by the Lender, all Remedial Work under
clause (i) above in an aggregate amount greater than or equal to $500,000
shall be performed by contractors, and under the supervision of a
consulting Engineer, each approved in advance by the Lender which approval
will not be unreasonably withheld or delayed. All costs and expenses
reasonably incurred in connection with such Remedial Work shall be paid by
the Borrowers. If the Borrowers do not timely commence and diligently
prosecute to completion the Remedial Work, the Lender may (but shall not
be obligated to), upon 30 days prior written notice to the Borrowers of
its intention to do so, cause such Remedial Work to be performed. The
Borrowers shall pay or reimburse the Lender on demand for all Advances (as
defined in the Mortgages) and expenses (including reasonable attorneys'
fees and disbursements, but excluding internal overhead, administrative
and similar costs of the Lender) reasonably relating to or incurred by the
Lender in connection with monitoring, reviewing or performing any Remedial
Work in accordance herewith.
(iii) The Borrowers shall not commence any Remedial Work under
clause (i) above, nor enter into any settlement agreement, consent decree
or other compromise relating to any Hazardous Substances or Environmental
Laws which is reasonably likely to have a Material Adverse Effect.
Notwithstanding the foregoing, if the presence or threatened presence of
Hazardous Substances on, under or about any Individual Property poses an
immediate threat to the health, safety or welfare of any Person or the
environment, or is of such a nature that an immediate response is
necessary, the Borrowers may complete all necessary Remedial Work. In such
events, the Borrowers shall notify the Lender as soon as practicable and,
in any event, within three Business Days, of any action taken.
(E) Environmental Matters: Inspection.
(i) The Borrowers shall not permit a Hazardous Substance to be
present on, under or to emanate from a Facility, or migrate from adjoining
property controlled by any Borrower onto or into a Facility, except under
conditions permitted by applicable Environmental Laws and, in the event
that such Hazardous Substances are present on, under or emanate from a
Facility, or migrate onto or into a Facility, the Borrowers shall cause
the removal or remediation of such Hazardous Substances, in accordance
with this Agreement and Environmental Laws. The Borrowers shall use best
efforts to prevent, and to seek the remediation of, any migration of
Hazardous Substances onto or into any Facility from any adjoining
property.
(ii) Upon reasonable prior written notice, the Lender shall
have the right at all reasonable times to enter upon and inspect all or
any portion of any Facility, provided that such inspections shall not
unreasonably interfere with the operation or the tenants, residents or
occupants of such Facility. If the Lender suspects that Remedial Work may
be required, the Lender may select a consulting Engineer to conduct and
prepare reports of such inspections. The Borrowers shall be given a
reasonable opportunity to review any reports,
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data and other documents or materials reviewed or prepared by the
Engineer, and to submit comments and suggested revisions or rebuttals to
same. The inspection rights granted to the Lender in this Section 5.1(E)
shall be in addition to, and not in limitation of, any other inspection
rights granted to the Lender in this Agreement, and shall expressly
include the right (if the Lender suspects that Remedial Work may be
required) to conduct soil borings, establish ground water monitoring wells
and conduct other customary environmental tests, assessments and audits.
(iii) Borrower agrees to bear and shall pay or reimburse the
Lender on demand for all sums advanced and expenses incurred (including
reasonable attorneys' fees and disbursements, but excluding internal
overhead, administrative and similar costs of the Lender) reasonably
relating to, or incurred by the Lender in connection with, the inspections
and reports described in this Section 5.1(E) (to the extent such
inspections and reports relate to any Facility) in the following
situations:
(x) If the Lender has reasonable grounds to believe, at the
time any such inspection is ordered, that there exists an occurrence
or condition that could lead to an Environmental Claim;
(y) If any such inspection reveals an occurrence or condition
that could lead to an Environmental Claim; or
(z) If an Event of Default with respect to any Facility exists
at the time any such inspection is ordered, and such Event of
Default relates to any representation, covenant or other obligation
pertaining to Hazardous Substances, Environmental Laws or any other
environmental matter.
(F) Environmental Notices. The Borrowers shall promptly provide
notice to the Lender of:
(i) any Environmental Claim asserted by any Governmental
Authority with respect to any Hazardous Substance on, in, under or
emanating from any Facility, which might impair the value of the Lender's
security interests hereunder or have a Material Adverse Effect;
(ii) any proceeding, investigation or inquiry commenced or
threatened in writing by any Governmental Authority, against any Borrower,
with respect to the presence, suspected presence, Release or threatened
Release of Hazardous Substances from or onto, in or under any property not
owned by any Borrower, including, without limitation, proceedings under
the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended, 42 U.S.C. Section 9601, et seq., which might impair the value
of the Lender's security interests hereunder or have a Material Adverse
Effect;
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(iii) all Environmental Claims asserted or threatened against
any Borrower, against any other party occupying any Facility or any
portion thereof which become known to any Borrower or against such
Facility, which might impair the value of the Lender's security interests
hereunder or have a Material Adverse Effect;
(iv) the discovery by any Borrower of any occurrence or
condition on any Facility or on any real property adjoining or in the
vicinity of such Facility which could reasonably be expected to lead to an
Environmental Claim against any Borrower or the Lender; and
(v) the commencement or completion of any Remedial Work.
(G) Copies of Notices. The Borrowers shall transmit to the Lender
copies of any citations, orders, notices or other written communications
received from any Person and any notices, reports or other written
communications submitted to any Governmental Authority with respect to the
matters described in Section 5.1(F).
(H) Environmental Claims. The Lender and/or, to the extent
authorized by the Lender, Deed of Trust Trustee, may join and participate in, as
a party if the Lender so determines, any legal or administrative proceeding or
action concerning a Facility or any portion thereof under any Environmental Law,
if, in the Lender's reasonable judgment, the interests of the Lender or Deed of
Trust Trustee will not be adequately protected by the Borrowers. The Borrowers
agree on a joint and several basis to bear and shall pay or reimburse the Lender
or Deed of Trust Trustee on demand for all reasonable sums advanced and expenses
incurred (including reasonable attorneys' fees and disbursements, but excluding
internal overhead, administrative and similar costs of the Lender and Deed of
Trust Trustee) incurred by the Lender and/or Deed of Trust Trustee in connection
with any such action or proceeding.
(I) Indemnification. The Borrowers agree on a joint and several
basis to indemnify, reimburse, defend, and hold harmless the Lender, Deed of
Trust Trustee and the Collateral Agent (and its officers, directors, agents and
employees) for, from, and against all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, reasonable attorneys' fees,
disbursements and expenses, and reasonable consultants' fees, disbursements and
expenses (but excluding internal overhead, administrative and similar costs of
the Lender and any Deed of Trust Trustee), imposed on, or incurred by the Lender
or such Deed of Trust Trustee or the Collateral Agent, directly or indirectly,
in connection with any of the following, except to the extent same are directly
and solely caused by the Lender's or such Deed of Trust Trustee's gross
negligence or willful misconduct:
(i) events, circumstances, or conditions which are alleged to,
or do, form the basis for an Environmental Claim;
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(ii) any pollution or threat to human health or the
environment that is related in any way to any Borrower's or any previous
owner's or operator's management, use control, ownership or operation of
any Facility, including, without limitation, all on-site and off-site
activities involving Hazardous Substances, and whether occurring, existing
or arising prior to or from and after the date hereof, and whether or not
the pollution or threat to human health or the environment is described in
the Environmental Reports;
(iii) any Environmental Claim against any Person whose
liability for such Environmental Claim any Borrower has or may have
assumed or retained either contractually or by operation of law; or
(iv) the breach of any representation, warranty or covenant
set forth in Section 4.2(L) and Sections 5.1(D) through 5.1(I), inclusive.
The indemnity provided in this Section 5.1(I) shall not be included
in any exculpation of any Borrower, the Indemnitors, the Borrower's Agent or the
Guarantor from personal liability provided in this Agreement or in any of the
other Loan Documents. Nothing in this Section 5.1(I) shall be deemed to deprive
the Lender of any rights or remedies provided to it elsewhere in this Agreement
or the other Loan Documents or otherwise available to it under law. The
indemnity provided in this Section 5.1(I) shall survive the termination of the
Loan Documents or the earlier resignation or removal of the Collateral Agent.
(J) Access to Facilities. Each Borrower shall permit agents,
representatives and employees of the Lender to inspect each Facility or any part
thereof at such reasonable times as may be requested by the Lender upon
reasonable advance notice of not less than two Business Days, subject, however,
to the rights of the tenants of the Facility.
(K) Notice of Default. The Borrowers shall promptly advise the
Lender of any material adverse change in Borrower's condition, financial or
otherwise, or of the occurrence of any Event of Default, or of the occurrence of
any Default.
(L) Cooperate in Legal Proceedings. Except with respect to any claim
by the Borrowers against the Lender, each Borrower shall cooperate fully with
the Lender with respect to any proceedings before any Governmental Authority
which may in any way affect the rights of the Lender hereunder or any rights
obtained by the Lender under any of the Loan Documents and, in connection
therewith, not prohibit the Lender, at its election, from participating in any
such proceedings.
(M) Perform Loan Documents. Each Borrower shall observe, perform and
satisfy all the terms, provisions, covenants and conditions required to be
observed, performed or satisfied
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by it, and shall pay when due all costs, fees and expenses required to be paid
by it, under the Loan Documents executed and delivered by such Borrower.
(N) Insurance Benefits. Each Borrower shall cooperate with the
Lender in obtaining for the Lender the benefits of any Insurance Proceeds
lawfully or equitably payable to the Lender in connection with each Individual
Property, and the Lender shall be reimbursed for any expenses reasonably
incurred in connection therewith (including reasonable attorneys' fees and
disbursements and the payment by the Lender of the reasonable expense of an
Appraisal on behalf of the Borrowers in case of a fire or other casualty
affecting such Individual Property or any part thereof, but excluding internal
overhead, administrative and similar costs of the Lender) out of such Insurance
Proceeds, all as more specifically provided in the Mortgages.
(O) Further Assurances. The Borrowers shall, at the Borrowers' sole
cost and expense:
(i) upon the Lender's request therefor given from time to time
(but, other than in connection with the Advance Closing Dates, in no event
more often than once every two years during the term of this Agreement),
pay for (a) reports of UCC, tax lien, judgment and litigation searches
with respect to any Borrower and (b) searches of title to each Facility,
each such search to be conducted by search firms designated by the Lender
in each of the locations designated by the Lender;
(ii) furnish to the Lender all instruments, documents,
boundary surveys, footing or foundation surveys, certificates, plans and
specifications, Appraisals, title and other insurance reports and
agreements, and each and every other document, certificate, agreement and
instrument required to be furnished pursuant to the terms of the Loan
Documents or reasonably requested by the Lender in connection therewith;
(iii) execute and deliver to the Lender such documents,
instruments, certificates, assignments and other writings, and do such
other acts necessary, to evidence, preserve and/or protect the Collateral
at any time securing or intended to secure the Note, as the Lender may
reasonably require; and
(iv) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Agreement and the other
Loan Documents, as the Lender shall reasonably require from time to time.
(P) Management of Mortgaged Property. Each of the Facilities will be
managed at all times by a Property Manager pursuant to a Property Management
Agreement until terminated as herein provided. Pursuant to each Property
Manager's Subordination, the applicable Property Manager will agree that the
applicable Property Management Agreement is subject and subordinate
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in all respects to the Lien of the Related Mortgage. Each Property Management
Agreement may be terminated by the Lender upon 30 days prior written notice to
the Borrowers and the applicable Property Manager (a) upon the occurrence of an
Event of Default of the type described in clause (i) through (iv) of Section
7.1, or (b) if the Property Manager commits any act which would permit
termination under the Property Management Agreement, or (c) there is a proposed
change in the majority control of any Borrower (or an Affiliate of any Borrower)
which will require notification of the Rating Agencies; provided, however, that
the Lender hereby waives compliance with the foregoing requirements with respect
to each Property Management Agreement in effect as of the Closing Date until
such Property Management Agreement is subject to renewal or expiration by its
terms or is otherwise terminated. The Borrowers may from time to time appoint a
successor manager to manage any of the Facilities with the Lender's prior
written consent. Notwithstanding the foregoing, any successor property manager
selected hereunder by the Lender or the Borrowers to serve as Property Manager
shall be a reputable management company having at least seven years' experience
in the management of commercial buildings of a similar type and quality in the
state in which the Facility is located. The Borrowers further covenant and agree
that each Property Manager (including any successor property manager serving as
a Property Manager) shall at all times during the term of the Loan after the
first Advance maintain worker's compensation insurance as required by
Governmental Authorities.
(Q) Further Agreements Regarding Property Management Agreements and
Leases. Each Borrower further covenants and agrees with the Lender as follows:
(a) Each Borrower shall cause each Facility to be operated pursuant
to the applicable Property Management Agreement and the applicable Lease.
(b) Each Borrower shall:
(i) promptly perform and/or observe all of the covenants and
agreements required to be performed and observed by it under the
applicable Property Management Agreement and Leases and do all
things necessary to preserve and to keep unimpaired its material
rights thereunder;
(ii) promptly notify the Lender of any default or any notice
of termination delivered under any Property Management Agreement or
Lease of which it is aware;
(iii) promptly deliver to the Lender a copy of each financial
statement, business plan, capital expenditures plan, notice, report
and estimate received by it under any Property Management Agreement
or Lease and
(iv) promptly enforce the performance and observance of all of
the covenants and agreements required to be performed and/or
observed by the Property
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Manager under any Property Management Agreement or the GSA or other
lessee under any Lease.
(R) Financial Reporting.
(i) The Borrowers shall keep and maintain or shall cause to be
kept and maintained on a Fiscal Year basis, in accordance with GAAP (or
such other accounting basis acceptable to the Lender) consistently
applied, books, records and accounts reflecting in reasonable detail all
of the financial affairs of the Borrowers and all items of income and
expense in connection with the operation of each Facility and in
connection with any services, equipment or furnishings provided in
connection with the operation of each Facility, whether such income or
expense may be realized by the Borrowers or by any other Person
whatsoever. The Lender shall have the right from time to time at all times
during normal business hours upon reasonable prior written notice to the
Borrowers to examine such books, records and accounts at the office of the
Borrowers or other Person maintaining such books, records and accounts and
to make such copies or extracts thereof as the Lender shall desire. After
the occurrence of an Event of Default with respect to the Borrowers or any
Facility, the Borrowers shall pay any costs and expenses incurred by the
Lender to examine the Borrowers' accounting records with respect to such
Facility, as the Lender shall reasonably determine to be necessary or
appropriate in the protection of the Lender's interest.
(ii) The Borrowers shall cause each Affiliated Entity to
furnish to the Lender annually, within 120 days following the end of each
Fiscal Year, a complete copy of such Affiliated Entity's financial
statements audited by an Independent certified public accountant
acceptable to the Lender (Lender hereby agreeing that any "Big Six"
certified public accounting firm, or any successor by merger thereto,
shall be acceptable to the Lender) in accordance with GAAP (or such other
accounting basis reasonably acceptable to the Lender) consistently applied
covering such Affiliated Entity's financial position and results of
operations, including consolidated and consolidating balance sheets for
each Facility, for such Fiscal Year and containing a statement of revenues
and expenses, a statement of cash flow, a statement of assets and
liabilities and a statement of such Affiliated Entity's equity.
Together with each Affiliated Entity's annual financial statements, the
Borrowers shall cause such Affiliated Entity to furnish to the Lender an
Officer's Certificate certifying as of the date thereof (x) that the
annual financial statements present fairly in all material respects the
results of operations and financial condition of such Affiliated Entity
all in accordance with GAAP consistently applied, and (y) in the case of
the Borrowers, whether there exists an Event of Default or Default, and if
such Event of Default or Default exists, the nature thereof, the period of
time it has existed and the action then being taken to remedy same.
(iii) The Borrowers shall cause each Affiliated Entity to
furnish to the Lender, within 45 days following the end of each Fiscal
Year quarter, a complete copy of
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such Affiliated Entity's unaudited financial statements prepared in
accordance with GAAP (or such other accounting basis reasonably acceptable
to the Lender) consistently applied covering such Affiliated Entity's
financial position and results of operations, including consolidated and
consolidating balance sheets for each Facility, for such quarter and
containing a statement of revenues and expenses, a statement of assets and
liabilities and a statement of such Affiliated Entity's equity.
(iv) The Borrowers shall furnish to the Lender, within 25 days
following the end of each month, in a form reasonably satisfactory to the
Lender, (x) a true, complete and correct cash flow statement with respect
to each Facility for that month, (y) information for each Facility as of
the end of that month in sufficient detail to show the average monthly
occupancy rates and (z) a calculation of each Debt Service Coverage Ratio
as of the last day of such month, together with an Officer's Certificate
in a form reasonably satisfactory to the Lender.
(v) The Borrowers shall furnish to the Lender copies of all
SEC filings by any Affiliated Entity.
(vi) The Borrowers shall furnish to the Lender, within 15
Business Days after request, such further information with respect to the
operation of any Facility and the financial affairs of the Borrowers as
may be reasonably requested by the Lender, including all business plans
prepared for the Borrowers.
(vii) The Borrowers shall furnish to the Lender, within 15
Business Days after request, such further information regarding any Plan
or Multiemployer Plan and any reports or other information required to be
filed under ERISA as may be reasonably requested by the Lender.
(S) Conduct of Business. The Borrowers shall cause the operation of
each Facility to be conducted at all times in a manner consistent with at least
the level of operation of such Facility as of the applicable Advance Closing
Date, including, without limitation, the following:
(i) to operate or cause to be operated each Facility with the
same degree of skill and diligence as would be demonstrated by a
nationally recognized, well qualified independent professional property
manager with extensive experience in the management, operation, leasing
and construction management of large, first class, mixed-use projects in
major metropolitan areas, and otherwise in a prudent manner in compliance
in all material respects with applicable Legal Requirements and Insurance
Requirements relating thereto and cause all licenses, Permits and any
other agreements necessary for the continued use and operation of each
Facility; and
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(ii) to maintain or cause to be maintained sufficient
Inventory and Equipment of types and quantities at each Facility to enable
the Borrowers to operate such Facility.
(T) Interest Rate Protection Agreements. If the Debt Service
Coverage Ratio (Actual) as of any date falls below the Required Debt Service
Coverage Ratio (Actual), the Borrowers shall promptly enter into, or shall cause
an Affiliate of the Borrowers approved by the Lender to enter into, an Interest
Rate Protection Agreement and shall collaterally assign the Interest Rate
Protection Agreement, or cause it to be collaterally assigned, to the Lender
pursuant to an Assignment of Interest Rate Protection Agreement. The Interest
Rate Protection Agreement shall (a) extend until a date not earlier than the
Maturity Date, (b) be in an amount not less than the amount of the Principal
Indebtedness outstanding at the time, (c) cause the Debt Service Coverage Ratio
(Actual), had it been calculated accounting for the effect of such Interest Rate
Protection Agreement, to equal or exceed the Required Debt Service Coverage
Ratio (Actual), (d) be with a financial institution having a credit rating of at
least "AA" by the Rating Agencies, (e) be otherwise in form and substance
reasonably satisfactory to the Lender and (f) have been paid in full through its
maturity by the Borrowers or, if applicable, the Borrowers' Affiliate (or will
be so paid from proceeds of the Advance).
(U) ERISA. The Borrowers shall deliver to the Lender as soon as
possible, and in any event within 10 days after any Borrower knows or has reason
to believe that any of the events or conditions specified below with respect to
any Plan or Multiemployer Plan has occurred or exists, a statement signed by a
senior financial officer of each Borrower setting forth details respecting such
event or condition and the action, if any, that the Borrowers or their ERISA
Affiliate propose to take with respect thereto (and a copy of any report or
notice required to be filed with or given to PBGC by any Borrower or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section 4043(a)
of ERISA that it be notified within 30 days of the occurrence of such
event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of ERISA,
shall be a reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan or any action taken by the Borrowers or an
ERISA Affiliate to terminate any Plan;
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(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by any Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by any Borrower or any ERISA Affiliate that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt by
any Borrower or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against any Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
(vi) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in
the loss of tax-exempt status of the trust of which such Plan is a part if
any Borrower or an ERISA Affiliate fails to timely provide security to the
Plan in accordance with the provisions of said Sections; and
(vii) the imposition of a lien or a security interest in
connection with a Plan.
(V) Tangible Net Worth. The Borrowers shall at all times maintain
aggregate Tangible Net Worth in an amount equal to or greater than the greater
of (i) 15% of the aggregate All-In Costs of all Facilities owned by the
Borrowers or any Borrower and (ii) $20,000,000.
(W) Letters of Intent. Each Borrower shall give the Lender prompt
written notice of each letter of intent or other similar document executed by
such Borrower and the seller of a Facility with respect to such Borrower's
acquisition of a Facility.
(X) Operating Budget. The Borrowers shall, prior to the Closing
Date, adopt a budget of Operating Income, Operating Expenses, Basic Carrying
Costs, Debt Service, tenant improvements, leasing commissions and Capital
Improvement Costs (an "Operating Budget") for the period commencing on the
Closing Date and ending on December 31 of the calendar year during which the
Closing Date occurs. By September 1 of each calendar year, the Borrowers shall
provide to the Lender a time schedule for establishing a Operating Budget for
the calendar year immediately following such date. Such schedule shall specify
the date (not later than December 1 of such year) by which the Borrowers will
deliver to the Lender a proposed Operating Budget (a "Proposed Operating
Budget") and a final Operating Budget (a "Final Operating Budget") for such
calendar
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year, and the Borrowers shall deliver such Proposed Operating Budget to the
Lender on or prior to such date. Any objection to a Proposed Operating Budget by
the Lender shall be delivered to the Borrowers within 10 Business Days after
delivery of such Proposed Operating Budget by the Lender. Any such objections
shall be resolved in writing to the satisfaction of the Lender and the Borrowers
prior to the adoption of the Final Operating Budget. Each Operating Budget shall
present information on a monthly basis, including Operating Income, Operating
Expenses, Basic Carrying Costs, Debt Service, tenant improvements, leasing
commissions and Capital Improvement Costs. Promptly upon adoption thereof, the
Final Operating Budget shall be delivered to the Lender. If for any reason the
Borrowers shall not have adopted a Final Operating Budget before the beginning
of any calendar year, the Final Operating Budget for the preceding calendar year
(with each item of Operating Costs therein being deemed increased by 3% from the
corresponding item in the preceding year's Final Operating Budget, provided that
such increases shall not be allowed in the event that the Borrowers fail to
adopt a Final Operating Budget for more than one consecutive calendar year)
shall, until the adoption of a new Final Operating Budget, be deemed to be in
force and effective as the Final Operating Budget for such calendar year.
(Y) Estoppel Certificates; Notices of Assignment. Within 90 days
after the funding of each Advance, the Borrowers shall deliver to the Lender (i)
an Estoppel Certificate executed by each lessee with respect to each Lease
(other than a GSA Lease) to which the Individual Property to which such Advance
relates is subject; and (ii) a Notice of Assignment and estoppel certificate
executed by the GSA with respect to each GSA Lease to which such Individual
Property is subject.
(Z) Property Manager's Subordination. Each Borrower shall use its
best efforts to cause each Property Manager to execute and deliver to the Lender
a Property Manager's Subordination.
(AA) Initial Capital Requirement. On the Advance Closing Date for
any Advance, other than the initial Advance Closing Date, the Borrowers shall,
upon the Lender's request, deposit or cause to be deposited into the Capital
Reserve Sub-Account an amount not greater than the Initial Capital Requirement
with respect to the Facility to be financed by such Advance.
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1. Borrower Negative Covenants. Each Borrower covenants
and agrees that, until payment in full of the Secured Obligations (or, with
respect to any particular Individual Property, the earlier release of the
Related Mortgage), it will not do, directly or indirectly, any of the following
unless the Lender consents thereto in writing:
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(A) Liens on the Mortgaged Property. Incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any Lien with
respect to any Individual Property, except: (i) Liens in favor of the Lender and
(ii) the Permitted Encumbrances.
(B) Transfer. Except as expressly permitted by or pursuant to this
Agreement or the Mortgages, allow any Transfer to occur.
(C) Other Borrowings. Incur, create, assume, become or be liable in
any manner with respect to Other Borrowings, except that (i) the Borrowers may
incur indebtedness or other obligations to Alpine Realty Investments, LLC
pursuant to the Transfer Agreement in connection with the purchase of Eligible
Properties provided that such indebtedness is unsecured, subordinate to the full
repayment of the Secured Obligations and in amounts and on terms satisfactory to
the Lender; and (ii) the Borrowers may obtain financing subordinate to the
Secured Obligations in an aggregate principal amount not to exceed an amount
equal to 10% of the aggregate All-In Costs of the Mortgaged Property, provided
that, prior to the indefeasible repayment in full of the Secured Obligations and
the expiration of the Financing Period, no amount shall be payable or paid in
respect of such financing other than with (1) funds that may be released to the
Borrowers from time to time pursuant to Section 2.12(f) or (2) capital
contributions that are received by the Borrowers from time to time. For the
avoidance of doubt, the obligations owing to Alpine Realty Investments, LLC are
not prohibited by this Agreement.)
(D) Dissolution. Dissolve, terminate, liquidate, merge with or
consolidate into another Person.
(E) Change In Business. Cease to be a Single-Purpose Entity, or make
any material change in the scope or nature of its business objectives, purposes
or operations, or undertake or participate in activities other than the
continuance of its present business.
(F) Debt Cancellation. Cancel or otherwise forgive or release any
material claim or debt owed to any Borrower by any Person, except for adequate
consideration or in the ordinary course of such Borrower's business.
(G) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of any Borrower, except in the ordinary course of
business and on terms which are fully disclosed to the Lender in advance and are
no less favorable to such Borrower or such Affiliate than would be obtained in a
comparable arm's length transaction with an unrelated third party.
(H) Creation of Easements. Create, or permit any Facility or any
part thereof to become subject to, any easement, license or restrictive
covenant, other than a Permitted Encumbrance.
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(I) Misapplication of Funds. Distribute any Rents or Moneys received
from Accounts in violation of the provisions of Section 2.12.
(J) Certain Restrictions. Enter into any agreement which expressly
restricts the ability of any Borrower to enter into amendments, modifications or
waivers of any of the Loan Documents.
(K) Issuance of Equity Interests. Issue any equity interests of any
Borrower other than the equity interests which are outstanding on the Closing
Date, or issue any security or other instrument which by its terms is
convertible into or exercisable or exchangeable for any equity interests of any
Borrower; provided, however, that the Borrowers may, with the prior written
consent of the Lender (which consent shall not be unreasonably withheld or
delayed), issue or permit the Transfer of Non-Controlling Equity Interests.
(L) Assignment of Licenses and Permits. Assign or transfer any of
its interest in any Permits pertaining to any Facility, or assign, transfer or
remove, or permit any other Person to assign, transfer or remove any records
pertaining to any Facility without the Lender's prior written consent, which
consent may be granted or refused in the Lender's sole discretion.
(M) Place of Business. Change its chief executive office or its
principal place of business without giving the Lender at least 30 days' prior
written notice thereof and promptly providing the Lender such information as the
Lender may reasonably request in connection therewith.
(N) Leases. Without the Lender's prior consent, (i) surrender,
terminate, assign (other than to the Collateral Agent) or cancel any Lease, (ii)
reduce, or consent to the reduction of, the term of any Lease, (iii) increase,
or consent to the increase of, the amount of any charges under any Lease, (iv)
otherwise modify, change, supplement, alter or amend, or waive or release any of
its rights and remedies under, any Lease in any material respect or (v) permit
any Lease to be assigned by the lessee thereof; provided, however, that a
Borrower may, without the Lender's consent, extend the term of any Lease to
which it is a party; provided further, that a Borrower may, in connection with
the extension of the term of a Lease, allow a lessee to not pay Rent for a
reasonable, limited period of time, provided that no such arrangement shall,
without the Lender's prior written consent, (A) reduce the net present value of
Rent payments to be received by such Borrower with respect to the applicable
Facility, (B) cause any Debt Service Coverage Ratio to be reduced below the
applicable Required Debt Service Coverage Ratio or (C) cause a violation of any
Pool Requirement.
(O) Bankruptcy. Prior to the date that is one year and one day after
all of indebtedness that may from time to time be owing by the Lender has been
paid in full, take any action or institute any proceeding, or permit any
Affiliate of any Borrower to take any action or institute any proceeding,
against the Lender under any bankruptcy or insolvency law applicable to
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the Lender or which would be reasonably likely to cause the Lender to be subject
to, or seek the protection of, any such bankruptcy or insolvency law.
(P) No Joint Assessment. Suffer, permit or initiate the joint
assessment of any Facility (i) with any other real property constituting a
separate tax lot, and (ii) with any portion of the Facility which may be deemed
to constitute personal property, or any other procedure whereby the lien of any
taxes which may be levied against such personal property shall be assessed or
levied or charged to the Facility as a single lien.
(Q) Substantive Consolidation Certificate. Perform any act or omit
to perform any act, in either case if the effect of such act or omission, as the
case may be, is to cause any statement of fact set forth in the Substantive
Consolidation Certificate to not be true and correct.
ARTICLE VII
DEFAULTS
Section 7.1.Event of Default. The occurrence of one or more of the
following events shall be an "Event of Default" hereunder:
(i) if on any Payment Date the funds in the Debt Service
Payment Sub-Account are insufficient to pay the Required Debt Service
Payment due on such Payment Date, and such insufficiency continues until
10:00 a.m., New York City time, on the second Business Day following such
Payment Date;
(ii) if the Borrowers fail to pay the outstanding Indebtedness
on the date which is five Business Days prior to the Maturity Date, and
such failure continues until 10:00 a.m., New York City Time, on the date
which is three Business Days prior to the Maturity Date;
(iii) if on the date any payment of a Basic Carrying Cost
would become delinquent, the funds in the Basic Carrying Costs Sub-Account
required to be reserved pursuant to Section 2.12(f), if any, together with
any funds in the Collection Account not allocated to another Sub-Account
(excluding all funds which are utilized in the calculation in clause (i)
above to prevent the determination of an Event of Default thereunder) are
insufficient to make such payment;
(iv) the occurrence of the event identified in Sections
2.12(e) or 2.12(f) as constituting an "Event of Default" or the Borrowers
shall be in default under its obligations identified in Section 2.12(h)
(except, in each case, to the extent caused by the act or omission of the
Collateral Agent);
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(v) if the Borrowers fails to pay any other amount payable
pursuant to this Agreement or any other Loan Document when due and payable
in accordance with the provisions hereof or thereof, as the case may be,
and such failure continues for ten days after the Lender delivers written
notice thereof to the Borrowers;
(vi) if any representation or warranty made herein or in any
other Loan Document, or in any report, certificate, financial statement or
other Instrument, agreement or document furnished by any Borrower in
connection with this Agreement, the Note or any other Loan Document
executed and delivered by such Borrower, shall be false in any material
respect as of the date such representation or warranty was made, and such
Borrower fails, within 30 days after being notified of such falsity by the
Lender, in the event that the condition that made such representation or
warranty false is capable of being corrected within 30 days such that the
Lender's rights and ability to enforce such rights under this Agreement
and the other Loan Documents are and will be in no way impaired as a
result of the failure of such representation or warranty to be true when
made, to correct such condition such that no such impairment exists or
will exist;
(vii) if any Affiliated Entity makes an assignment for the
benefit of creditors;
(viii) if a receiver, liquidator or trustee shall be appointed
for any Affiliated Entity shall be adjudicated a bankrupt or insolvent, or
if any petition for bankruptcy, reorganization or arrangement pursuant to
federal bankruptcy law, or any similar federal or state law, shall be
filed by or against, consented to, or acquiesced in by, any Affiliated
Entity or if any proceeding for the dissolution or liquidation of any
Affiliated Entity shall be instituted; provided, however, that if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by such Affiliated Entity, upon the same not being
discharged, stayed or dismissed within 60 days, or if such Affiliated
Entity shall generally not be paying its debts as they become due;
(ix) if any Borrower delegates or purports to delegate its
obligations or assign its rights under this Agreement, any of the other
Loan Documents or any interest herein or therein, or if any Transfer
occurs other than in accordance with this Agreement, the Mortgages or any
other Loan Document;
(x) if any provision of the Charter Document or the Organizing
Document of any Borrower affecting the purpose for which such Borrower is
formed is amended or modified in any material respect which may adversely
affect the Lender or the Collateral Agent, or if such Borrower or its
owner fails to perform or enforce the provisions of such Charter Document
or Organizing Document or attempts to dissolve such Borrower, or if any
Borrower breaches any of its representations, warranties or covenants set
forth in Sections 4.1(M), 4.2(N) or 6.1(E);
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(xi) if an Event of Default as defined or described in the
Note, the Mortgages or any other Loan Document occurs, whether as to the
Borrowers or any Borrower or any Individual Property or all or any portion
of the Mortgaged Property;
(xii) if any Borrower shall fail to observe any term,
condition, requirement or obligation set forth in Section 6.1 and, in the
case of a violation of Section 6.1(I) that is not material and that does
not constitute gross negligence or wilful misconduct, such failure shall
continue for one Business Day;
(xiii) if an event or condition specified in Section 5.1(U)
shall occur or exist with respect to any Plan or Multiemployer Plan and,
as a result of such event or condition, together with all other such
events or conditions, any Borrower or any ERISA Affiliate shall incur or
in the opinion of the Lender shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which would constitute, in the determination of the Lender,
a Material Adverse Effect;
(xiv) if any Borrower shall fail to observe any term,
covenant, covenant, condition or other requirement under any Loan
Document, Lease or Contract (other than as set forth in clauses (i)
through (xiii) above), and such failure shall continue for 10 days after
notice to the Borrowers from the Lender or its successors or assigns, in
the case of any such failure which can be cured by the payment of a sum of
money, or for 30 days after notice from the Lender or its successors or
assigns, in the case of any other such failure (unless otherwise provided
herein or in such other Loan Document); provided, however, that if such
non-monetary failure is susceptible of cure but cannot reasonably be cured
within such 30-day period and provided further that the Borrowers shall
have commenced to cure such failure within such 30-day period and
thereafter diligently and expeditiously proceeds to cure the same, such
30-day period shall be extended for such time as is reasonably necessary
for the Borrowers in the exercise of due diligence to cure such failure,
but in no event shall such period exceed 60 days after the original notice
from the Lender; or
(xv) if the Borrowers shall fail to make any payment when due
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) with respect to any Other Borrowings aggregating $1,000,000
or more; or any breach, default or event of default shall occur, or any
other condition shall exist under any instrument, agreement or indenture
pertaining to any such Other Borrowings, if the effect thereof is to cause
an acceleration, mandatory redemption or other required repurchase of such
Other Borrowings, or permit the holder(s) of such Other Borrowings to
accelerate the maturity of any such Other Borrowings or require a
redemption or other repurchase of such Other Borrowings; or any such Other
Borrowings shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or
otherwise repurchased by the Borrowers or any Borrower (other than by a
regularly scheduled required prepayment) prior to the stated maturity
thereof;
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(xvi) if a Change of Control shall occur;
(xvii) if the Collateral Agent shall fail for any reason to
have a perfected, first-priority Lien on all of the Collateral, subject
only to Permitted Encumbrances (other than Permitted Encumbrances that are
required by the terms of this Agreement to be subordinate to the
Collateral Agent's Lien on the Collateral;
(xviii) if, at any time after Year 3, any Debt Service
Coverage Ratio shall be less than the applicable Required Debt Service
Coverage Ratio; or
(xix) if, at any time after Year 3, any Pool Requirement shall
not be satisfied;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the Lender or its successors or assigns, may, in addition to any
other rights or remedies available to it pursuant to this Agreement, the Note,
the Mortgages and the other Loan Documents, or at law or in equity, take such
action, without notice or demand, as the Lender or its successors or assigns,
deems advisable to protect and enforce its rights against the Borrowers and in
and to all or any portion of the Mortgaged Property, including, without
limitation, declaring the entire Indebtedness to be immediately due and payable
and may enforce or avail itself of any or all rights or remedies provided in the
Loan Documents against the Borrowers and/or the Mortgaged Property, including,
without limitation, all rights or remedies available at law or in equity.
Notwithstanding any other provision of this Section 7.1, an Event of Default
that relates to only to an Individual Property shall be deemed cured upon the
consummation of a Transfer of such Individual Property by the applicable
Borrower and the satisfaction of the requirements of Section 2.7(a) on or before
the expiration of the applicable cure period, if any, provided for in this
Section 7.1.
Section 7.2. Remedies. (a) Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers, other remedies available
to the Lender or the Collateral Agent against the Borrowers under this
Agreement, the Note, the Mortgages or any of the other Loan Documents executed
by or with respect to the Borrowers, or at law or in equity may be exercised by
the Lender or the Collateral Agent at any time and from time to time, whether or
not all or any portion of the Indebtedness shall be declared due and payable,
and whether or not the Lender or the Collateral Agent shall have commenced any
foreclosure proceeding or other action for the enforcement of its rights and
remedies under any of the Loan Documents with respect to any Individual Property
or all or any portion of the Mortgaged Property. Any such actions taken by the
Lender or the Collateral Agent shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as the Lender or the Collateral Agent may determine in its
sole discretion, to the fullest extent permitted by law, without impairing or
otherwise affecting the other rights and remedies of the Lender or the
Collateral Agent permitted by law, equity or contract or as set forth herein or
in the other Loan
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Documents. Without limiting the generality of the foregoing, upon the occurrence
and during the continuance of an Event of Default, the Lender shall have the
right to pay for the cost of curing such Event of Default by (i) expending its
own funds, in which case the amount so expended shall be added to the principal
balance of the Loan or (ii) withdrawing funds on deposit in the Collection
Account or any Sub-Account.
(b) In the event of the foreclosure or other action by the Lender or
the Collateral Agent to enforce its remedies in connection with one or more of
the Individual Properties or all or any portion of the Mortgaged Property,
whether such foreclosure sale (or other remedy) yields Net Proceeds in an amount
less than, equal to or more than the Allocated Loan Amount of such Individual
Property or Mortgaged Property, the Lender will apply all Net Proceeds received
to repay the Indebtedness in accordance with Section 2.8, Allocated Loan Amounts
shall be adjusted (or not adjusted) in accordance with the definition of
"Allocated Loan Amount", the Indebtedness shall be reduced to the extent of such
Net Proceeds and the remaining portion of the Indebtedness shall remain
outstanding and secured by the Mortgages and the other Loan Documents, it being
understood and agreed by the Borrowers that the Borrowers are jointly and
severally liable for the repayment of all the Indebtedness and that any "excess"
foreclosure proceeds are part of the cross-collateralized and cross-defaulted
security granted to the Collateral Agent pursuant to the Mortgages; provided,
however, that the Note shall be deemed to have been accelerated only to the
extent of the Net Proceeds actually received by the Lender or the Collateral
Agent with respect to any Individual Property and applied in reduction of the
Indebtedness evidenced by the Note in accordance with the provisions of the
Note, after payment by the Borrowers of all transaction costs and expenses and
costs of enforcement.
Section 7.3. Remedies Cumulative. The rights, powers and remedies of
the Lender and the Collateral Agent under this Agreement shall be cumulative and
not exclusive of any other right, power or remedy which the Lender or the
Collateral Agent may have against the Borrowers pursuant to this Agreement or
the other Loan Documents executed by or with respect to the Borrowers, or
existing at law or in equity or otherwise. The Lender's or the Collateral
Agent's rights, powers and remedies may be pursued singly, concurrently or
otherwise, at such time and in such order as the Lender or the Collateral Agent
may determine in such Person's sole discretion. No delay or omission to exercise
any remedy, right or power accruing upon an Event of Default shall impair any
such remedy, right or power or shall be construed as a waiver thereof, but any
such remedy, right or power may be exercised from time to time and as often as
may be deemed expedient. A waiver of any Default or Event of Default shall not
be construed to be a waiver of any subsequent Default or Event of Default or to
impair any remedy, right or power consequent thereon. Notwithstanding any other
provision of this Agreement, the Lender and the Collateral Agent each reserves
the right to seek a deficiency judgment or preserve a deficiency claim, in
connection with the foreclosure of a Mortgage on an Individual Property, to the
extent necessary to foreclose on other parts of the Mortgaged Property.
ARTICLE VIII
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MISCELLANEOUS
Section 8.1. Survival. This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, the making by the Lender of each Advance hereunder and the execution
and delivery by the Borrowers to the Lender of the Note, and shall continue in
full force and effect so long as any portion of the Secured Obligations is
outstanding and unpaid; provided, however, that upon a prepayment with respect
to a particular Individual Property as described in Section 2.7(a) and upon
satisfaction of the other conditions set forth in Section 2.11, the Borrower
owning such Individual Property shall be released of all liability under this
Agreement (other than any liability with respect to environmental matters
arising under Section 4.2(L) or Section 5.1(D) - (I), inclusive, hereof), the
Note, the Related Mortgage, the applicable Assignment of Lease, and the other
Loan Documents insofar as they concern such Individual Property, and such
Borrower's member or partner shall be released of all liability under the Pledge
and Security Agreement with respect to such Individual Property. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All covenants,
promises and agreements in this Agreement contained, by or on behalf of the
Borrowers or any Borrower shall inure to the benefit of the respective
successors and assigns of the Lender. Nothing in this Agreement or in any other
Loan Document, express or implied, shall give to any Person other than the
parties and the holder of the Note, the Mortgages and the other Loan Documents,
and their legal representatives, successors and assigns, any benefit or any
legal or equitable right, remedy or claim hereunder.
Section 8.2. Lender's Discretion. Whenever pursuant to this
Agreement, the Lender exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to the Lender, the decision of
the Lender to approve or disapprove or to decide whether arrangements or terms
are satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of the Lender and shall be final and
conclusive.
Section 8.3. Governing Law. (a) This Agreement was negotiated
in New York, and made by the Lender and accepted by the Borrowers in the State
of New York, and the proceeds of the Note delivered pursuant hereto were
disbursed from New York, which State the parties agree has a substantial
relationship to the parties and to the underlying transaction embodied hereby,
and in all respects, including, without limitation, matters of construction,
validity and performance, this Agreement and the obligations arising hereunder
shall be governed by, and construed in accordance with, the laws of the State of
New York applicable to contracts made and performed in such State and any
applicable law of the United States of America, except that at all times the
provisions for the creation, perfection and enforcement of the liens and
security interests created pursuant to the Mortgages and the other Loan
Documents shall be governed by and construed according to the law of the State
in which the applicable Facility is located, it being understood that, to the
fullest extent permitted by law of such States, the law of the State of New York
shall govern the validity and the
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enforceability of all Loan Documents, and the Indebtedness or obligations
arising hereunder or thereunder. To the fullest extent permitted by law, each
Borrower hereby unconditionally and irrevocably waives any claim to assert that
the law of any other jurisdiction governs this Agreement and the Note, and this
Agreement and the Note shall be governed by and construed in accordance with the
laws of the State of New York pursuant to Section 5-1401 of the New York General
Obligations Law.
(b) Any legal suit, action or proceeding against the Lender or any
Borrower arising out of or relating to this Agreement shall be instituted in any
federal or state court in New York, New York, pursuant to Section 5-1402 of the
New York General Obligations Law, and each Borrower waives any objection which
it may now or hereafter have to the laying of venue of any such suit, action or
proceeding, and each Borrower hereby irrevocably submits to the jurisdiction of
any such court in any suit, action or proceeding. Each Borrower does hereby
designate and appoint CT Corporation System, presently located at 1633 Broadway,
New York, New York 10019, as its authorized agent to accept and acknowledge on
its behalf service of any and all process which may be served in any such suit,
action or proceeding in any federal or state court in New York, New York, and
agrees that service of process upon said agent at said address (or at such other
office in New York, New York as may be designated by such Borrower from time to
time in accordance with the terms hereof) with a copy to such Borrower at its
principal executive offices, Attention: Mr. William Doniger, and written notice
of said service of such Borrower mailed or delivered to such Borrower in the
manner provided herein shall be deemed in every respect effective service of
process upon such Borrower, in any such suit, action or proceeding in the State
of New York. Each Borrower (i) shall give prompt notice to the Lender of any
changed address of its authorized agent hereunder, (ii) may at any time and from
time to time designate a substitute authorized agent with an office in New York,
New York (which office shall be designated as the address for service of
process), and (iii) shall promptly designate such a substitute if its authorized
agent ceases to have an office in New York, New York or is dissolved without
leaving a successor.
Section 8.4. Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, the Note or any other Loan Document, or consent to any departure by
any Borrower therefrom, shall in any event be effective unless the same shall be
in a writing signed by the party against whom enforcement is sought, and then
such waiver or consent shall be effective only in the specific instance, and for
the purpose, for which given. Except as otherwise expressly provided herein, no
notice to or demand on any Borrower shall entitle any Borrower to any other or
future notice or demand in the same, similar or other circumstances.
Section 8.5. Delay Not a Waiver. Neither any failure nor any delay on
the part of the Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note, or of any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the
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exercise of any other right, power, remedy or privilege. In particular, and not
by way of limitation, by accepting payment after the due date of any amount
payable under this Agreement, the Note or any other Loan Document, the Lender
shall not be deemed to have waived any right either to require prompt payment
when due of all other amounts due under this Agreement, the Note or the other
Loan Documents, or to declare a default for failure to effect prompt payment of
any such other amount.
Section 8.6. Notices. All notices, consents, approvals and
requests required or permitted hereunder or under any other Loan Document shall
be given in writing and shall be effective for all purposes if hand delivered or
sent by (a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, and by telecopier (with answer back
acknowledged), addressed if to the Lender at its address set forth on the first
page hereof, if to the Collateral Agent at its address set forth on the first
page hereof, and if to any Borrower at its address set forth on the first page
hereof, or at such other address and Person as shall be designated from time to
time by any party hereto, as the case may be, in a written notice to the other
parties hereto in the manner provided for in this Section 8.6. A copy of all
notices, consents, approvals and requests directed to the Lender shall be
delivered to Sidley & Austin, One First National Plaza, Chicago, Illinois 60603,
Attention: Mr. Thomas W. Albrecht. A notice shall be deemed to have been given:
in the case of hand delivery, at the time of delivery; in the case of registered
or certified mail, when delivered or the first attempted delivery on a Business
Day; or in the case of expedited prepaid delivery and telecopy, upon the first
attempted delivery on a Business Day. A party receiving a notice which does not
comply with the technical requirements for notice under this Section 8.6 may
elect to waive any deficiencies and treat the notice as having been properly
given.
Section 8.7. TRIAL BY JURY. BORROWER AND LENDER, TO THE
FULLEST EXTENT THAT EACH SUCH PERSON MAY LAWFULLY DO SO, EACH WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT
ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTES OR
THE OTHER LOAN DOCUMENTS.
Section 8.8. Headings. The Article and Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
Section 8.9. Assignment. The Lender shall have the right to
assign this Agreement and/or any of the other Loan Documents and the obligations
hereunder to any Person. This Agreement may not be assigned by any Borrower.
Section 8.10. Severability. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such
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provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
Section 8.11. Preferences. The Lender shall have no obligation
to marshal any assets in favor of any Borrower or any other party or against or
in payment of any or all of the obligations of such Borrower or the Borrowers
pursuant to this Agreement, the Note or any other Loan Document. The Lender
shall have the continuing and exclusive right to apply or reverse and reapply
any and all payments by any Borrower to any portion of the obligations of any
Borrower hereunder. To the extent the Borrowers make a payment or payments to
the Lender for the Borrowers' benefit, which payment or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds received, the obligations
hereunder or part thereof intended to be satisfied shall be revived and continue
in full force and effect, as if such payment or proceeds had not been received
by the Lender.
Section 8.12. Waiver of Notice. No Borrower shall be entitled
to any notices of any nature whatsoever from the Lender except with respect to
matters for which this Agreement or the other Loan Documents specifically and
expressly provide for the giving of notice by the Lender to the Borrowers and
except with respect to matters for which the Borrowers are not, pursuant to
applicable Legal Requirements, permitted to waive the giving of notice. Each
Borrower hereby expressly waives the right to receive any notice from the Lender
with respect to any matter for which this Agreement or the other Loan Documents
does not specifically and expressly provide for the giving of notice by the
Lender to such Borrower.
Section 8.13. Remedies of Borrower. In the event that a claim
or adjudication is made that the Lender or its agents has acted unreasonably or
unreasonably delayed acting in any case where by law or under this Agreement,
the Note, the Mortgages or the other Loan Documents, the Lender or such agent,
as the case may be, has an obligation to act reasonably or promptly, the
Borrowers agree that neither the Lender nor its agents shall be liable for any
monetary damages, and Borrowers' sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether the Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
Section 8.14. Exhibits Incorporated. The Exhibits attached
hereto are hereby incorporated herein as a part of this Agreement with the same
effect as if set forth in the body hereof.
Section 8.15. Offsets, Counterclaims and Defenses. Any
assignee of the Lender's interest in and to this Agreement, the Note, the
Mortgages and the other Loan Documents shall take the same free and clear of all
offsets, counterclaims or defenses which are unrelated to this
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Agreement, the Note, the Mortgages and the other Loan Documents which any
Borrower may otherwise have against any assignor or this Agreement, the Notes,
the Mortgages and the other Loan Documents, and no such unrelated counterclaim
or defense shall be interposed or asserted by any Borrower in any action or
proceeding brought by any such assignee upon this Agreement, the Note, the
Mortgages and other Loan Documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by each Borrower.
Section 8.16. No Joint Venture or Partnership. The Borrowers
and the Lender intend that the relationship created hereunder be solely that of
borrower and lender. Nothing herein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between any
Borrower and the Lender nor to grant the Lender any interest in the Mortgaged
Property other than that of mortgagee or lender.
Section 8.17. Waiver of Marshaling of Assets Defense. To the
fullest extent that each Borrower may legally do so, each Borrower waives all
rights to a marshaling of the assets of the Borrowers, the other Affiliated
Entities and others with interests in such Borrower, and of the Mortgaged
Property, or to a sale in inverse order of alienation in the event of
foreclosure of the interests hereby created, and agrees not to assert any right
under any laws pertaining to the marshaling of assets, the sale in inverse order
of alienation, homestead exemption, the administration of estates of decedents,
or any other matters whatsoever to defeat, reduce or affect the right of the
Lender under the Loan Documents to a sale of the Individual Property for the
collection of the Secured Obligations without any prior or different resort for
collection, or the right of the Lender or Deed of Trust Trustee to the payment
of the Secured Obligations out of the Net Proceeds of the Individual Property in
preference to every other claimant whatsoever.
Section 8.18. Waiver of Counterclaim. Each Borrower hereby
waives the right to assert a counterclaim, other than compulsory counterclaim,
in any action or proceeding brought against it by the Lender or its agents.
Section 8.19. Conflict; Construction of Documents. In the
event of any conflict between the provisions of this Agreement and the
provisions of the Note, the Mortgages or any of the other Loan Documents, the
provisions of this Agreement shall prevail. The parties hereto acknowledge that
they were represented by counsel in connection with the negotiation and drafting
of the Loan Documents and that the Loan Documents shall not be subject to the
principle of construing their meaning against the party which drafted same.
Section 8.20. Brokers and Financial Advisors. Each Borrower
hereby represents that it has dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement except for MBIA Insurance
Corporation (the "Advisor"). Borrower agrees to pay all amounts required to be
paid to the Advisor pursuant to that certain engagement letter dated April 28,
1998, from the Advisor to Fortress Investment Holdings LLC. The Borrowers hereby
agree on a joint and several basis to
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indemnify and hold the Lender and the Collateral Agent harmless from and against
any and all claims, liabilities, costs and expenses of any kind in any way
relating to or arising from a claim by any Person (other than the Advisor) that
such Person acted on behalf of any Borrower in connection with the transactions
contemplated herein. The provisions of this Section 8.20 shall survive the
expiration and termination of this Agreement and the repayment of the Secured
Obligations.
Section 8.21. Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, but all of which shall together constitute one and the same
instrument.
Section 8.22. Estoppel Certificates. The Borrowers and the
Lender each hereby agree at any time and from time to time upon not less than 15
days prior written notice by the Borrowers or the Lender to execute, acknowledge
and deliver to the party specified in such notice, a statement, in writing,
certifying that this Agreement is unmodified and in full force and effect (or if
there have been modifications, that the same, as modified, is in full force and
effect and stating the modifications hereto), and stating whether or not, to the
knowledge of such certifying party, any Default or Event of Default has occurred
and is then continuing, and, if so, specifying each such Default or Event of
Default; provided, however, that it shall be a condition precedent to the
Lender's obligation to deliver the statement pursuant to this Section 8.22, that
the Lender shall have received, together with the Borrowers' request for such
statement, an Officer's Certificate stating that no Default or Event of Default
exists as of the date of such certificate (or specifying such Default or Event
of Default).
Section 8.23. Payment of Expenses. The Borrowers shall,
whether or not the Transactions are consummated, pay, on a joint and several
basis, all Transaction Costs, which shall include, without limitation, (a)
reasonable out-of-pocket costs and expenses of the Lender and the Collateral
Agent in connection with (i) the negotiation, preparation, execution and
delivery of the Loan Documents and the documents and instruments referred to
therein, (ii) the creation, perfection or protection of the Lender's Liens in
the Collateral (including, without limitation, fees and expenses for title and
lien searches and filing and recording fees, third party due diligence expenses
for each Facility plus travel expenses, accounting firm fees, costs of the
Appraisals, Environmental Reports (and an environmental consultant), and the
Engineering Reports), (iii) the negotiation, preparation, execution and delivery
of any amendment, waiver or consent relating to any of the Loan Documents, (iv)
the ongoing administration of, preservation of rights under and enforcement of
the Loan Documents and the documents and instruments referred to therein,
including any restructuring or rescheduling of the Indebtedness and (v) the
issuance of the MTNs, (b) the reasonable fees, expenses and disbursements of
counsel to the Lender and the Collateral Agent in connection with all of the
foregoing, (c) all fees and expenses of the Collateral Agent and (d) all fees
imposed by any Rating Agency at any time. Prior to retention of third parties,
the Lender will consult with the Borrowers regarding the services required and
the third parties selected to assure that costs will be reasonable in scope and
amount. In the event that the Transactions are not consummated, the Borrowers
shall pay, on a joint and several basis, all reasonable out-of-pocket costs and
expenses of the Lender in
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connection with the negotiation, preparation, execution and issuance of its
medium-term notes or such other securities issued by the Lender in order to
finance the Transactions, including the reasonable fees, expenses and
disbursements of counsel, underwriters, financial advisors and other advisors,
and shall indemnify the Lender for any and all Breakage Costs and other losses
resulting from the issuance of such securities. Notwithstanding the foregoing,
the Borrowers shall not be required to pay the fees of counsel to the Lender in
the event that the Transactions are not consummated as a result of the failure
to issue MTNs due to the Lender's gross negligence or wilful misconduct.
Section 8.24. Bankruptcy Waiver. Each Borrower hereby agrees
that, in consideration of the recitals and mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, in the event such Borrower shall (i) file with
any bankruptcy court of competent jurisdiction or be the subject of any petition
under Title 11 of the U.S. Code, as amended, (ii) be the subject of any order
for relief issued under Title 11 of the U.S. Code, as amended, (iii) file or be
the subject of any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or law relating to bankruptcy, insolvency or other relief of debtors,
(iv) have sought or consented to or acquiesced in the appointment of any
trustee, receiver, conservator or liquidator or (v) be the subject of any order,
judgment or decree entered by any court of competent jurisdiction approving a
petition filed against such party for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future federal or state act or law relating to bankruptcy, insolvency
or other relief for debtors, the automatic stay provided by the Federal
Bankruptcy Code shall be modified and annulled as to the Lender, so as to permit
the Lender to exercise any and all of its remedies, upon request of the Lender
made on notice to such Borrower and any other party in interest but without the
need of further proof or hearing. No Borrower or any Affiliate of any Borrower
shall contest the enforceability of this Section 8.24.
Section 8.25. Limited Recourse. The obligations of the
Borrowers under this Agreement and the other Loan Documents are solely the
corporate joint and several obligations of the Borrowers. No recourse shall be
had for the payment of any amount owing in respect of the Loan or for the
payment of any fee hereunder or any other obligation or claim arising out of or
based upon this Agreement or any other Loan Document against any stockholder,
employee, officer, director, agent or incorporator of any Borrower, except as
expressly provided in any such Loan Document.
Section 8.26. Borrower's Agent. Fortress Investment Group LLC
shall act as agent for the Borrowers (in such capacity, the "Borrower's Agent")
for all purposes under this Agreement and the other Loan Documents. Any
decision, approval, request or consent that the Borrowers or any Borrower are
entitled to make or give under this Agreement or the other Loan Documents shall
be made or given by the Borrower's Agent on behalf of such Borrower or the
Borrowers, as the case may be. Any action taken by the Borrower's Agent on
behalf of any
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Borrower or the Borrowers under this Agreement or the other Loan Documents shall
be binding upon such Borrower or the Borrowers, as the case may be, and the
Lender, the Collateral Agent and each other Secured Party shall be entitled to
rely conclusively upon any action so taken. Any notice, request or document to
be delivered by the Lender, the Collateral Agent or any other Secured Party to
any Borrower or the Borrowers under this Agreement or the other Loan Documents
may be delivered to the Borrower's Agent, and shall be deemed delivered to each
Borrower upon such delivery to the Borrower's Agent. All documents and other
materials to be delivered by any Borrower or the Borrowers shall be delivered by
the Borrower's Agent on behalf of such Borrower, and none of the Lender, the
Collateral Agent, or any other Secured Party shall be required to deal directly
with any Borrower with respect to any matter under this Agreement or any other
Loan Document.
Section 8.27. Regarding the Collateral Agent. The Collateral
Agent shall be afforded all of the rights, powers, protections, immunities and
indemnities afforded to it under the Collateral Agency Agreement as if such
rights, powers, protections, immunities and indemnities are set forth herein.
[Signature Page Follows]
95
<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized representatives, all as
of the day and year first above written.
LENDER:
MERIDIAN FUNDING COMPANY, LLC, a
Delaware limited liability company
By: MBIA Insurance Corporation,
its attorney-in-fact
By: /s/ Gerald T. Gill
Name: Gerald T. Gill
Title: Vice President
COLLATERAL AGENT:
BANKERS TRUST COMPANY,
as Collateral Agent only
By: /s/ Craig Kantor
Name: Craig Kantor
Title: Vice President
BORROWER:
FORTRESS GSA BURLINGTON L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP: Asst. Secretary
<PAGE> 101
FORTRESS GSA SACRAMENTO L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA SUFFOLK L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA PROVIDENCE L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA CONCORD L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA CALLOWHILL L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
<PAGE> 102
FORTRESS GSA AURORA L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA HUNTSVILLE L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA PARFET L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA NORFOLK L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
<PAGE> 103
FORTRESS GSA HOUSTON, LP,
a Delaware limited partnership
By: Fortress Houston GP Corp.,
a Delaware corporation,
its general partner
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
FORTRESS GSA E STREET L.L.C.,
a Delaware limited liability company
By: /s/ Barry Edinburg
Name: Barry Edinburg
Title: VP & Asst. Secretary
<PAGE> 104
Schedule 1
Borrowers
Borrowers: Addresses:
Fortress GSA Burlington L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Sacramento L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019 Fortress
GSA Suffolk L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Providence L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Concord L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Callowhill L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Aurora L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Huntsville L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Parfet L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Borrowers: Addresses:
Fortress GSA Norfolk L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
Fortress GSA Houston, LP 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
<PAGE> 105
Fortress GSA E Street L.L.C. 1301 Avenue of the Americas
42nd Floor
New York, NY 10019
(Attached)
<PAGE> 106
Schedule 2
Initial Advance Amounts, Appraised Values, Purchase Prices and All-In Costs
(Attached)
<PAGE> 107
Schedule 3
Capital Structure of Borrower
(Attached)
<PAGE> 108
Schedule 4
Survey Requirements
(Attached)
<PAGE> 109
Schedule 5
Title Insurance Requirements
(Attached)
<PAGE> 110
Schedule 6
Permitted Transferees
(Attached)
<PAGE> 111
Exhibit A
Promissory Note (Form)
(Attached)
<PAGE> 112
Exhibit B
Contribution Agreement (Form)
(Attached)
<PAGE> 113
Exhibit C
Collateral Agency Agreement (Form)
(Attached)
<PAGE> 114
Exhibit D
Guarantee (Form)
(Attached)
<PAGE> 115
Exhibit E
Pledge and Security Agreement (Form)
(Attached)
<PAGE> 116
Exhibit F
Indemnity Agreement (Form)
(Attached)
<PAGE> 117
Exhibit G
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Form)
(Attached)
<PAGE> 118
Exhibit H
Present Assignment of Rents (Form)
(Attached)
<PAGE> 119
Exhibit I
Assignment of U.S. Government Contract (Form)
(Attached)
<PAGE> 120
Exhibit J
Notice of Assignment (Form)
(Attached)
<PAGE> 121
Exhibit K
Collateral Assignment of Interest Rate Protection Agreement (Form)
(Attached)
<PAGE> 122
Exhibit L
Property Manager's Consent and Subordination of Management Agreement (Form)
(Attached)
<PAGE> 123
Exhibit M
Estoppel Certificate (Form)
(Attached)
<PAGE> 124
Exhibit N
Nonconsolidation Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (Form)
(Attached)
<PAGE> 125
Exhibit O
Closing Date Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (Form)
(Attached)
<PAGE> 126
Exhibit P
Advance Closing Date Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (Form)
(Attached)
<PAGE> 127
Exhibit Q
Opinion of Local Counsel (Form)
(Attached)
<PAGE> 128
Exhibit R
Description of Hedging Policy
(Attached)
<PAGE> 129
Exhibit S
Required Debt Service Payment Certificate (Form)
(Attached)
<PAGE> 130
Exhibit T
Request for Borrowing (Form)
(Attached)
<PAGE> 131
Exhibit U
Partnership Pledge Agreement (Form)
(Attached)
<PAGE> 132
Exhibit V
Substantive Consolidation Certificate (Form)
(Attached)
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Fortress Investment Corp. Subsidiaries
Alpine Realty Houston L.L.C.
a Delaware limited liability company
Austin Holdings Corporation
Fortress GSA Aurora L.L.C.
a Delaware limited liability company
Fortress GSA Burlington L.L.C.
a Delaware limited liability company
Fortress GSA Callowhill L.L.C.
a Delaware limited liability company
Fortress GSA Concord L.L.C.
a Delaware limited liability company
Fortress GSA E Street L.L.C.
a Delaware limited liability company
Fortress GSA Houston, LP
a Delaware limited partnership
Fortress GSA Houston Properties, LP
a Delaware limited partnership
Fortress GSA Huntsville L.L.C.
a Delaware limited liability company
Fortress GSA Norfolk L.L.C.
a Delaware limited liability company
Fortress GSA Parfet L.L.C.
a Delaware limited liability company
Fortress GSA Providence L.L.C.
a Delaware limited liability company
Fortress GSA Properties LLC
a Delaware limited liability company
Fortress GSA Properties Holdings LLC
a Delaware limited liability company
Fortress GSA Sacramento L.L.C.
a Delaware limited liability company
Fortress GSA Suffolk L.L.C.
<PAGE> 2
a Delaware limited liability company
Fortress Houston GP Corp.
a Delaware corporation
Fortress IOFP, LLC
a Delaware limited liability company
Fortress IOFP Holdings, LLC
a Delaware limited liability company
Fortress Partners, L.P.
a Delaware limited partnership
(the "Operating Partnership")
Fortress TA, LLC
a Delaware limited liability company
Fortress TA Holdings LLC
a Delaware limited liability company
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Fortress Investment
Corp. on Form S-11 of our report dated September 3, 1998, appearing in the
Prospectus, which is part of this Registration Statement relating to the
financial statement of Fortress Investment Corp., and of our report dated August
5, 1998 relating to the financial statement of "The Properties Known as the
Initial GSA Properties" appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
New York, New York
September 8, 1998
