<PAGE>
As filed with the Securities and Exchange Commission on October 13, 1999
Registration No. 333-77229
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
AMENDMENT NO. 2
to
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
T REIT, INC.
(Exact name of registrant as specified in governing instruments)
1551 N. Tustin Avenue
Suite 650
Santa Ana, California 92705
(Address of principal executive offices)
Anthony W. Thompson
1551 N. Tustin Avenue
Suite 650
Santa Ana, California 92705
(877) 888-7348
(Name and address of agent for service)
-----------------
Copies to:
George C. Howell, III, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
(804) 788-8200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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 number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of securities Amount being offering price aggregate offering Amount of
being registered registered (1) per share (2) price (2) registration fee (3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 11,750,000 shares $10.00 $117,500,000 $32,665
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 10,000,000 shares offered to the public, 700,000 shares offered to
shareholders pursuant to a dividend reinvestment program, 250,000 shares
issuable upon exercise of warrants issued to our dealer manager and 800,000
shares issuable pursuant to two stock option plans, all of which are being
offered pursuant to the prospectus contained in this registration
statement.
(2) Estimated solely for the purpose of determining the registration fee.
(3) A filing fee of $30,719 was paid in connection with the Registrant's
original filing on April 28, 1999, and $1,946 was paid in connection with
the Registrant's filing on July 23, 1999.
--------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant 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, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
Information contained in this Prospectus 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 that 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 October ___, 1999
INITIAL PUBLIC OFFERING PROSPECTUS
T REIT, INC.
Common Stock
100,000 Shares
(minimum amount to break escrow)
T REIT, Inc. was incorporated to acquire ownership interests in office,
industrial, retail and service properties. We have not yet qualified as a REIT
for federal income tax purposes but intend to do so for our first full taxable
year. We are offering up to 10,000,000 shares of common stock for $10.00 per
share.
This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss. You should consider carefully the
information set forth in "Risk Factors" beginning on page 7 for a discussion of
material risk factors relevant to an investment in our common stock, including
but not limited to the following:
. there will be no market for our common stock and you may not be able
to resell your common stock at the offering price;
. we are totally reliant on our advisor, which is an affiliate of three
of our officers and directors, to manage our business and assets;
. our officers and directors will be subject to substantial conflicts of
interest;
. we may incur substantial debt, which could hinder our ability to pay
dividends to our shareholders; and
. if we raise substantially less than the maximum offering, we will not
be able to invest in a diverse portfolio of properties and the value
of your investment will fluctuate with the performance at specific
properties.
This Offering Per Share Total Minimum Total Maximum
------------- --------- ------------- -------------
Public Price .............. $10.00 $ 1,000,000 $100,000,000
Selling Commissions .......... $ .80 $ 80,000 $ 8,000,000
Marketing and
Due Diligence Expenses ....... $ .15 $ 15,000 $ 500,000
------ ------------ ------------
Proceeds to T REIT ........... $ 9.05 $ 905,000 $ 90,500,000
After payment of offering and acquisition expenses, we estimate that
approximately 87.5% of the offering proceeds will be available for investments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The use of forecasts in this offering is prohibited. Any representation to
the contrary and prediction, written or oral, as to the amount or certainty of
any present or future cash benefit or tax consequence which may flow from your
investment in our shares is prohibited.
The securities dealers in this offering must sell the minimum number of
securities offered (100,000 shares) if any are sold. The securities dealers are
required only to use their best efforts to sell the maximum number of securities
offered (10,000,000 shares). A securities dealer may not complete a sale of our
shares to you until at least five business days after the date you receive a
copy of the final prospectus. That securities dealer must also send you a
confirmation of your purchase.
We will sell shares until earlier of ________, 2001, or the date on which
the maximum offering has been sold. Your investment will be placed in an
interest-bearing escrow account with American International Bank as escrow
agent, until we have received and accepted subscriptions for at least 100,000
shares. If we do not sell 100,000 shares before __________, 2000, this offering
will be terminated and we will promptly refund your investment with interest and
without deducting for escrow expenses.
The Date of this Prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
----
<S> <C>
PROSPECTUS SUMMARY ............................................................... 1
About Our Company .............................................................. 1
About Our Business ............................................................. 1
Our Advisor and the Dealer Manager ............................................. 1
Summary Risk Factors ........................................................... 2
Summary Business Objectives .................................................... 3
This Offering .................................................................. 3
Use of Proceeds ................................................................ 4
Distributions .................................................................. 4
Summary Financial Information .................................................. 4
Compensation to Our Advisor and the Dealer Manager ............................. 4
RISK FACTORS ..................................................................... 7
No Properties Owned; No Properties Identified For Investment ................... 7
No Market for Our Common Stock ................................................. 7
Total Reliance on Our Advisor .................................................. 8
Conflicts of Interest .......................................................... 8
Lack of Investment Diversification ............................................. 10
Acquisition Risks .............................................................. 10
Joint Venture Arrangements ..................................................... 11
Insufficient Reserves .......................................................... 11
Borrowings May Increase Our Business Risks ..................................... 12
Our Ability to Change Policies Without a Shareholder Vote; No Limitation on Debt 13
Limited Experience in Managing a REIT .......................................... 13
Possible Adverse Consequences of Limits on Ownership and Transfer of Our Shares 13
Potential Anti-Takeover Effects ................................................ 14
Dilution ....................................................................... 15
Negative Characteristics of Investments in Neighborhood Retail Centers ......... 15
Seller Financing by Our Company May Delay Liquidation or Reinvestment .......... 16
Negative Characteristics of Real Estate Investments ............................ 16
Federal Income Tax Requirements ................................................ 19
Effects of ERISA Regulations ................................................... 19
INVESTOR SUITABILITY STANDARDS ................................................... 21
Ensuring Our Suitability Standards are Adhered To .............................. 22
ESTIMATED USE OF PROCEEDS OF THIS OFFERING ....................................... 23
OUR COMPANY ...................................................................... 24
INVESTMENT OBJECTIVES AND POLICIES ............................................... 24
General ........................................................................ 24
Types of Investments ........................................................... 25
Our Acquisition Standards ...................................................... 25
Property Acquisition ........................................................... 26
Joint Ventures ................................................................. 26
Description of Our Leases ...................................................... 27
Our Operating Partnership ...................................................... 27
Our Policies With Respect to Borrowing ......................................... 27
Sale or Disposition of Properties .............................................. 28
Our Long Term Investment Objective ............................................. 29
Changes in Our Investment Objectives ........................................... 29
Investment Limitations ......................................................... 29
Making Loans and Investments in Mortgages ...................................... 30
Investment in Securities ....................................................... 30
Appraisals ..................................................................... 31
Other Policies ................................................................. 31
Investing in States Without Personal Income Tax ................................ 31
DISTRIBUTION POLICY .............................................................. 33
MANAGEMENT OF OUR COMPANY ........................................................ 34
General ........................................................................ 34
The Directors and Executive Officers ........................................... 34
Committees of Our Board of Directors ........................................... 36
Officer and Director Compensation .............................................. 37
OUR ADVISOR ...................................................................... 40
Management ..................................................................... 40
The Advisory Agreement ......................................................... 41
COMPENSATION TABLE ............................................................... 44
Additional Payments for Additional Services .................................... 48
Limitations on Compensation .................................................... 48
Additional Important Information on Compensation to Our Affiliates ............. 49
PRIOR PERFORMANCE SUMMARY ........................................................ 50
Prior Programs of Our Advisor .................................................. 50
CONFLICTS OF INTEREST ............................................................ 53
Competition for the Time and Service of Our Advisor and Affiliates ............. 53
Process for Resolution of Conflicting Opportunities ............................ 53
Acquisitions From Our Advisor and Its Affiliates ............................... 54
We May Purchase Properties From Persons With Whom Affiliates of Our Advisor
Have Prior Business Relationships ............................................ 54
Our Advisor May Have Conflicting Fiduciary Obligations in the Event Our
</TABLE>
<PAGE>
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
Page
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<S> <C>
Company Acquires Properties with Our Advisor or Affiliates ................................ 54
Property Management Services will be Rendered by Our Advisor ............................ 54
Receipt of Commissions, Fees and Other Compensation by Our Advisor ...................... 54
Non-Arm's-Length Agreements; Conflicts; Competition ..................................... 55
Legal Counsel for Our Company and Our Advisor is the Same Law Firm ...................... 55
NNN Capital Corp. is Participating as Dealer Manager in the Sale of Our Shares .......... 55
SUMMARY OF DIVIDEND REINVESTMENT PROGRAM .................................................. 56
General ................................................................................. 56
Investment of Dividends ................................................................. 56
Participant Accounts, Fee, and Allocation of Shares ..................................... 56
Reports to Participants ................................................................. 57
Election to Participate or Terminate Participation ...................................... 57
Federal Income Tax Considerations ....................................................... 57
Amendments and Termination .............................................................. 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..... 59
The Year 2000 Issue ..................................................................... 59
PRINCIPAL SHAREHOLDERS .................................................................... 61
DESCRIPTION OF CAPITAL STOCK .............................................................. 62
General ................................................................................. 62
Common Stock ............................................................................ 62
Shareholder Voting ...................................................................... 62
Preferred Stock ......................................................................... 63
Warrants Issued to the Dealer Manager in this Offering .................................. 63
Issuance of Additional Securities and Debt Instruments .................................. 64
Restrictions on Ownership and Transfer .................................................. 64
IMPORTANT PROVISIONS OF VIRGINIA CORPORATE LAW AND OUR ARTICLES OF INCORPORATION AND BYLAWS 66
Our Articles of Incorporation and Bylaws ................................................ 66
Shareholders'Meetings ................................................................... 66
Our Board of Directors .................................................................. 67
Limitation of Liability and Indemnification ............................................. 67
Inspection of Books and Records ......................................................... 69
Restrictions on Roll-Up Transactions .................................................... 69
Anti-takeover Provisions of the Virginia Stock Corporation Act .......................... 70
Dissolution or Termination of Our Company ............................................... 71
Transactions with Affiliates ............................................................ 71
SHARES AVAILABLE FOR FUTURE SALE .......................................................... 72
AGREEMENT OF LIMITED PARTNERSHIP .......................................................... 72
Management .............................................................................. 72
Transferability of Interests ............................................................ 72
Capital Contribution .................................................................... 72
Redemption Rights ....................................................................... 73
Incentive Units ......................................................................... 73
Operations .............................................................................. 74
Distributions ........................................................................... 75
Allocations ............................................................................. 75
Term .................................................................................... 77
Tax Matters ............................................................................. 77
FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT ................................... 78
Taxation of Our Company ................................................................. 78
Requirements for Qualification .......................................................... 79
Recordkeeping Requirements .............................................................. 84
Failure to Qualify ...................................................................... 84
Taxation of Taxable U.S. Shareholders ................................................... 84
Taxation of U.S. Shareholders on the Disposition of the Common Stock .................... 85
Capital Gains and Losses ................................................................ 85
Information Reporting Requirements and Backup Withholding ............................... 86
Taxation of Tax-Exempt Shareholders ..................................................... 86
Taxation of Non-U.S. Shareholders ....................................................... 87
Other Tax Consequences .................................................................. 88
ERISA CONSIDERATIONS ...................................................................... 88
PLAN OF DISTRIBUTION ...................................................................... 91
EXPERTS ................................................................................... 94
REPORTS TO SHAREHOLDERS ................................................................... 95
LEGAL MATTERS ............................................................................. 95
LEGAL PROCEEDINGS ......................................................................... 95
ADDITIONAL INFORMATION .................................................................... 95
</TABLE>
EXHIBIT A Prior Performance Tables
EXHIBIT B Subscription Agreement
EXHIBIT C Dividend Reinvestment Program
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all the information that is important to you. You should carefully
read this entire prospectus, including the "Risk Factors" section beginning on
page 7.
About Our Company
We are a recently formed Virginia corporation. We have not yet qualified as
a REIT for federal income tax purposes, but intend to do so for our first full
taxable year.
We will operate in an umbrella partnership REIT structure, in which our
subsidiary operating partnership will own substantially all of the properties
that we acquire. Our operating partnership will be T REIT L.P., a recently
formed Virginia limited partnership, and we will be its sole general partner.
Initially, we will own 100% of the ownership interests in our operating
partnership, other than the incentive limited partnership interest owned by our
advisor, Triple Net Properties, LLC. References in this prospectus to "us," "we"
or "our company" mean T REIT, Inc. and our operating partnership combined,
unless the context otherwise requires.
Our principal executive offices are located at 1551 N. Tustin Avenue, Suite
650, Santa Ana, California 92705.
About Our Business
As of the date of this prospectus, we do not own any properties. We intend
to acquire properties with the net proceeds of this offering. We generally
intend to acquire existing office, industrial, retail and service properties,
including neighborhood retail centers and properties leased to one or more
tenants under net leases. Neighborhood retail centers are properties leased to
one or more retail tenants that focus primarily on the sale of consumer goods
and personal services for the daily living needs of the immediate neighborhood.
Under net leases, our tenants generally will be responsible for paying operating
expenses, real estate taxes, special assessments, sales and use taxes,
utilities, insurance and repairs and maintenance related to the properties.
We initially intend to acquire properties primarily in Alaska, Florida,
Iowa, Michigan, Minnesota, Nevada, North Carolina, South Carolina, South Dakota,
Tennessee, Texas, Virginia, Washington, Wisconsin and Wyoming, which we refer to
as the focus states. We intend that a majority of the properties will be at
least 75% leased on the acquisition date.
Our Advisor and the Dealer Manager
Triple Net Properties, LLC is our advisor and will generally manage our
business and assets. The advisor is affiliated with our company in that several
of our officers and directors serve as officers and directors of the advisor and
own approximately 36% of the outstanding ownership interest in our advisor. Our
advisor was formed in April of 1998 to serve as an asset and property manager
for real estate investment trusts, syndicated real estate limited partnerships,
limited liability companies and similar real estate entities. In addition to our
company, our advisor currently advises four other entities that invest in
various types of real estate with respect to the acquisition, management and
disposition of their properties, which entities may compete with us for
acquisition opportunities. Our advisor's principal offices are located at 1551
N. Tustin Avenue, Suite 650, Santa Ana, California 92705.
<PAGE>
Our advisor will purchase $200,000 of our common stock on the date we
commence this offering to the public, at a price of $9.05 per share. At least a
portion of the purchase price for those shares, and perhaps a substantial
portion, will be paid in the form of our advisor's forgiveness of debt we owe to
our advisor for expenses it incurred on our behalf in connection with the
formation of our company and this offering.
An affiliate of our advisor, NNN Capital Corp., will assist us in selling
our common stock under this prospectus by serving as the dealer manager of this
offering. Since August of 1986, the dealer manager has helped various syndicated
limited partnerships, limited liability companies and other real estate entities
raise money to invest in real estate. The President of our company and our
advisor, Anthony Thompson, currently owns 100% of the outstanding capital stock
of the dealer manager.
Summary Risk Factors
An investment in our common stock involves a number of risks. We urge you
to carefully consider the matters discussed under "Risk Factors" beginning on
page 6 before investing in our company. Such risks include, among several
others, those described below. However, not all important risks are listed in
this Summary, and you should consider carefully all of the other information
included in this prospectus before you decide to purchase any shares of our
common stock.
. There is no public market for our common stock and it will not be
listed on a national exchange or market system. It is not likely that
there will be an active trading market for our common stock. You may
not be able to easily resell your shares or to resell your shares at a
price that is equal to or greater than the price you paid for them.
. As of the date of this prospectus, we do not own any properties and
our advisor has not identified any properties for us to acquire. If we
are unable to acquire suitable properties, or suffer a delay in making
any acquisitions, we will not have any cash available for distribution
to you as a shareholder.
. To the extent we sell substantially less than the maximum number of
shares, we will not have sufficient funds after payment of offering
and related expenses to acquire a diverse portfolio of properties. The
resulting lack of property and geographic diversification would
materially increase the risk involved in purchasing our common stock.
. We will rely on our advisor to manage our business and properties and
the success of our business will depend on the ability of our advisor
to manage our day-to-day operations. Any adversity experienced by our
advisor or in our relationship with our advisor could disrupt the
operation of our properties and materially decrease our earnings.
. Our officers and directors will experience conflicts between the
interests of our company and the interests of our advisor, the dealer
manager and their affiliates. Many of the same persons who will serve
as our officers, directors and employees are also officers, directors,
employees or owners of our advisor, the dealer manager and their
affiliates. Any existing or future agreements between us and our
advisor, the dealer manager and their affiliates, including agreements
relating to their compensation, were not and will not be reached
through arm's-length negotiations. Such agreements may not solely
reflect your interests as a shareholder of our company.
-2-
<PAGE>
. Our affiliated advisor also serves as an advisor to Western REIT,
which is engaged in a business substantially similar to ours. Our
affiliated advisor does and will serve in similar capacities for a
number of entities and properties. These relationships will result in
further conflicts of interest between our company and our officers and
directors who work for our advisor. These and other conflicts may
result in such officers and directors taking actions and making
decisions that do not solely reflect your interests as a shareholder
of our company.
. Because the dealer manager is an affiliate of our company and our
advisor, you cannot consider the dealer manager's due diligence
investigation of our company to be an independent review of our
company. That due diligence review may not be as meaningful as a
review conducted by an unaffiliated broker-dealer.
. Our board of directors' ability to issue and set the terms of
preferred stock, without your approval, may deter or prevent a sale of
our company in which you could profit.
If we are unable to effectively manage the impact of these and other risks,
our ability to meet our investment objectives will be substantially impaired. In
turn, the value of your common stock and our distributions to you will be
materially reduced. See "Risk Factors."
Summary Business Objectives
Our primary business objectives are to acquire suitable properties and to
enhance the performance and value of those properties through management
strategies designed to address the needs of the modern real estate marketplace.
Our business and investment objectives are more fully described under
"Investment Objectives and Policies" and "Distribution Policy" and include the
following:
. to acquire well-located office, industrial, retail and service
properties;
. to manage the costs of those properties by centralizing management and
administrative functions;
. to improve cash flow at those properties by aggressive marketing; and
. to pay dividends to our shareholders.
We may incur indebtedness to fund the acquisition or operation of our
properties. We currently intend to limit our aggregate indebtedness, both
secured and unsecured, to no more than 60% of the aggregate of all of our
properties' fair market values, as determined at the end of each calendar year,
beginning with the first full year of operations.
This Offering
We are offering for sale to the residents of the states listed below a
maximum of 10,000,000 shares and a minimum of 100,000 shares of our common
stock. The minimum number of shares you may purchase is 100 ($1,000), except in
states which require a higher minimum purchase. This offering is being conducted
on a "best efforts" basis, which means that the securities dealers participating
in this offering are under no obligation to purchase any of the shares and,
therefore, no specified dollar amount is guaranteed to be raised. If we do not
sell 100,000 shares, we will return your investment to you plus interest and
without deducting for escrow expenses.
-3-
<PAGE>
In addition, we expect to issue:
. up to 250,000 shares upon the exercise of warrants granted to the
dealer manager which warrants may be reallowed to broker-dealers
participating in this offering.
. up to 700,000 shares to shareholders who elect to participate in our
dividend reinvestment program.
. up to 800,000 shares to our officers, employees and directors under
our two stock option plans.
Use of Proceeds
We will contribute the net proceeds of the sale of any common stock under
this prospectus to our operating partnership in return for 100% of the initial
interests in our operating partnership, other than the incentive limited
partnership interest owned by our advisor, which are described under "Agreement
of Limited Partnership--Incentive Units." Our operating partnership will use the
net proceeds to purchase suitable properties, to repay debt that we may assume
when acquiring properties in exchange for units of limited partnership interest
in our operating partnership and to pay the amounts due to our advisor and the
dealer manager.
Distributions
As a REIT, we must distribute to our shareholders at least 95% of our
annual taxable income. Because we have not identified any properties to acquire,
we cannot give any assurances as to when or if we will make distributions.
However, when we have acquired sufficient properties and such properties are
generating sufficient cash flow, we intend to pay regular monthly distributions
to our shareholders out of our cash available for distribution, in an amount
determined by our board of directors. The continuation of distributions and the
amount of the distributions depend upon a variety of factors, including:
. our cash available for distribution;
. our overall financial condition;
. our capital requirements;
. the annual distribution requirements applicable to REITs under
the federal income tax laws; and
. such other considerations as our board of directors may deem
relevant.
Summary Financial Information
We are newly formed and do not have a history of operations.
-4-
<PAGE>
Compensation to Our Advisor and the Dealer Manager
We will pay our advisor, the dealer manager and their affiliates
substantial amounts for assisting us in this offering and sale of our common
stock and for managing our business and assets.
In connection with the sale of our common stock in this offering, the
dealer manager will receive the following fees:
<TABLE>
<CAPTION>
Amount if Amount if
Description of Fee Calculation of Fee Minimum Sold Maximum Sold
------------------ ------------------ ------------ ------------
<S> <C> <C> <C>
. Selling Commission 8% of gross offering proceeds $80,000 $8,000,000
. Marking Support and Due 1.5% of gross offering $15,000 $1,500,000
Diligence Expense Reimbursement proceeds
. Warrants to purchase common one warrant for every forty warrants to warrants to purchase
stock at a price of $9.05 per shares of stock sold by purchase 2,500 250,000 shares
share broker-dealers in states that shares
permit such compensation
</TABLE>
In connection with the management of our business and properties, we will
pay our advisor the following fees:
<TABLE>
<CAPTION>
Amount if Amount if
Description of Fee Calculation of Fee Minimum Sold Maximum Sold
------------------ ------------------ ------------ ------------
<S> <C> <C> <C>
. Reimbursement of acquisition 0.5% of gross offering $5,000 $500,000
expenses proceeds (estimated)
. Asset management fee 1.5% of our average invested
assets
. Real estate commission An affiliate of our advisor will serve as our broker in property acquisitions and may
receive a real estate commission from the seller of a property equal to up to 2% of the
purchase price of the property.
. Return on incentive units of equal to 15% of the operating cashflow of our operating partnership
limited partnership interest in after we have received:
our operating partnership
. an 8% annual cumulative non-compounded return on the capital
we invested in the operating partnership; and
. any shortfall in the recovery of the capital we invested in
the operating partnership allocable to sold properties
. Property management fee 5% of gross income generated by our properties
</TABLE>
-5-
<PAGE>
Upon the disposition of any property, we will pay our advisor the following
fees.
<TABLE>
<CAPTION>
Description of Fee Calculation of Fee
------------------ ------------------
<S> <C>
. Property disposition fee equal to the lesser of 3% of sale price or 50% of
sales commission that would have been
paid to third party sales broker
Description of Fee Calculation of Fee
------------------ ------------------
. Incentive distribution on the equal to 15% of the net proceeds of the sale of the property after we
advisor's incentive limited have received:
partnership interest
. the amount of capital we invested in our operating partnership
allocable to such property;
. any shortfall in the recovery of our invested capital with
respect to prior sales of properties; and
. any shortfall in our 8% annual cumulative, non-compounded
return on the capital we invested in our operating partnership
</TABLE>
All of this compensation is more fully described under "Compensation Table."
-6-
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware that your
investment is subject to various risks, including those described below. You
should carefully consider these risks together with all of the other information
included in this prospectus before you decide to purchase any of our common
stock.
No Properties Owned; No Properties Identified For Investment
We currently own no properties and must acquire properties before we can
generate income or pay distributions to you as a shareholder.
As of the date of this prospectus, we do not own any properties. Our
advisor has neither identified nor placed under contract any properties for us
to acquire. We cannot give you any information as to the identification,
location, operating histories, lease terms or other relevant economic and
financial data regarding the properties that we will purchase with the net
proceeds of this offering. We may experience a delay between your purchase of
our shares and our purchase of properties. Such a delay will result in a delay
in the benefits to you, if any, of an investment in our company, including the
delay in the payment of any distributions to you as a shareholder.
Our success is totally dependent on our ability to acquire properties.
Thus, your investment is subject to the risks attendant to real estate
acquisitions, such as:
. the risk that properties may not perform in accordance with
expectations, including projected occupancy and rental rates;
. the risk that we may have overpaid for properties; and
. the risk that we may have underestimated the cost of improvements
required to bring an acquired property up to standards established for
its intended use or its intended market position.
See "--Acquisition Risks."
No Market for Our Common Stock
The absence of a market for our common stock will make it difficult for you
to sell your shares.
There is no public market for our common stock and we have no plans to list
our common stock on a stock exchange or market. You may not be able to resell
your shares promptly or at a price that is at or above the price at which you
purchased them. It is likely that there will not be an active trading market for
our common stock. It may be difficult for you to find a buyer for your shares if
you decide to sell them. The purchase price you pay for your shares may not be
indicative of either the price at which the shares may trade if they were
publicly traded on an exchange or the proceeds that you would receive if our
company were liquidated or dissolved.
-7-
<PAGE>
Total Reliance on Our Advisor
Our inability to find management to replace our advisor or a delay in finding
such management would adversely impact our ability to operate the properties
and, ultimately, our revenue.
We will rely on our advisor to manage our business and assets. Our advisor
will make all decisions with respect to the management of our company. Thus, the
success of our business will depend in large part on the ability of our advisor
to manage our day-to-day operations. Any adversity experienced by our advisor or
problems in our relationship with our advisor could adversely impact the
operation of our properties and, consequently, our cash flow and ability to make
distributions to our shareholders.
Either we or our advisor can terminate the advisory agreement upon 60 days'
written notice to the other party, in which case no termination or other fee
will be payable to our advisor. However, if the advisory agreement is terminated
as a result of the advisor's merger into our company in connection with the
listing of our shares on a national securities market or exchange, we will
redeem the advisor's incentive units in our operating partnership for cash, or
if agreed by both parties, shares of common stock of our company. Our cost to
redeem the incentive units will be the amount that would be payable to the
advisor pursuant to the "incentive distribution" and "incentive distribution
upon dispositions" described under the heading "Compensation Table" if we
liquidated all of our assets for their fair market value.
If our advisor cannot retain the services of its current key employees, their
replacements may not manage our company as effectively as we anticipate the
current key employees will.
We depend on our advisor to retain its key officers and employees, but none
of such individuals has an employment agreement with our advisor or its
affiliates. Our advisor's key employees are Mr. Thompson, Mr. Maurer, Ms.
Voorhies, Mr. McGregor and Mr. Gee. The loss of any of these individuals and our
ability to find, or any delay in finding, replacements with equivalent skill and
experience could adversely impact our ability to acquire properties and the
operation of our properties. See "Management of Our Company," and "Our
Advisor--Management."
Conflicts of Interest
Throughout this section and other sections of this prospectus, references
to affiliates of a person generally mean:
. any person directly or indirectly owning, controlling or holding, with
the power to vote, 10% or more of the outstanding voting securities of
such other person;
. any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with the power to
vote, by such other person;
. any person directly or indirectly controlling, controlled by or under
common control with such other person;
. any executive officer, director, trustee or general partner of such
other person; and
. any legal entity for which such person acts as an executive officer,
director, manager, trustee or general partner.
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The conflicts of interests described below may mean our company will not be
managed solely in your best interests as a shareholder.
Many of our officers and directors and our advisor's officers will have
conflicts of interest in managing our business and properties. Thus, they may
make decisions or take actions that do not solely reflect your interests as a
shareholder.
Our advisor also advises Western REIT and other entities that may compete
with our company or otherwise have similar business interests. All of our
officers are also officers of our advisor and Western REIT. Our Chairman, Chief
Executive Officer and President, Mr. Thompson, also serves as an officer of our
advisor and Western REIT. In addition, several of our officers and directors own
an interest in our advisor, the dealer manager or Western REIT. Mr. Thompson,
our Chairman, CEO and President, currently owns 100% of our dealer manager, and
Mr. Thompson, Mr. McGregor and Mr. Maurer collectively own approximately 36% of
our advisor.
As officers, directors and partial owners of entities with which we do
business or with interests in competition with our own interests, our officers
and directors will experience conflicts between their fiduciary obligations to
our company and their fiduciary obligations to, and pecuniary interests in, our
advisor, the dealer manager and their affiliated entities. This conflict of
interest could:
. limit the time and services that our officers and our advisor devote
to our company, because they will be providing similar services to
Western REIT and other real estate entities, and
. impair our ability to compete for acquisition of properties with
other real estate entities that are also advised by our advisor and
its affiliates, including Western REIT.
See "Conflicts of Interest--Competition for Time and Service of Our Advisor
and Affiliates."
If our advisor or its affiliates breach their fiduciary obligations to our
company, or do not resolve conflicts of interest in the manner described in the
section of this prospectus entitled "Conflicts of Interest--Process for
Resolution of Conflicting Opportunities," we may not meet our investment
objectives, which could reduce our expected cash available for distribution to
our shareholders.
The absence of arm's-length bargaining may mean that our agreements are not as
favorable to you as a shareholder as they otherwise would have been.
Any existing or future agreements between us and our advisor, the dealer
manager or their affiliates were not and will not be reached through
arm's-length negotiations. Thus, such agreements may not solely reflect your
interests as a shareholder. For example, the advisory agreement, our agreement
with the dealer manager and the terms of the compensation to our advisor and the
dealer manager were not arrived at through arm's-length negotiations. The terms
of such agreements and compensation may not solely reflect your interests as a
shareholder and may be overly favorable to the other party to such agreements.
See "Conflicts of Interest--Non-Arms Length Agreement; Conflicts; Competition"
and "Our Advisor--The Advisor Agreement."
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The fact that our company may not be able to achieve its investment objectives
may not be adequately investigated or described in this prospectus because the
due diligence investigation of our company was conducted by an affiliate.
Because the dealer manager is an affiliate of our advisor and several of
our officers and directors are officers, directors or owners of the dealer
manager, you cannot consider the dealer manager's due diligence investigation of
our company to be an independent review. The dealer manager's due diligence
review may not be as meaningful as a review conducted by an unaffiliated
broker-dealer. See "Conflicts of Interest--NNN Capital Corp. is Participating as
Dealer Manager in the Sale of Our Shares."
Lack of Investment Diversification
The affect of adverse conditions at specific properties will be magnified
to the extent we are able to acquire only a limited number of properties.
A lack of diversity in the properties in which we invest could increase
your risk in investing in our company. To the extent that less than the maximum
amount of this offering is sold, and until the maximum amount of this offering
is sold, we will not be able to purchase a diverse portfolio of properties. In
that event, our performance and the returns to you as a shareholder will depend
directly on the success of that limited number of properties. Adverse conditions
at that limited number of properties or in the location in which the properties
exist would have a direct negative impact on your return as a shareholder.
Acquisition Risks
Our inability to find funding for acquisitions could prevent us from realizing
our objectives and would adversely impact the amount of dividends we pay to our
shareholders and the value your investment in our company generally.
We may not be able to obtain financing to acquire properties, which would
limit the number of properties we could acquire and subject your investment to
further risk. As a REIT, we are required to distribute at least 95% of our
taxable income to our shareholders in each taxable year and thus our ability to
retain internally generated cash is limited. Accordingly, our ability to acquire
properties or to make capital improvements to or remodel properties will depend
on our ability to obtain debt or equity financing from third parties or the
sellers of properties. Other than the net proceeds of this offering, we have not
identified sources of funding for future acquisitions. We cannot assure you that
we will receive any proceeds from our dividend reinvestment program or, if we
do, that such proceeds will be available to acquire properties.
Our potential ownership of properties with special modifications could cause us
to incur substantial costs in remodeling, remarketing and re-leasing such
properties.
We may acquire properties that are designed or built primarily for a
particular tenant or a specific type of use. If we are holding such a property
on the termination of the lease and the tenant fails to renew or if the tenant
defaults on its lease obligations, the property may not be readily marketable to
a new tenant at all or without substantial capital improvements or remodeling.
Such improvements may require us to sell such property at a below-market price
or spend funds that would otherwise be available for distribution to you as a
shareholder.
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Competing for the acquisition of properties with others with superior financial
resources could make it more difficult for us to acquire attractive properties
and achieve our investment objectives.
We compete for investment opportunities with entities with substantially
greater financial resources. These entities may be able to accept more risk than
we can manage wisely. This competition may limit the number of suitable
investment opportunities offered to us. This competition may also increase the
bargaining power of property owners seeking to sell to us, making it more
difficult for us to acquire properties. In addition, we believe that competition
from entities organized for purposes substantially similar to ours has increased
and may increase in the future.
Joint Venture Arrangements
Any joint venture arrangements may not reflect solely our shareholders' best
interests.
The terms of any joint venture arrangements in which we acquire or hold
properties or other investments may not solely reflect your interests as a
shareholder. We may acquire an interest in a property through a joint venture or
co-ownership arrangement with our advisor, one or more of our advisor's
affiliates or unaffiliated third parties. In joint venture arrangements with our
advisor or its affiliates, our advisor will have fiduciary duties to both our
company and its affiliate participating in the joint venture. The terms of such
joint venture or co-ownership arrangement may be more favorable to the co-owner
than to you as a shareholder of our company.
Investing in properties through joint ventures subjects that investment to
increased risk.
Such joint venture investments may involve risks not otherwise present,
including, for example:
. the risk that our co-venturer, co-tenant or partner in an investment
might become bankrupt;
. the risk that such co-venturer, co-tenant or partner may at any time
have economic or business interests or goals which are inconsistent
with our business interests or goals; or
. the risk that such co-venturer, co-tenant or partner may be in a
position to take action contrary to our instructions or requests or
contrary to our policies or objectives.
Actions by such a co-venturer, co-tenant or partner might have the result of
subjecting the applicable property to liabilities in excess of those otherwise
contemplated and may have the effect of reducing our cash available for
distribution. It may also be difficult for us to sell our interest in any such
joint venture or partnership or as a co-tenant in such property. See "Conflicts
of Interest--Our Advisor May Have Conflicting Fiduciary Obligations in the Event
Our Company Acquires Properties with Our Advisors or Affiliates," and
"Investment Objectives and Policies--Joint Ventures."
Insufficient Reserves
Insufficient reserves may adversely impact our ability to fund our working
capital needs.
We may not be able to fund our working capital needs. As a REIT, we are
required to distribute at least 95% of our taxable income to our shareholders in
each taxable year. However, depending on the size of our operations, we will
require a minimum amount of capital to fund our daily operations. Initially, we
will not establish any reserves to fund our working capital needs. We may have
to obtain financing from either affiliated or unaffiliated sources to meet such
cash needs. There is no assurance that this financing will be available or, if
available, that the terms will be acceptable to us.
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Borrowings May Increase Our Business Risks
As we incur indebtedness, the risk associated with your investment in our
company will increase.
The risk associated with your investment in our company depends on, among
other factors, the amount of debt we incur. We intend to incur indebtedness in
connection with our acquisition of properties. We may also borrow for the
purpose of maintaining our operations or funding our working capital needs.
Lenders may require restrictions on future borrowings, distributions and
operating policies. We also may incur indebtedness if necessary to satisfy the
federal income tax requirement that we distribute at least 95% of our taxable
income to our shareholders in each taxable year. Borrowing increases our
business risks. Debt service increases the expense of operations since we will
be responsible for retiring the debt and paying the attendant interest, which
may result in decreased cash available for distribution to you as a shareholder.
In the event the fair market value of our properties were to increase, we could
incur more debt without a commensurate increase in cash flow to service the
debt. In addition, our directors can change our debt policy at any time without
shareholder approval. See "Investment Objectives and Policies--Our Policies With
Respect to Borrowing," and "Distribution Policy."
We may incur indebtedness secured by our properties, which may subject our
properties to foreclosure.
Incurring mortgage indebtedness increases the risk of possible loss. Most
of our borrowings to acquire properties will be secured by mortgages on our
properties. If we default on our secured indebtedness, the lender may foreclose
and we could lose our entire investment in the properties securing such loan.
For federal tax purposes, any such foreclosure would be treated as a sale of the
property for a purchase price equal to the outstanding balance of the debt
secured by the mortgage and, if the outstanding balance of the debt secured by
the mortgage exceeds the basis of the property to our company, there could be
taxable income upon a foreclosure. To the extent lenders require our company to
cross-collateralize its properties, or its loan agreements contain cross-default
provisions, a default under a single loan agreement could subject multiple
properties to foreclosures.
Increases in interest rates could increase the amount of our debt payments and
adversely affect our ability to make cash distributions to our
shareholders.
Adverse economic conditions could result in higher interest rates which
could increase debt service requirements on variable rate debt and could reduce
the amounts available for distribution to you as a shareholder. Adverse economic
conditions could cause the terms on which borrowings become available to be
unfavorable. In such circumstances, if we are in need of capital to repay
indebtedness in accordance with its terms or otherwise, we could be required to
liquidate one or more of our investments in properties at times which may not
permit realization of the maximum return on such investments.
Our use of hedging instruments to reduce the risks of increasing interest rates
may cause us to incur costs if such hedges do not function as intended.
We may employ a hedging strategy to attempt to limit the effects of changes
in interest rates on our operations, including engaging in interest rate swaps,
caps, floors and other interest rate exchange contracts. The use of these types
of derivatives to hedge our assets and liabilities carries risks, including the
risk that losses on a hedge position will reduce our cash available for
distribution to you as a shareholder and that such losses may exceed the amount
invested in such instruments. There is no perfect hedge and a hedge may not
perform its intended use of offsetting losses. Moreover, with respect
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to the instruments we intend to use as hedges for our assets and liabilities, we
will be exposed to the risk that the counterparties to the hedge investments may
cease making markets and quoting prices in such hedge instruments, which may
render us unable to enter into an offsetting transaction with respect to an open
position.
Our Ability to Change Policies Without a Shareholder Vote; No Limitation on
Debt
Most of our policies described in this prospectus, including the limits on debt,
may be changed or removed by our board of directors at any time without a vote
of the shareholders.
Most of our major policies, including policies intended to protect you as a
shareholder and the policies described in this prospectus with respect to
acquisitions, financing, limitations on debt and investment limitations, have
been determined by our board of directors and can be changed at any time without
a vote of our shareholders or notice to you as a shareholder. Therefore, these
policies and limitations may not be meaningful to protect your interests as a
shareholder. See "Investment Objectives and Policies--Description of Our
Leases," "--Our Policies With Respect to Borrowing," "--Changes in Our
Investment Objectives," and "--Investment Limitations."
Limited Experience in Managing a REIT
Your investment in our company may not perform as well as an investment in a
company with a management team that has more experience in managing a REIT.
Our officers and directors, and the officers and directors of our advisor,
have limited or no experience in managing the affairs of a REIT, which include
complicated operations and tax issues. Your investment in our company may not
perform as well as an investment in similar companies with management teams that
have experience in operating REITs. See "Management of Our Company," and "Our
Advisor."
Possible Adverse Consequences of Limits on Ownership and Transfer of Our Shares
The limitation on ownership of our common stock will prevent you from acquiring
more than 9.9% of our stock and may force you to sell stock back to us.
Our articles of incorporation limit direct and indirect ownership of our
capital stock by any single shareholder to 9.9% of the number of outstanding
shares of our common stock and 9.9% of the number of outstanding shares of our
preferred stock of any class or series. We refer to this limitation as the
ownership limit. Our articles of incorporation also prohibit transfers of our
stock that would result in (1) our capital stock being beneficially owned by
fewer than 100 persons, (2) five or fewer individuals, including natural
persons, private foundations, specified employee benefit plans and trusts, and
charitable trusts, owning more than 50% of our capital stock, applying broad
attribution rules imposed by the federal income tax laws, (3) our company owning
10% or more of one of our tenants, or (4) before our common stock qualifies as a
class of "publicly-offered securities," 25% or more of the common stock being
owned by ERISA investors. If you acquire shares in excess of the ownership limit
or the restrictions on transfer, we:
. will consider the transfer to be null and void;
. will not reflect the transaction on our books;
. may institute legal action to enjoin the transaction;
. will not pay dividends or other distributions to you with respect to
those excess shares;
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. will not recognize your voting rights for those excess shares; and
. will consider the excess shares held in trust for the benefit of a
charitable beneficiary.
You will be paid for such excess shares a price per share equal to the
lesser of the price you paid or the "market price" of our stock. Unless our
shares are then traded on a national securities exchange or trading system, the
market price of such shares will be a price determined by our board of directors
in good faith. If our shares are traded on a national securities exchange or
trading system, the market price will be the average of the last sales prices or
the average of the last bid and ask prices for the five trading days immediately
preceding the date of determination.
If you acquire our stock in violation of the ownership limit or the
restrictions on transfer described above:
. you may lose your power to dispose of the stock;
. you may not recognize profit from the sale of such stock if the
"market price" of the stock increases; and
. you may incur a loss from the sale of such stock if the "market price"
decreases.
See "Description of Capital Stock--Restrictions on Ownership and Transfer."
Potential Anti-Takeover Effects
Limitations on share ownership and transfer may deter a sale of our company in
which you could profit.
The limits on ownership and transfer of our equity securities in our
articles of incorporation may have the effect of delaying, deferring or
preventing a transaction or a change in control of our company that might
involve a premium price for your common stock or otherwise be in your best
interest as a shareholder. The ownership limit and restrictions on
transferability will continue to apply until our board of directors determines
that it is no longer in our best interest to continue to qualify as a REIT and
there is an affirmative vote of a majority of the votes entitled to be cast on
such matter at a regular or special meeting of our shareholders to terminate our
qualification as a REIT. See "Description of Capital Stock--Restrictions on
Ownership and Transfer."
Our ability to issue preferred stock may also deter or prevent a sale of our
company in which you could profit.
Our ability to issue preferred stock and other securities without your
approval could also deter or prevent someone from acquiring our company, even if
a change in control were in your best interests as a shareholder. Our articles
of incorporation authorize our board of directors to issue up to 10,000,000
shares of preferred stock. Our board of directors may establish the preferences
and rights of any issued preferred shares designed to prevent, or with the
effect of preventing, someone from acquiring control of our company. See
"Description of Capital Stock--Issuance of Additional Securities and Debt
Instruments."
Virginia anti-takeover statutes may deter others from seeking to acquire our
company and prevent you from making a profit in such transaction.
Virginia law contains many provisions that are designed to prevent, or with
the effect of preventing, someone from acquiring control of our company. These
laws may delay or prevent offers to acquire our company and increase the
difficulty of consummating any such offers, even if such a
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transaction would be in our shareholders' best interests. See "Important
Provisions of Virginia Corporate Law and Our Articles of Incorporation and
Bylaws."
Dilution
Your investment in our company will be diluted immediately by $0.95 per
share.
The offering price is $10.00 per share. After the payment of selling
commission and marketing and due diligence expenses, we will receive $9.05 per
share. As a result of these expenses, you will experience immediate dilution of
$0.95 in book value per share or 9.5% of the offering price. To the extent that
you do not participate in any future issuance of our securities, you will also
experience dilution of your ownership percentage in our company.
Several potential events could cause the fair market and book value of your
investment in our company to decline.
Your investment in our company could be diluted by a number of factors,
including:
. future offerings of our securities, including issuances under our
dividend reinvestment program;
. private issuances of our securities to other investors, including
institutional investors;
. issuances of our securities upon the exercise of warrants, including
the warrants issued to our dealer manager in this offering, and
options, including the officer, employee and director stock options;
or
. redemptions of units of limited partnership interest in our operating
partnership in exchange for shares of common stock.
Negative Characteristics of Investments in Neighborhood Retail Centers
Generally
If we acquire neighborhood retail centers, the following events could
adversely affect our revenues and ability to make distributions to our
shareholders:
. the bankruptcy or insolvency, or a downturn in the business, of any
anchor tenant, meaning any tenant occupying approximately 30% or more
of the gross leasable area of a neighborhood retail center;
. the failure of any anchor tenant to renew its lease when it expires;
. the lease termination by an anchor tenant resulting in lease
terminations or reductions in rent by other tenants whose leases
permit cancellation or rent reduction in the event an anchor tenant's
lease is terminated;
. the transfer by an anchor tenant of its lease to a new anchor tenant
resulting in the decrease of customer traffic in the neighborhood
retail center, the reduction in income generated by that center and
the possibility that other tenants would be permitted to make reduced
rental payments or to terminate their leases at the center; and
. failure to lease space to tenants on terms which are attractive to the
company.
If any of these events were to occur, we could experience substantial
difficulty in re-leasing any vacated space. Moreover, each of these developments
could adversely affect our revenues and our ability to make expected
distributions to you.
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Restrictions on re-leasing space will make it difficult for us to find tenants
for vacant space in neighborhood retail centers and may prevent us from meeting
our revenue objectives with respect to those properties.
We may have difficulty in re-leasing space in neighborhood retail centers
because of the limited number of tenants that would find such lease attractive.
Many, if not all, of our neighborhood retail center leases will contain
provisions giving the tenant the exclusive right to sell a specific type of
merchandise or provide a specific type of services within that neighborhood
retail center or limiting the ability of other tenants to sell such merchandise
or provide such services. When re-leasing space in a neighborhood retail center
after a vacancy occurs, these "exclusives" will limit the number and types of
prospective tenants for the vacant space.
Competition for tenants and customers may limit the amount of rent we can charge
and prevent us from meeting our revenue objectives with respect to our
properties.
The construction of retail centers in locations competitive with our
neighborhood retail centers could adversely affect our business by causing
increased competition for customer traffic and tenants. This could result in
decreased cash flow for tenants. This may also require us to make capital
improvements to our properties to compete with other retail centers. This
competition could limit the amounts of cash available for distributions to you.
Seller Financing by Our Company May Delay Liquidation or Reinvestment
You may not receive any profits resulting from the sale of one of our
properties, or receive such profits in a timely manner, because we may provide
financing for the purchaser of such property.
If we liquidate our company, you may experience a delay before receiving
your share of the proceeds of such liquidation. In a forced or voluntary
liquidation, we may sell our properties either subject to or upon the assumption
of any then outstanding mortgage debt or, alternatively, may provide financing
to purchasers. We may take a purchase money obligation secured by a mortgage as
part payment. We do not have any limitations or restrictions on our taking such
purchase money obligations. To the extent we receive promissory notes or other
property in lieu of cash from sales, such proceeds, other than any interest
payable on those proceeds, will not be included in net sale proceeds until and
to the extent the promissory notes or other property are actually paid, sold,
refinanced or otherwise disposed of. In many cases, we will receive initial down
payments in the year of sale in an amount less than the selling price and
subsequent payments will be spread over a number of years. Therefore, you may
experience a delay in the distribution of the proceeds of a sale until such
time. See "Investment Objectives and Policies--Sale or Disposition of
Properties."
Negative Characteristics of Real Estate Investments
We depend on our tenants to pay rent, and their inability to pay rent may
substantially reduce our revenues and cash available for distribution to our
shareholders.
Our investments in office, industrial, retail and service properties will
be subject to varying degrees of risk that generally arise from the ownership of
real estate. The underlying value of our properties and the income and ability
to make distributions to you depend on the ability of the tenants of our
properties to generate enough income in excess of their operating expenses to
make their lease payments to us. Changes beyond our control may adversely affect
our tenants' ability to make lease
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payments and consequently would substantially reduce both our income from
operations and our ability to make distributions to you. These changes include,
among others, the following:
. changes in national, regional or local economic conditions;
. changes in local market conditions or neighborhood characteristics;
and
. changes in federal, state or local regulations and controls affecting
rents, prices of goods, interest rates, fuel and energy
consumption.
Due to these changes or others, tenants and lease guarantors, if any, may
be unable to make their lease payments. A default by a tenant, the failure of a
tenant's guarantor to fulfill its obligations or other premature termination of
a lease could, depending on the size of the leased premises and our advisor's
ability to successfully find a substitute tenant, have a materially adverse
effect on our revenues and the value of our common stock or our cash available
for distribution to our shareholders.
If we are unable to find tenants for our properties, or find replacement tenants
when leases expire and are not renewed by the tenants, our revenues and cash
available for distribution to our shareholders will be substantially
reduced.
Increased construction of similar properties that compete with our properties in
any particular location could adversely affect the operating results of our
properties and our cash available for distribution to our shareholders.
We may acquire properties in locations which experience increases in
construction of properties that compete with our properties. This increased
competition and construction could:
. make it more difficult for us to find tenants to lease our space;
. force us to lower our rental prices in order to lease space; and
. substantially reduce our revenues and cash available for distribution
to our shareholders.
Lack of diversification and liquidity of real estate will make it
difficult for us to sell underperforming properties or recover our investment in
one or more properties.
Our business will be subject to risks associated with investment solely in
real estate. Real estate investments are relatively illiquid. Our ability to
vary our portfolio in response to changes in economic and other conditions will
be limited. We cannot assure you that we will be able to dispose of a property
when we want or need to. Consequently, the sale price for any property may not
recoup or exceed the amount of our investment.
Environmental laws governing properties we acquire may cause us to incur
additional costs to comply with such laws.
We may acquire properties that have unknown environmental problems or
develop environmental problems after acquisition that could require substantial
expenditures to remedy. Often, federal and state laws impose liability on
property owners or operators for the clean-up or removal of hazardous substances
on their properties even if the present owner did not know of, or was not
responsible for, the contamination caused by the substances. In addition to the
costs of clean-up, contamination can affect the value of a property, our ability
to lease and sell the property, and our ability to borrow funds using the
property as collateral. Environmental laws typically allow the government to
place liens for such liabilities against affected properties, which liens would
be senior in priority to other
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liens. Costs that we incur to remedy environmental problems would reduce our
cash available for distribution to you as a shareholder.
Compliance with the Americans with Disabilities Act at our properties may cause
us to incur additional costs.
We may acquire properties that are not in compliance with the Americans
with Disabilities Act of 1990. We would be required to pay for improvement to
the properties to effect compliance with the ADA. Under the ADA, all public
accommodations must meet federal requirements related to access and use by
disabled persons. The ADA requirements could require removal of access barriers
and could result in the imposition of fines by the federal government or an
award of damages to private litigants. We could be liable for violations of such
laws and regulations by us or our tenants. State and federal laws in this area
are constantly evolving, and could evolve to place a greater cost or burden on
us as landlord of the properties we acquire.
Losses for which we either could not or did not obtain insurance will adversely
affect our earnings.
We could suffer a loss due to the cost to repair any damage to properties
that are not insured or are underinsured. There are types of losses, generally
of a catastrophic nature, such as losses due to wars, earthquakes or acts of
God, that are either uninsurable or not economically insurable. We may acquire
properties that are located in areas where there exists a risk of earthquakes,
floods or other acts of God. Generally, we will not obtain insurance for
earthquakes, floods or other acts of God unless required by a lender or our
advisor determines that such insurance is necessary and may be obtained on a
cost-effective basis. If such a catastrophic event were to occur, or cause the
destruction of, one or more of our properties, we could lose both our invested
capital and anticipated profits from such property. See "Investment Objectives
and Policies--Description of Our Leases."
The recharacterization of any sale and leaseback transactions could cause us to
lose properties without full compensation.
If a seller/lessee in a sale and leaseback transaction in which we are the
buyer/lessor declares bankruptcy, we could suffer a material loss due to
recharacterization of our ownership of that property as financing. We intend to
enter into sale and leaseback transactions, in which we will purchase a property
from an entity and lease such property back to that same entity. In the event of
the bankruptcy of a lessee in a sale leaseback transaction, the trustee in
bankruptcy may seek to recharacterize the transaction as either a financing or
as a joint venture. To the extent the sale and leaseback is treated as a
financing, the lessee may be deemed the owner of the property and we would have
the status of a creditor with respect to the property. We may not be able to
reacquire the property and may not be adequately compensated for our loss of the
property. Sale and leaseback transactions also may be recharacterized as
financings for tax purposes, in which case we would not be allowed depreciation
and other deductions with respect to the property.
Our investments in unimproved real property will take longer to produce returns
and will be riskier than investments in developed property.
Our board of directors has the discretion to invest up to 10% of our total
assets in other types of property, including land, apartments or other
residential property. In addition to the risks of real estate investments in
general, an investment in unimproved real property is subject to additional
risks,
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including the expense and delay which may be associated with rezoning the land
for a higher use and the development and environmental concerns of governmental
entities and/or community groups.
Federal Income Tax Requirements
Generally
There are various federal income tax risks associated with an investment in
our company. Although the provisions of the federal income tax laws relevant to
an investment in our company are described generally in the section of this
prospectus entitled "Federal Income Tax Consequences of Our Status as a REIT,"
you are strongly urged to consult your tax advisor concerning the effects of the
federal income tax laws on an investment in our company and on your individual
tax situation.
We intend to operate in a manner so as to qualify as a REIT for federal
income tax purposes. Qualifying as a REIT will require us to meet several tests
regarding the nature of our assets and income on an ongoing basis.
The REIT minimum distribution requirements may require us to borrow to make
required distributions, which would increase the risk associated with your
investment in our company.
In order to qualify as a REIT, we must distribute each calendar year to our
shareholders at least 95% of our taxable income, other than any net capital
gain. To the extent that we distribute at least 95%, but less than 100%, of our
taxable income in a calendar year, we will incur federal corporate income tax on
our undistributed taxable income. In addition, we will incur a 4% nondeductible
excise tax if the actual amount we distribute to our shareholders in a calendar
year is less than a minimum amount specified under federal income tax law. We
intend to distribute all of our taxable income to our shareholders each year so
that we will satisfy the 95% test and avoid corporate income tax and the 4%
excise tax. However, we could be required to include earnings in our taxable
income before we actually receive the related cash. That timing difference could
require us to borrow funds to meet the 95% test and avoid corporate income tax
and the 4% excise tax in a particular year. See "Federal Income Tax Consequences
of Our Status as a REIT--Requirements for Qualification--Distribution
Requirements."
Our failure to qualify as a REIT would subject us to corporate income tax and
would materially impact our earnings.
If we fail to qualify as a REIT in any year, we would pay federal income
tax on our taxable income. We might need to borrow money or sell assets to pay
that tax. Our payment of income tax would decrease the amount of our income
available to be distributed to our shareholders. In addition, we no longer would
be required to distribute substantially all of our taxable income to our
shareholders. Unless our failure to qualify as a REIT is excused under relief
provisions of the federal income tax laws, we could not re-elect REIT status
until the fifth calendar year following the year in which we fail to qualify.
See "Federal Income Tax Consequences of Our Status as a REIT--Failure to
Qualify."
Effects of ERISA Regulations
Our common stock may not be a suitable investment for qualified pension and
profit-sharing trusts.
When considering an investment in our company with a portion of the assets
of a qualified pension or profit-sharing trust, you should consider:
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. whether the investment satisfies the diversification requirements of
the Employee Retirement Income Security Act of 1974 ("ERISA"), or
other applicable restrictions imposed by ERISA; and
. whether the investment is prudent and suitable, since we anticipate
that initially there will be no market in which you can sell or
otherwise dispose of our shares.
We have not evaluated, and will not evaluate, whether an investment in our
company is suitable for any particular employee benefit plan, but, subject to
restrictions described in "ERISA Considerations," we will accept such entities
as shareholders if an entity otherwise meets the suitability standards.
If we are considered a "pension-held REIT," an investment in our company
may produce unrelated business taxable income for a qualified pension or profit
sharing trust, which may cause a qualified pension or profit sharing trust
holding 10% or more of our stock to pay federal income tax on a portion of the
distributions it receives from us. See "Federal Income Tax Consequences of Our
Status as a REIT--Taxation of Tax-Exempt Shareholders."
In addition to considering their fiduciary responsibilities under ERISA and
the prohibited transaction rules of ERISA and the federal tax laws, advisors to
employee benefit plans should also consider the effect of the "plan asset"
regulations issued by the Department of Labor. To avoid being subject to those
regulations, our articles of incorporation prohibit ERISA investors from owning
25% or more of our common stock prior to the time that the common stock
qualifies as a class of "publicly-offered securities." However, we cannot assure
you that those provisions in our articles will be effective. See "ERISA
Considerations."
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INVESTOR SUITABILITY STANDARDS
An investment in our company involves significant risk. An investment in
our common stock is suitable only for persons who have adequate financial means
and desire a relatively long-term investment with respect to which they do not
anticipate any need for immediate liquidity.
We intend to offer our shares for sale to the residents of Alabama,
Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida,
Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New
Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania,
Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Virginia,
Washington, West Virginia, Wisconsin and Wyoming. We refer to these states as
the sales states.
We will not sell to residents of Pennsylvania until we have sold 1,000,000
shares.
Some of our sales states may have established suitability standards that
are less rigorous than those described in this prospectus. We reserve the right
to sell to investors in those states that meet such state's suitability
standards but may not necessarily meet our suitability standards described in
this prospectus. On the other hand, some of our sales states have established
suitability standards for individual investors and subsequent transferees that
are more rigorous than those set by our company. We must adhere to those state
standards when selling to investors in such states.
If you are an individual, including an individual beneficiary of a
purchasing Individual Retirement Account, or if you are a fiduciary, such as a
trustee of a trust or corporate pension or profit sharing plan, or other
tax-exempt organization, or a custodian under a Uniform Gifts to Minors Act, you
must represent that you meet our investor suitability standards, as set forth in
the Subscription Agreement attached as Exhibit B to this prospectus, including
the following:
(1) that you or, in the case of a fiduciary, that the fiduciary account or
the donor who directly or indirectly supplies the funds to purchase
our common stock have a minimum annual gross income of $45,000 and a
net worth of not less than $45,000; or
(2) that you or, in the case of a fiduciary, that the fiduciary account or
the donor who directly or indirectly supplies the funds to purchase
our common stock have a net worth of not less than $150,000.
Net worth in all cases excludes home, furnishings and automobiles.
Several states have established suitability standards different from those
we have established. In these states, shares will be sold only to investors who
meet the special suitability standards set forth below:
New Hampshire: Investors must have either (1) a net worth of at least
$250,000 or (2) gross annual income of $50,000 and a net worth of at least
$125,000.
North Carolina: Investors must have either (1) a net worth of at least
$225,000 or (2) gross annual income of $60,000 and a net worth of at least
$60,000.
Tennessee: Investors must have (1) a minimum net worth of at least $250,000
exclusive of home, home furnishing, and automobiles and to have had during the
last tax year and be expected to have during the current tax year a gross income
of at least $65,000 or (2) a minimum net worth of at least $500,000 exclusive of
home, home furnishing and automobile.
The minimum purchase is 100 shares of our common stock ($1,000), except in
Minnesota, which requires a minimum investment of 250 shares, or $2,500. We will
not permit transfers of less than the minimum required
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purchase. Only in very limited circumstances may you transfer, fractionalize or
subdivide such shares so as to retain less than the minimum number of our
shares. For purposes of satisfying the minimum investment requirement for our
retirement plans, unless otherwise prohibited by state law, a husband and wife
may jointly contribute funds from their separate IRAs provided that each such
contribution is made in increments of at least $100. However, please note that
your investment in our company will not, in itself, create a retirement plan for
you and that, in order to create a retirement plan, you must comply with all
applicable provisions of the federal income tax laws. After you have purchased
the minimum investment, any additional investments must be made in increments of
at least 10 shares of our common stock ($100), except for purchases of shares
under the dividend reinvestment program, which may be in lesser amounts.
Ensuring Our Suitability Standards are Adhered To
In order to assure adherence to the suitability standards described above,
requisite suitability standards must be met as set forth in the Subscription
Agreement, including the Subscription Agreement Signature Page, which is
attached as Exhibit B to this prospectus. We and each person selling common
stock on our behalf are required to (1) make reasonable efforts to assure that
each person purchasing our common stock is suitable in light of such person's
age, educational level, knowledge of investments, financial means and other
pertinent factors and (2) maintain records for at least six years of the
information used to determine that an investment in our common stock is suitable
and appropriate for each investor. Our agreements with the selling
broker-dealers require such broker-dealers to (1) make inquiries diligently as
required by law of all prospective investors in order to ascertain whether an
investment in our company is suitable for the investor and (2) transmit promptly
to us all fully completed and duly executed Subscription Agreements.
In addition, by signing the Subscription Agreement Signature Page attached
hereto as Exhibit B, you are representing and warranting to us that you have
received a copy of this prospectus, that you agree to be bound by our amended
and restated articles of incorporation, that you meet the net worth and annual
gross income requirements described above and that you will comply with
requirements of California law summarized in that Exhibit with respect to resale
of shares of common stock. These representations and warranties help us to
ensure that you are fully informed about an investment in our company and that
we adhere to our suitability standards. In the event you or another shareholder
or a regulatory authority attempted to hold our company liable because
shareholders did not receive copies of this prospectus, were not adequately
informed of the requirements of our articles of incorporation or because we
failed to adhere to each state's investor suitability requirements, we will
assert these representations and warranties made by you in any proceeding in
which such potential liability is disputed in an attempt to avoid any such
liability.
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ESTIMATED USE OF PROCEEDS OF THIS OFFERING
We will contribute the net proceeds of the sale of any common stock we
offer under this prospectus to our operating partnership in return for 100% of
the initial interests in our operating partnership, other than our advisor's
incentive limited partnership interest. Our operating partnership will use the
net proceeds to purchase suitable properties and to repay debt that we may
assume when acquiring properties in exchange for units of limited partnership
interest in our operating partnership and to pay the amounts due to our advisor
and the dealer manager.
The following table sets forth information concerning the estimated use of
the gross proceeds of this offering. Many of the figures set forth below
represent our best estimate since they cannot be precisely calculated at this
time. Please note that in this table, the Maximum Offering column does not
include up to 700,000 shares that may be issued under our dividend reinvestment
program, up to 250,000 shares that may be issued under the exercise of warrants
issued to our dealer manager in this offering, and up to 800,000 shares that may
be issued under two stock option plans. The amounts shown for Gross Offering
Proceeds do not reflect the possible discounts in commissions and other fees as
described in "Plan of Distribution."
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
---------------- ----------------
Amount Percent Amount Percent
------------ ------- ------------ -------
<S> <C> <C>
Gross Offering Proceeds $ 1,000,000 100% $100,000,000 100%
Less Public Offering Expenses:
Selling Commissions 80,000 8% 8,000,000 8%
Marketing Support and Due Diligence
Reimbursement Fee 15,000 1.5% 1,500,000 1.5%
Other Organizational and Offering Expenses 25,000 2.5% 2,500,000 2.5%
Total Organizational and Offering Expenses 120,000 12% 12,000,000 12%
------------ ----- ------------ -----
Net Proceeds to Company $ 880,000 88% $ 88,000,000 88%
------------ ----- ------------ -----
Miscellaneous Acquisition Expenses 5,000 0.5% 500,000 0.5%
------------ ----- ------------ -----
Amount Available for Investment in Properties $ 875,000 87.5% $ 87,500,000 87.5%
============ ===== ============ =====
</TABLE>
The compensation we will pay to our advisor and dealer manager is described
under "Compensation Table." The dealer manager may seek the assistance of other
broker-dealers in selling our common stock and may reallow the selling
commissions it receives to such broker-dealers.
The total organizational and offering expenses that we will pay in
connection with our company's formation and the offering and sale of shares of
our common stock will be reasonable and will not exceed an amount equal to 15%
of the proceeds raised in this offering.
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OUR COMPANY
Some of the information you will find in this prospectus may contain
"forward-looking" statements. You can identify such statements by the use of
forward-looking words such as "may," "will," "anticipate," "expect," "estimate,"
"continue" or other similar words. These types of statements discuss future
expectations or contain projections or estimates. When considering such
forward-looking statements, you should keep in mind the following risk factors.
These risk factors could cause our actual results to differ materially from
those contained in any forward-looking statement.
T REIT, Inc. was formed as a Virginia corporation in December of 1998 and
intends to qualify as a real estate investment trust for federal income tax
purposes. As of the date of this prospectus, we do not own any properties but
anticipate acquiring properties with the net proceeds of this offering. We
intend to invest in office, industrial, retail and service properties primarily
in designated states throughout the United States. We may acquire neighborhood
retail centers, which are properties designed for lease to one or more retail
tenants that focus primarily on the sale of consumer goods and services to the
immediate neighborhood. We may lease our properties to tenants under net leases.
We may acquire retail and office properties in sale and leaseback transactions
in which creditworthy tenants enter into net leases with our company.
We plan to acquire properties primarily in the fifteen focus states, which
are Alaska, Florida, Iowa, Michigan, Minnesota, Nevada, North Carolina, South
Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin and
Wyoming. However, we may decide to acquire properties in other states.
We will conduct business and own properties through our operating
partnership, T REIT Operating Partnership, L.P., which was formed as a Virginia
limited partnership in May 1999. We will be the sole general partner of our
operating partnership and will have control over the affairs of our operating
partnership. We will contribute the net proceeds of this offering to our
operating partnership in exchange for 100% of the initial capital and profits
interests in our operating partnership, other than the incentive limited
partnership interest owned by our advisor. In the future, our operating
partnership may issue units of limited partnership interest in exchange for
suitable properties. Our operating partnership will use the net proceeds of this
offering to purchase suitable properties and to repay debt secured by properties
contributed to it in exchange for units of limited partnership interest.
Our day to day operations will be managed by our advisor, Triple Net
Properties, LLC, under an advisory agreement. Our advisor was formed in April of
1998 to serve as an asset and property manager for real estate investment
trusts, syndicated real estate limited partnerships and limited liability
companies and similar real estate entities. See "Our Advisor."
INVESTMENT OBJECTIVES AND POLICIES
General
Our board of directors has established written policies on investment
objectives and borrowing. While it is our board's responsibility to monitor the
administrative procedures, investment operations and performance of our company
and our advisor to assure such policies are carried out, generally our board may
change our policies or investment objectives at any time without a vote of our
shareholders. The independent directors will review our investment policies at
least annually to determine that our policies are in the best interests of our
shareholders and will set forth their determinations in the minutes of the board
meetings.
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Types of Investments
We intend to acquire office, industrial, retail and service properties,
including neighborhood retail centers and single-user properties leased by
generally creditworthy tenants under net leases. We may enter into sale and
leaseback transactions, under which we will purchase a property from an entity
and lease the property back to such entity under a net lease.
"Net" leases typically require that tenants pay all or a majority of the
operating expenses, including real estate taxes, special assessments and sales
and use taxes, utilities, insurance and building repairs related to the
property, in addition to the lease payments. We expect that most of our leases
will be for terms of 10 to 15 years, but generally not less than 5 years, and
may provide for a base minimum annual rent with periodic increases. We consider
a tenant to be creditworthy when it has:
. a corporate debt rating by Moody's or Standard & Poors of B or better;
. a minimum tangible net worth equal to ten times one year's rental
payments required under the terms of the lease; or
. a guaranty for its payments under the lease by a guarantor with a
minimum tangible net worth of $10 million.
A majority of properties acquired will be at least 75% leased on the
acquisition date. We may acquire properties free and clear of permanent mortgage
indebtedness by paying the entire purchase price for such property in cash or in
units of limited partnership interest in our operating partnership. However,
when we think it is prudent, we will incur indebtedness to acquire properties.
On properties purchased on an all-cash basis, we may later incur mortgage
indebtedness by obtaining loans secured by selected properties, if favorable
financing terms are available. The proceeds from such loans would be used to
acquire additional properties and increase our cash flow. We do not intend to
incur indebtedness in excess of 60% of the aggregate fair market value of all
our properties, as determined at the end of each calendar year beginning with
our first full year of operations. Fair market value will be determined each
year by an internal or independent certified appraiser and in a similar manner
as the fair market determination at the time of purchase.
We will not make loans to persons or entities except as described under
"--Making Loans and Investments in Mortgages."
Our advisor and its affiliates may purchase properties in their own name,
assume loans in connection with the purchase of properties and temporarily hold
title to such properties for the purpose of facilitating the acquisition of such
property, borrowing money or obtaining financing, completing construction of the
property or for any other purpose related to our business. We may also acquire
properties from entities advised by our advisor. Such acquisitions must be
approved by a majority of our directors, including a majority of our independent
directors. We currently do not have any plans to acquire a property or
properties from our advisor, its affiliates or entities advised by our advisor.
Our Acquisition Standards
We believe, based on our advisor's prior real estate experience, that we
have the ability to identify quality properties capable of meeting our
investment objectives. In evaluating potential acquisitions, the primary factor
we will consider is the property's current and projected cash flow. We will also
consider a number of other factors, including a property's:
. geographic location and type;
. construction quality and condition;
. potential for capital appreciation;
. lease terms and rent roll, including the potential for rent increases;
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. potential for economic growth in the tax and regulatory environment of
the community in which the property is located;
. potential for expanding the physical layout of the property;
. occupancy and demand by tenants for properties of a similar type in
the same geographic vicinity;
. prospects for liquidity through sale, financing or refinancing of the
property;
. competition from existing properties and the potential for the
construction of new properties in the area; and
. treatment under applicable federal, state and local tax and other laws
and regulations.
Property Acquisition
We anticipate acquiring fee simple and tenancy-in-common interests in real
property and real property subject to long-term ground leases, although other
methods of acquiring a property may be used when we consider it to be
advantageous. For example, we may acquire properties through a joint venture or
the acquisition of substantially all of the interests of an entity which in turn
owns the real property. We may also use wholly owned subsidiaries of our
operating partnership to acquire properties. Such wholly owned subsidiaries will
be formed solely for the purpose of acquiring and/or financing a property or
properties.
We may commit to purchase properties subject to completion of construction
in accordance with terms and conditions specified by our advisor. In such cases,
we will be obligated to purchase the property at the completion of construction,
provided that (1) the construction conforms to definitive plans, specifications
and costs approved by us in advance and embodied in the construction contract
and (2) agreed upon percentages of the property are leased. We will receive a
certificate of an architect, engineer or other appropriate party, stating that
the property complies with all plans and specifications. We currently do not
intend to construct or develop properties, or render any services in connection
with such development or construction.
If remodeling is required prior to the purchase of a property, we will pay
a negotiated maximum amount either upon completion or in installments commencing
prior to completion. Such amount will be based on the estimated cost of such
remodeling. In such instances, we will also have the right to review the
lessee's books during and following completion of the remodeling to verify
actual costs. In the event of substantial disparity between estimated and actual
costs, an adjustment in purchase price may be negotiated. If remodeling is
required after the purchase of a property, our advisor or an affiliate may serve
as construction manager for a fee no greater than the fee a third party would
charge for such services.
Joint Ventures
We may invest in general partnership, co-ownership and joint venture
arrangements with other real estate programs formed by, sponsored by or
affiliated with our advisor or an affiliate of our advisor if a majority of our
independent directors who are not otherwise interested in the transaction
approve the transaction as being fair and reasonable to our company and our
shareholders. We may so invest with nonaffiliated third parties by following the
general procedures to obtain approval of an acquisition.
We will invest in general partnerships, co-ownership or joint venture
arrangements with our advisor and its affiliates only when:
. there are no duplicate property management or other fees;
. the investment of each entity is on substantially the same terms and
conditions; and
. we have a right of first refusal if our advisor or its affiliates wish
to sell its interest in the property held in such arrangement.
We may invest in general partnerships or joint venture arrangements with
our advisor and its affiliates as co-owners of a property to allow us to
increase our equity participation in such venture as additional proceeds of this
offering are received, with the result that we will end up owning a larger
equity percentage of the property. In
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addition, we will have the right to enter into co-ownership and joint venture
arrangements with entities unaffiliated with our advisor and its affiliates.
You should note that there is a potential risk that our company and the
co-owner or its joint venture partner will be unable to agree on a matter
material to the joint venture on joint venture decisions and we may not control
the decision. Furthermore, we cannot assure you that we will have sufficient
financial resources to exercise any right of first refusal.
Description of Our Leases
We anticipate that many of our leases will be net leases with terms
generally not less than five years, but typically ten to fifteen years. The
leases with anchor tenants or tenants in single tenant properties or tenants
occupying the largest percentage and more than 30% of the rentable space in any
property will generally have initial term of five to fifteen years, with one or
more options to renew available to the lessee upon expiration of the initial
term. By contrast, our smaller tenant leases will typically be for three to five
year terms. Under our net leases, the tenant will pay us a predetermined minimum
annual rent and, for neighborhood retail centers and similar properties,
percentage rent if sales exceed predetermined levels. Some of our leases also
will contain provisions that increase the amount of base rent payable at points
during the lease term and/or provide for the payment of additional rent
calculated as a percentage of a tenant's gross sales above predetermined
thresholds.
We anticipate that our tenants generally will be required to pay a share,
either pro rata or fixed, of the real estate taxes, insurance, utilities and
common area maintenance charges associated with the properties. We will require
that each net lease tenant pay its share of the cost of the liability insurance
covering the properties owned by our operating partnership or provide such
coverage. The third party liability coverage will insure, among others, our
operating partnership and our advisor. We will also require that each tenant
obtain, at its own expense, property insurance naming our operating partnership
as the insured party for fire and other casualty losses in an amount equal to
the full value of such property. All such insurance must be approved by our
advisor. In general, the net lease may be assigned or subleased with our
operating partnership's prior written consent, but the original tenant will
remain fully liable under the lease unless the assignee meets our income and net
worth tests.
Our board of directors controls our policies with respect to the terms of
leases into which we may enter and may change those policies at any time without
shareholder approval.
Our Operating Partnership
We will conduct our business and own properties through our operating
partnership. Our operating partnership will be governed by its Agreement of
Limited Partnership, a copy of which may be obtained from us. As the sole
general partner of our operating partnership, we will have control over the
affairs of our operating partnership. We will delegate to our advisor the
management of the day-to-day affairs of our operating partnership. We will
contribute the net proceeds of this offering to our operating partnership in
return for 100% of the initial capital and profits interest in our operating
partnership, other than our advisor's incentive limited partnership interest
that entitles it to share in operating cash flow and property sale proceeds
above a threshold return to the company. Our operating partnership may issue
additional units of limited partnership interest in the future in exchange for
properties. The holders of these units will have the right to redeem their units
for cash or shares of common stock on terms set forth in the Agreement of
Limited Partnership. Our operating partnership will use the net proceeds to
purchase suitable properties and may use a portion of the net proceeds to repay
debt secured by properties contributed to our operating partnership in exchange
for units of limited partnership interest.
Our Policies With Respect to Borrowing
When we think it is appropriate, we will borrow funds to acquire or finance
properties. We may later refinance or increase mortgage indebtedness by
obtaining additional loans secured by selected properties, if favorable
financing terms are available. We will use the proceeds from such loans to
acquire additional properties
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for the purpose of increasing our cash flow and providing further
diversification. We anticipate that aggregate borrowings, both secured and
unsecured, will not exceed 60% of all of our properties' combined fair market
values, as determined at the end of each calendar year beginning with the first
full year of operation. In addition, we anticipate that no property will be
encumbered by secured indebtedness or financed by unsecured indebtedness in
excess of 80% of its fair market value. Our board of directors will review our
aggregate borrowings at least quarterly to ensure that such borrowings are
reasonable in relation to our net assets. In the absence of a satisfactory
showing that a higher level of borrowing is appropriate, the maximum amount of
such borrowings in relation to our net assets will not exceed 300%. Any excess
in borrowing over this 300% level will be approved by a majority of the
independent directors and disclosed to our shareholders in our next quarterly
report, along with a justification for such excess. We may also incur
indebtedness to finance improvements to properties and, if necessary, for
working capital needs or to meet the distribution requirements applicable to
REITs under the federal income tax laws.
When incurring secured debt, we generally intend to incur only nonrecourse
indebtedness, which means that the lenders' rights on our default generally will
be limited to foreclosure on the property that secured the obligation. If we
incur mortgage indebtedness, we will endeavor to obtain level payment financing,
meaning that the amount of debt service payable would be substantially the same
each year, although some mortgages are likely to provide for one large payment.
We do not intend to secure financing with cross-default or
cross-collateralization provisions.
Our board of directors controls our policies with respect to borrowing and
may change such policies at any time without a vote of the shareholders.
Sale or Disposition of Properties
Our advisor and our board of directors will determine whether a particular
property should be sold or otherwise disposed of after consideration of relevant
factors, including performance or projected performance of the property and
market conditions, with a view toward achieving our principal investment
objectives.
In general, we intend to hold properties, prior to sale, for a minimum of
four years. When appropriate to minimize our tax liabilities, we may structure
the sale of a property as a "like-kind exchange" under the federal income tax
laws so that we may acquire qualifying like-kind replacement property meeting
our investment objectives without recognizing taxable gain on the sale.
Furthermore, our general policy will be to reinvest into additional properties
proceeds from the sale, financing, refinancing or other disposition of our
properties that represent our initial investment in such property or,
secondarily, to use such proceeds for the maintenance or repair of existing
properties or to increase our reserves for such purposes. The objective of
reinvesting such portion of the sale, financing and refinancing proceeds is to
increase the total value of real estate assets that we own, and the cash flow
derived from such assets.
Despite this policy, our board of directors, in its discretion, may
distribute to our shareholders all or a portion of the proceeds from the sale,
financing, refinancing or other disposition of properties. In determining
whether any of such proceeds should be distributed to our shareholders, our
board of directors will consider, among other factors, the desirability of
properties available for purchase, real estate market conditions and compliance
with the REIT distribution requirements. Because we may reinvest such portion of
the proceeds from the sale, financing or refinancing of our properties, we could
hold our shareholders' capital indefinitely. However, the affirmative vote of
shareholders controlling a majority of our outstanding shares of common stock
may force us to liquidate our assets and dissolve.
In connection with a sale of a property, our general preference will be to
obtain an all-cash sale price. However, we may take a purchase money obligation
secured by a mortgage on the property as partial payment. There are no
limitations or restrictions on our taking such purchase money obligations. The
terms of payment upon sale will be affected by custom in the area in which the
property being sold is located and the then prevailing economic conditions. To
the extent we receive notes, securities or other property instead of cash from
sales, such
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proceeds, other than any interest payable on such proceeds, will not be included
in net sale proceeds until and to the extent the notes or other property are
actually paid, sold, refinanced or otherwise disposed of. Thus, the distribution
of the proceeds of a sale to you as a shareholder, to the extent contemplated by
our board of directors, may be delayed until such time. In such cases, we will
receive payments in the year of sale in an amount less than the selling price
and subsequent payments will be spread over a number of years.
Our Long Term Investment Objective
Our long term investment objective is to provide you, the shareholder, with
liquidity with respect to your investment by either having our common stock
listed on a national stock exchange or quoted on a quotation system of a
national securities association or merging with an entity whose shares are so
listed or quoted. If we have not accomplished one of these objectives on or
before the tenth anniversary of the date of this prospectus, we intend to submit
for a vote of the shareholders at the next annual meeting a proposal to
liquidate all of our properties in an orderly fashion and distribute the
proceeds to our shareholders. We shall at that time submit to a vote of our
shareholders a proposal to liquidate the company by selling the properties in an
orderly fashion or continue operations.
Changes in Our Investment Objectives
Our principal investment objectives are generally to invest, through our
operating partnership, in office, industrial, retail and service properties and
other kinds of properties described under the heading "Investment Limitations"
below. Our shareholders have no voting rights with respect to implementing our
investment objectives and policies, all of which are the responsibility of our
board of directors and may be changed at any time.
Investment Limitations
We do not intend to:
. invest more than 10% of our total assets in unimproved real property,
apartments, other residential property and real estate investments not
contemplated herein;
. invest in commodities or commodity future contracts, except for
interest rate futures contracts used solely for purposes of hedging
against changes in interest rates; or
. operate in such a manner as to be classified as an "investment
company" for purposes of the Investment Company Act of 1940.
As used above, "unimproved real property" means any investment with the
following characteristics:
. an equity interest in real property which was not acquired for the
purpose of producing rental or other operating income;
. has no development or construction in process on such land; and
. no development or construction on such land is planned in good faith
to commence on real land within one year.
In addition, we have adopted the following investment policies:
We will not issue redeemable equity securities.
We will not issue our shares on a deferred payment basis or other similar
arrangement.
We will not issue debt securities unless the historical debt service
coverage in the most recently completed fiscal year as adjusted for known
charges is sufficient to properly service that higher level of debt.
We will not engage in trading, as opposed to investment, activities.
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We will not engage in underwriting or the agency distribution of securities
issued by others.
Making Loans and Investments in Mortgages
We will not make loans to other entities or persons unless secured by
mortgages. We will not make or invest in mortgage loans unless we obtain an
appraisal concerning the underlying property. In cases in which a majority of
our independent directors so determines, and in all cases in which the
transaction is with our advisor or its affiliates, we will obtain such appraisal
from a certified independent appraiser. We will maintain their appraisal in our
records for at least five years, and will make it available during normal
business hours for inspection and duplication by any shareholder at such
shareholder's expense. In addition to the appraisal, we will obtain mortgagee's
or owner's title insurance policy or commitment as to the priority of the
mortgage or condition of the title.
We will not make or invest in mortgage loans on any one property if the
aggregate amount of all mortgage loans outstanding on the property, including
the loans of our company, would exceed an amount equal to 85% of the appraised
value of the property as determined by an appraisal from a certified independent
appraiser, unless we find substantial justification due to the presence of other
underwriting criteria. In no event will we invest in mortgage loans that exceed
the appraised value of the property as of the date of the loans.
All of our mortgage loans must provide for at least one of the
following:
. except for differences attributable to adjustable rate loans, equal
periodic payments on a schedule that would be sufficient to fully
amortize the loan over a 20 to 40 year period;
. payments of interest only for a period of not greater than ten years
with the remaining balance payable in equal periodic payments on a
schedule that would fully amortize the loan over a 20 to 30 year
period; or
. payment of a portion of stated interest currently and deferral of the
remaining interest for a period not greater than five years, with the
remaining principal and interest payable in equal periodic payments on
a schedule that would fully amortize the loan over a 20 to 35 year
period.
We will not invest in real estate contracts of sale otherwise known as land
sale contracts.
We will not make or invest in any mortgage loans that are subordinate to
any mortgage or equity interest of our advisor, any director, officer or any of
their affiliates.
We will not invest in subordinated secured indebtedness except where the
amount of total indebtedness secured by that property does not exceed 85% of the
appraised value of such property. In addition, the value of all such
investments, as shown on their books in accordance with generally accepted
accounting principles, after all reasonable reserves but before provision for
depreciation, will not exceed 5% of our total assets.
Investment in Securities
We will not invest in equity securities of another entity, other than our
operating partnership or a wholly owned subsidiary, unless a majority of the
directors, including a majority of the independent directors, not otherwise
interested in such transaction approves the investment as being fair,
competitive and commercially reasonable. Investments in entities affiliated with
our advisor, any officer, director or affiliates must be approved by a majority
of independent directors. We may purchase our own securities, when traded on a
secondary market or on a national securities exchange or market, if a majority
of the directors determine such purchase to be in our best interests. We will
not invest in the securities of other entities for the purpose of exercising
control over that entity.
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Appraisals
A majority of our board of directors must approve the purchase price
paid for each property that we acquire. The board intends to support its
determination of the purchase price with an appraisal. In cases in which a
majority of the independent directors require, and in all cases in which we
acquire property from our officers, directors, advisor or any affiliate of our
officers, director or advisor, we will obtain an appraisal from an independent
appraiser who is a member-in-good-standing of the American Institute of Real
Estate Appraisers or similar national or regional organization and who will be
selected by the independent directors.
Other Policies
In determining whether to purchase a particular property, we may first
obtain an option to purchase such property. We may forfeit the amount paid for
the option, if any, if the property is not purchased.
Assuming the maximum offering is sold, we generally do not intend to invest
more than 20% of the gross proceeds of this offering in any one property,
although we may do so with the approval of a majority of our board of directors.
We will hold all funds, pending investment in properties, in readily
marketable, interest-bearing securities which will allow us to continue to
qualify as a REIT. Such investments will be highly liquid and provide for
appropriate safety of principal and may include, but will not be limited to,
investments such as Government National Mortgage Association certificates, U.S.
government bonds, CDs, time deposits and other government securities.
We do not intend to make distributions-in-kind, except for:
. distributions of beneficial interest in a liquidating trust
established for the dissolution of our company and the liquidation of
our assets in accordance with the terms of the Virginia Stock
Corporation Act; or
. distributions of property which meet all of the following conditions:
. our board of directors advises each shareholder of the risks
associated with direct ownership of the property;
. our board of directors offers each shareholder the election of
receiving in-kind property distributions; and
. our board of directors distributes in-kind property only to those
shareholders who accept the directors' offer.
Investing in States Without Personal Income Tax
We initially intend to invest in properties located in our focus states
listed elsewhere in this prospectus. We will invest a portion of the net
proceeds of this offering in states that have eliminated state personal income
taxes. These states include Florida, Nevada, South Dakota, Tennessee, Texas,
Washington, and Wyoming. We believe that we can profit by investing in these
"income tax-free" states because of the general high rate of job and economic
growth in these states. In addition, we believe that the economies of these
states are benefited by the influx of retiring baby boomers who are looking for
a tax friendly state in which to retire, where their pensions and investments
will not be subjected to state income tax.
Below is an analysis we have prepared showing long-term economic growth of
the listed states with and without state income taxes. As summarized in the
analysis, states without an income tax generally have experienced greater
employment growth than states with income taxes. For example, Nevada, a state
without personal income taxes, has experienced a 4.7% annual increase in
employment, while Arizona, a state with a personal income tax, experienced only
a 3.8% annual job growth, even though both states are located in the same
general region. We believe that we will have a competitive advantage by
investing a portion of the net proceeds of this offering in the
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tax-free states, which are experiencing employment gains in excess of the
national average. Also, we believe that these states will experience greater
than average economic growth, with the resulting need for office, industrial,
retail and service properties.
Although we believe that the absence of state income tax in these states is
a partial cause of the economic growth in these states, there is limited or no
evidence to suggest that the absence of state income tax favorably affects the
markets for office, industrial, retail or service real estate. Other factors,
such as the rate of development of these type properties, employment
characteristics and other demographics, in these states would also affect these
real estate markets.
Analysis of Long-Term Employment Growth of States without State Income Taxes
(Including comparison with selected states with state income taxes)
<TABLE>
<CAPTION>
1998 Per
Capita State ---------------------------------- ----------------------
& Local Employment (000's) Annual Change
State Taxes as a ---------------------------------- ----------------------
Income % of 1978-97 Change Percent
Tax(1) Income(2) 1978(3) 1997(3) Change (000's) Change
- ------------------------------- ------------------------- ---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
United States 11.4% 96,089 129,518 33,429 1,759 1.6%
Large Sunbelt States:
Florida No 10.6% 3,684 6,768 3,084 162 3.3%
Texas No 10.5% 5,920 9,350 3,430 181 2.4%
California Yes 12.0% 10,137 14,965 4,828 254 2.1%
Small Southwestern States:
Nevada No 11.3% 357 847 490 26 4.7%
Arizona Yes 11.0% 1,010 2,065 1,055 56 3.8%
Northwestern States:
Washington No 11.8% 1,684 2,846 1,162 61 2.8%
Oregon Yes 11.2% 1,149 1,631 482 25 1.9%
Small Midwestern States:
South Dakota No 10.6% 318 381 63 3 1.0%
Nebraska Yes 11.5% 742 883 141 7 0.9%
Other States:
Alaska No 6.1% 162 291 129 7 3.1%
Wyoming No 7.9% 203 238 35 2 8.0%
</TABLE>
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(1) Source: 1997 State Tax Handbook (All States) (Research Institute of
America).
(2) Source: The Tax Foundation, Washington, D.C.
(http://www.taxfoundation.org).
(3) Source: U.S. Bureau of Labor Statistics (see http://recenter.tamm.edu).
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DISTRIBUTION POLICY
We intend to pay regular monthly distributions to our shareholders out of
our cash available for distribution, in an amount determined by our board of
directors. However, we reserve the right, at any time, instead to pay
distributions on a quarterly basis. The commencement and continuation of
distributions and the size of the distributions will depend upon a variety of
factors, including:
. our cash available for distribution;
. our overall financial condition;
. our capital requirements;
. the annual distribution requirements applicable to REITs under the
federal income tax laws; and
. such other considerations as our board of directors deems relevant.
We cannot assure you that we will make distributions. In order to qualify as a
REIT for federal income tax purposes, among other things, we must distribute
each taxable year at least 95% of our taxable income, other than net capital
gain.
We will have a policy of avoiding, to the extent possible, the fluctuations
in distributions that might result if distributions were based on actual cash
received during the distribution period. To implement this policy, we may use
cash received during prior periods or cash received subsequent to the
distribution period and prior to the payment date for such distribution, to pay
annualized distributions consistent with the distribution level established from
time to time by our board of directors. Our ability to maintain this policy will
depend upon the availability of cash flow and applicable requirements for
qualification as a REIT under the federal income tax laws. Therefore, we cannot
assure you that there will be cash flow available to pay distributions or that
distributions will not fluctuate. If cash available for distribution is
insufficient to pay such distributions to you as a shareholder, we may obtain
the necessary funds by borrowing, issuing new securities or selling assets.
These methods of obtaining funds could affect future distributions by increasing
operating costs.
To the extent that distributions to our shareholders are made out of our
current or accumulated earnings and profits, such distributions will be taxable
as ordinary dividend income. To the extent that our distributions exceed our
current and accumulated earnings and profits, such amounts will constitute a
return of capital to our shareholders for federal income tax purposes, to the
extent of their basis in their stock, and thereafter will constitute capital
gain.
Monthly distributions will be calculated with daily record and distribution
declaration dates. However, our board of directors could, at any time, elect to
pay distributions quarterly to reduce administrative costs. It will be our
general policy, subject to applicable REIT rules, to reinvest proceeds from the
sale, financing, refinancing or other disposition of our properties through the
purchase of additional properties, although we cannot assure you that we will be
able to do so.
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MANAGEMENT OF OUR COMPANY
General
We operate under the direction of our board of directors, which is
responsible for the overall management and control of our affairs. However, our
board of directors has retained our advisor to manage our day-to-day affairs,
subject to our board of directors' supervision. Under the Virginia Stock
Corporation Act, each director is required to discharge his duties in accordance
with his good faith business judgment of our best interest. At our board's first
meeting, our articles of incorporation were reviewed and adopted by a majority
of our board of directors, including a majority of the independent directors. As
of the commencement of this offering, our board of directors will be comprised
of five individuals, three of whom will be independent directors. We consider a
director to be independent if he or she is not, and has not been in the last two
years associated, directly or indirectly, with our company or our advisor.
The independent directors will determine, from time to time but at least
annually, that the total fees and expenses of our company are reasonable in
light of our investment performance, our net assets, our net income and the fees
and expenses of other comparable unaffiliated REITs. This determination will be
reflected in the minutes of the meetings of our board of directors. For purposes
of this determination, net assets are our company's total assets, other than
intangibles, calculated at cost before depreciation or other non-cash reserves,
less total liabilities and computed at least quarterly on a constantly-applied
basis. In addition, the independent directors will determine from time to time,
but at least annually, that the compensation that we contract to pay to our
advisor is reasonable in relation to the nature and quality of the services
performed and that such compensation is within the limits prescribed by any
applicable state regulatory authorities. The independent directors will also
supervise the performance of our advisor and the compensation paid to it to
determine that the provisions of the advisory agreement are being carried out.
The independent directors will base each determination on the factors set forth
below and other factors that they deem relevant. Such factors include:
. the size of the advisory fee in relation to the size, composition and
profitability of our portfolio of properties;
. the success of our advisor in generating opportunities that meet our
investment objectives;
. the rates charged to similar REITs and to investors other than REITs
by advisors performing similar services;
. additional revenues realized by our advisor and any affiliate through
their relationship with us, including real estate commissions,
servicing, and other fees, whether paid by us or by others with whom
we do business;
. the quality and extent of service and advice furnished by our advisor;
. the performance of our portfolio of properties, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and
. the quality of our portfolio of properties in relationship to the
investments generated by our advisor for its own account or for the
account of other entities it advises.
Each determination will be reflected in the minutes of the meetings of our
board of directors.
Anthony W. Thompson, Jack R. Maurer and Talle Voorhies have worked to found
and organize our company. Mr. Thompson will serve as the Chairman of the Board
of Directors, Chief Executive Officer and President of our company. Mr. Maurer
will serve as the Secretary and Treasurer of our company. Ms. Voorhies serves as
the Executive Vice President and Director of our advisor.
The Directors and Executive Officers
Initially, our board of directors will consist of five members, three of
whom will be independent. All of the directors will serve one-year terms or
until the next annual meeting of the shareholders, whichever occurs first.
The
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following table and biographical descriptions set forth information with respect
to our officers and directors. Each of the officers and directors other than Mr.
Thompson and Mr. Maurer will assume the positions indicated as of the effective
date of the registration statement of which this prospectus is a part.
Name Age Position
- ---- --- --------
Anthony W. Thompson 52 Chairman of the Board of Directors,
Chief Executive Officer, President and
Director
Debra Meyer Kirby 44 Independent Director
Warren H. James 58 Independent Director
James R. Nance 71 Independent Director
Sterling McGregor 42 Vice President and Director
Jack R. Maurer 55 Secretary and Treasurer
Anthony W. ("Tony") Thompson is a co-founder of our advisor, Triple Net
Properties, LLC, and has been its President since its inception in April 1998.
Prior to that time he was co-founder, co-owner, director and officer of a number
of real estate investment entities trading under the name The TMP Companies
including the TMP Group, Inc., a full-service real estate investment group
founded in 1978. Mr. Thompson has been the President and co-owner of the dealer
manager, NNN Capital Corp. (formerly Cunningham Capital Corp. and TMP Capital
Corp.), since 1986 and is a registered securities principal with the NASD. He is
a 1969 graduate of Sterling College with a Bachelor of Science degree in
Economics. Mr. Thompson holds the professional designation of Chartered Life
Underwriter and Chartered Financial Consultant from the American College. He is
a member of the Sterling College Board of Trustees and UCLA's Athletic Fund
Major Gifts Committee.
Warren H. James has been a general partner of Wescon Properties, a southern
California real estate developer and construction management company, since
1986. At Wescon, Mr. James has overseen the acquisition, management and
construction of apartment communities, commercial office buildings and shopping
centers in Los Angeles, Orange and Riverside Counties in Southern California.
Prior to 1986, Mr. James served as Vice President of Gfeller Development
Company, a developer of commercial and residential projects in Orange County,
California, where he oversaw the development of a single family home project in
Corona Del Mar, California, Vice President of Bear Brand Ranch Company, a
developer of master planned communities, and Vice President of Operations at
Foxx Development Corp., a developer and builder of residential communities. Mr.
James also worked for approximately 8 years with the Irvine Company, the largest
owner of real estate in Orange County, including three years as Vice President
of its home building division.
James R. ("Jim") Nance retired as Senior Vice President-Agency of
Jefferson-Pilot Financial, a life insurance company, in Greensboro, North
Carolina, in 1992, after forty-one years experience in the life insurance
business. He served as an agent, Agency Manager and Agency Vice President prior
to his appointment as Senior Vice President-Agency. As Senior Vice President,
Mr. Nance was responsible for the eighty Agency Offices, one hundred twenty-five
Sales Offices, and all sales and administrative personnel. His responsibilities
included production, expenses, planning and budgeting for the Agency Department.
Mr. Nance was a registered securities principal with the NASD from 1978 until
1992. Upon retiring, Mr. Nance returned to Amarillo, Texas, and assumed the
position of Financial Manager of the Mary E. Harris Ranch, Inc., a 31,000 acre
family ranch located near Clayton, New Mexico. After honorable discharge from
the U.S. Navy in 1946, he attended the University of North Texas from 1948 until
1950. He graduated from Southern Methodist University's School of Insurance
Marketing in 1953, the University of North Carolina's Executive Program in 1981,
and holds the designation of Chartered Life Underwriter from the American
College. During his career, Mr. Nance was active in community, civic, and church
activities.
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Debra Meyer Kirby is President of & Kirby, Inc., a specialty firm focusing
on tax deferred exchanges and real estate acquisitions which she founded in
1996. She is also Chief Executive Officer of the Kirby Group, which includes a
sister corporation, Kirby Corporation of Virginia, Inc., founded in 1988 as a
medical consulting firm. In this role she coordinates its strategic planning
function and development of new services and programs. Ms. Kirby is also
Executive Vice President of National Exchange Group, Inc., a qualified exchange
intermediary. Ms. Kirby has seventeen years of experience in transactional real
estate and twelve years of experience in negotiating and managing multi-state
real estate transactions within the corporate real estate development arena.
From 1994 to 1996, she was a co-founder, principal and Executive Vice President
of a qualified exchange intermediary, Capital Exchange Company, Inc., performing
strategic planning services and intermediary escrow services, identifying
replacement properties. Prior to co-founding Capital Exchange Company, Inc., she
served as Director of Real Estate for Circuit City Stores, Inc., one of the
nation's largest retailers of brand name consumer electronics, computers,
appliances and music software, for approximately six years. During her six years
as Director, she served in positions ranging from oversight of all site
acquisitions and business and legal negotiations for the development of Circuit
City store locations east of the Mississippi River to Director of Real Estate
Development forming Circuit City's self-development program through which she
developed a number of power retail centers anchored by Circuit City Superstores.
Ms. Kirby received a B.A. from Hamilton College and its coordinate Kirkland
College, in Clinton, New York in 1977 and her J.D. from Wake Forest University
in Winston-Salem, North Carolina in 1980. She was an associate in the commercial
real estate litigation department of the Richmond law firm, Hirschler,
Fleischer, Weinberg, Cox & Allen from 1980-1984.
Sterling McGregor has been Vice President of Financial and Asset Management
for our advisor, Triple Net Properties, LLC, since July 1998. Mr. McGregor has
over 15 years of commercial real estate experience in debt and equity financing,
asset management, due diligence, underwriting, acquisitions and restructuring
loan portfolios. He recently managed several institutional quality portfolios
for CB/Richard Ellis, L.J. Melody & Company, a CB Commercial Real Estate
Company, both large commercial and mortgage banking operations, from December
1996 to July 1998 and Wells Fargo Bank, a diversified financial services
company, from 1992 to September 1998. Prior experience includes mortgage banking
for Metmor Financial, a subsidiary of MetLife, and acquisitions and due
diligence for Arthur Andersen & Co., as well as Cal Fed Syndications, a publicly
traded NYSE real estate investment trust. Mr. McGregor is a licensed California
Real Estate Broker and a California Certified General Appraiser with a Bachelor
of Business Management and Finance from Brigham Young University.
Jack R. Maurer has served as Chief Financial Officer of our advisor, Triple
Net Properties, LLC, since April 1998. Mr. Maurer has over 24 years of real
estate financial management experience, including Chief Financial Officer and
Controller positions in residential and commercial development and the banking
industry. From 1986 to April 1998, he was a General Partner and Chief Financial
Officer of Wescon Properties, where he was involved in finance, accounting and
forecasting. He also participated in the development and construction management
process, including due diligence, design development, municipal processing,
construction, marketing, property management and investor services. Mr. Mauer's
previous experience also includes experience with the national accounting firm
of Kenneth Leventhal & Company, a leading provider of professional services to
owners, developers, builders, operators and financiers of real estate.
Committees of Our Board of Directors
Acquisition Committee.
Each of our acquisitions must be approved by the acquisition committee or a
majority of our board of directors, including a majority of the independent
directors, as being fair and reasonable to our company and consistent with our
investment objectives. Initially we will have an acquisition committee comprised
of at least three members of our board of directors. A majority of the members
of the acquisition committee will be independent directors. Our board of
directors may establish additional acquisition committees from time to time
based on property type or other relevant factors. Our advisor will recommend
suitable properties for consideration by the appropriate acquisition committee
or our board of directors from time to time. If the members of the acquisition
committee unanimously approve a given acquisition, then our advisor will be
directed to acquire the
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property on our behalf, if such acquisition can be completed on terms approved
by the committee. If the acquisition committee does not approve a proposed
acquisition, then the property may be presented to our full board of directors
for consideration, who, by majority vote, may elect to acquire or reject the
property. Properties may be acquired from our advisor or its affiliates or our
officers and directors, provided that any interested or affiliated directors
shall not vote on such an acquisition.
Audit Committee.
We will have an audit committee comprised of three directors, including at
least two independent directors. The audit committee will:
o make recommendations to our board of directors concerning the
engagement of independent public accountants;
o review the plans and results of the audit engagement with the
independent public accountants;
o approve professional services provided by, and the independence of,
the independent public accountants;
o consider the range of audit and non-audit fees; and
o consult with the independent public accountants regarding the
adequacy of our internal accounting controls.
Executive Compensation Committee.
Our board of directors has established an executive compensation committee
consisting of up to three directors, including at least two independent
directors, to establish compensation policies and programs for our directors and
executive officers. Initially, the members of our compensation committee will be
Mr. Thompson, Ms. Kirby and Mr. James. The executive compensation committee will
exercise all powers of our board of directors in connection with establishing
and implementing compensation matters, including incentive compensation and
benefit plans, except for those which require actions by all of the directors
under our articles of incorporation, bylaws or applicable law. Stock-based
compensation plans will be administered by the board of directors if the members
of the executive compensation committee do not qualify as "non-employee
directors" within the meaning of the Exchange Act.
Officer and Director Compensation
Our board of directors will determine the amount of compensation that we
will pay to each director serving on our board of directors. Initially, all
directors will receive a fee of $1,000 for attendance in person or by telephone
at each quarterly meeting of the board. Initially such compensation, including
fees for attending meetings, will not exceed $7,500 annually. Our independent
directors will qualify for the independent director stock option plan under
which our board of directors has authorized the issuance of options to acquire
up to 100,000 shares of common stock over the five years following the
commencement of this offering. In addition, officers or employees of our company
will qualify for the employee stock option plan under which our board of
directors has authorized the issuance of up to 700,000 shares over the five
years following the commencement of this offering. Initially, we do not intend
to pay cash compensation to any employees or officers.
Independent Director Stock Option Plan
We will adopt the independent director stock option plan concurrently with
the commencement of this offering. Only directors who are considered independent
under the criteria described in "Management of Our Company--General" are
eligible to participate in the independent director stock option plan.
We have authorized and reserved a total of 100,000 shares of common stock
for issuance under the independent director stock option plan.
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The independent director stock option plan provides for the grant of
initial and subsequent options. Initial options are non-qualified stock options
to purchase 5,000 shares of common stock at the applicable option exercise price
described below granted to each independent director as of the date such
individual becomes an independent director. Subsequent options are options to
purchase 5,000 shares of common stock at the applicable option exercise price
described below on the date of each annual shareholders' meeting to each
independent director so long as the individual is still in office. As of the
date of this prospectus, we have granted options to purchase 15,000 shares to
the independent directors at price per share in this offering less the dealer
manager's selling commission and marketing support and due diligence
reimbursement fee.
Officer and Employee Stock Option Plan
We will adopt the officer and employee stock option plan concurrently with
the commencement of this offering. All of our officers and employees are
eligible to participate in the officer and employee stock option plan.
We have authorized and reserved a total of 700,000 shares of common stock
for issuance under the officer and employee stock option plan. Our board of
directors, acting on the recommendation of the compensation committee, will have
discretion to grant options to officers and employees effective as of each
annual meeting of our shareholders. As of the date of this prospectus, we have
granted our Chief Executive Officer and President, Mr. Thompson, options to
purchase 45,000 shares at price per share in this offering less the dealer
manager's selling commission and marketing support and due diligence
reimbursement fee. We have also granted our Vice President, Mr. McGregor,
options to purchase 45,000 shares at price per share in this offering less the
dealer manager's selling commission and marketing support and due diligence
reimbursement fee. We anticipate issuing the same number of options to each of
these individuals, in addition to options that may be granted to other officers
and employees, simultaneously with each annual shareholders' meeting.
Characteristics of Both Stock Option Plans
Exercise Price: We will determine the option price, meaning the purchase
price of our common stock under the options, as follows:
o The option price under each option granted on or before the
commencement of this offering is the price per share in this offering
less the dealer manager's selling commission and marketing support and
due diligence reimbursement fee.
o The option price under each option granted during this offering will
be the greater of the price per share in this offering less the dealer
manager's selling commission and marketing support and due diligence
reimbursement fee and the fair market value of our common stock as of
the date of grant.
o The option price under each option granted after the completion of
this offering will be the fair market value of our common stock as of
the date of grant.
We will not grant options under either plan with exercise prices less than
the fair market value for such options as of the date of the grant or in
consideration for services rendered to our company that in the judgment of the
independent directors has a fair market value less than the value of such option
as of the date of the grant.
Unless our shares are then traded on a national securities exchange or
trading system, the fair market value of shares of our common stock will be a
price determined by our board of directors in good faith. In determining the
fair market value of our stock, the directors will consider several factors,
including the price per share at which our shares are then being sold to the
public, the price per share of common stock of comparable companies, our
company's earnings and the value of our assets. If our common stock is traded on
a national securities exchange or quotation system, the fair market value will
be the average of the last sales price or the average of the last bid and ask
prices for the five trading days immediately preceding the date of
determination.
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Vesting: Both of our stock option plans provide that persons holding
options can exercise them as follows:
. Options granted on or before the commencement of this offering are
exercisable for one-third of the shares subject to the option on the
date of grant, and will become exercisable for an additional one-third
of such shares on each of the first and second anniversaries of the
date of grant.
. Options granted after the commencement of this offering will become
exercisable in whole or in part on the second anniversary of the date
of grant.
. If an option holder dies or becomes disabled while an officer,
director or member of the board, his options will be exercisable for
one year after death or the disabling event.
. If an option holder ceases to serve the company in his or her
capacity for any reason except death or disability, his or her options
will be exercisable only for three months after the last date of
service to our company.
. No option granted under either stock option plan may be exercised
after the tenth anniversary of the date of grant.
. The option price for the options can be paid in cash or the surrender
of common stock.
Notwithstanding any other provisions of either stock option plan to the
contrary, we will not permit an option holder to exercise any option or options
if the exercise thereof would jeopardize our status as a REIT under the federal
income tax laws.
Transferability: An option holder may not sell, pledge, assign or transfer
any option in any manner otherwise than by will or the laws of descent or
distribution.
Change of Control or Dissolution: If a transaction, such as a
reorganization or merger in which our company is the surviving entity, or a
combination, recapitalization, reclassification, stock split, stock dividend or
stock consolidation, occurs causing the outstanding shares of our common stock
to be increased, decreased or changed into, or exchanged for, a different number
or kind of our shares or securities, then we will make an appropriate adjustment
in the number and kind of shares that may be issued in connection with options.
We will also make a corresponding adjustment to the option exercise price with
respect to options granted prior to any such change.
Upon the dissolution or liquidation of our company, or upon a
reorganization, merger or consolidation of our company with one or more
corporations as a result of which we are not the surviving corporation or upon
sale of all or substantially all of our property, both stock option plans will
terminate and any outstanding options will terminate and be forfeited.
Notwithstanding the foregoing, our board of directors may provide in writing in
connection with, or in contemplation of, any such transaction for any or all of
the following alternatives, separately or in combinations:
. the assumption by the successor corporation of the options already
granted or the substitution by such corporation for such options of
options covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and option prices;
. the continuation of either stock option plan by such successor
corporation in which event such stock option plan and the options will
continue in the manner and under the terms so provided; or
. the payment in cash or shares in lieu of and in complete satisfaction
of such options.
Taxation: All options granted under both stock option plans are intended to
be "non-qualified options," meaning that they are options not intended to
qualify as incentive stock options under the federal income tax laws. For
federal income tax purposes, an option recipient will not recognize ordinary
income at the time an initial option or subsequent option is granted. The
exercise of an option is a taxable event that will require an option holder to
recognize, as ordinary income, the difference between the common stock's fair
market value and the option price. We will be entitled to a federal income tax
deduction on account of the exercise of an option equal to the ordinary income
recognized by an option holder.
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<PAGE>
OUR ADVISOR
Our advisor, Triple Net Properties, LLC, is primarily responsible for
managing our day-to-day business affairs and assets and carrying out our board
of directors' directives. Our advisor is a Virginia limited liability company
that was formed in April of 1998 to advise syndicated limited partnerships,
limited liability companies and other entities with respect to the acquisition,
management and disposition of real estate assets. Currently, our advisor advises
four entities that invest or have invested in properties located in California,
Colorado, South Dakota, Nevada and Kansas. The advisor is affiliated with our
company in that several of our officers and directors also serve as officers and
directors of the advisor and own approximately 36% of the ownership interests in
the advisor.
Our advisor will purchase $200,000 of our common stock on the date we
commence this offering to the public, at a price of $9.05 per share. At least a
portion of the purchase price for those shares, and perhaps a substantial
portion, will be paid in the form of our advisor's forgiveness of debt we owe to
our advisor for expenses it incurred on our behalf in connection with the
formation of our company and this offering. The advisor intends to hold such
shares for as long as it serves as the advisor to our company.
Management
The following table sets forth information with respect to our advisor's
executive officers and board of managers:
Name Age Position
- ---- --- --------
Anthony W. Thompson 52 President, Chief Executive Officer and Director
Jack R. Maurer 55 Chief Financial Officer and Director
Talle Voorhies 51 Executive Vice President and Director
Richard D. Gee 57 Managing Director
Don Ferrari 62 Senior Marketing Director
Damian Gallagher 37 Senior Vice President of Capital Markets
Dennis J. Thornton 45 Redevelopment and Leasing Director
Mary J. Holcomb 49 Vice President of Real Estate Services
Sterling McGregor 42 Vice President of Financial Management
Anthony W. ("Tony") Thompson. Mr. Thompson's background is described under
"Management of Our Company--The Directors and Executive Officers."
Jack R. Maurer. Mr. Maurer's background is described under "Management of
Our Company--The Directors and Executive Officers."
Talle Voorhies has been Executive Vice President of Triple Net Properties,
LLC since April of 1998 and is President and Financial Principal of the dealer
manager. From December 1987 to January 1999, Ms. Voorhies worked with The TMP
Group, Inc., where she served as Chief Administrative Officer and Vice President
of Broker/Dealer Relations. She is responsible for communications with the
broker-dealer network; due diligence
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<PAGE>
activities, marketing and compliance; and Investor Services. Ms. Voorhies is a
Registered Representative with the National Association of Securities Dealers.
Richard D. Gee, has been Executive Vice President--Acquisitions for Triple
Net Properties, LLC since June 1998. Mr. Gee has 25 years of real estate
experience. From 1990 to May 1998, Mr. Gee acted as Managing Director and
Partner for InterCapital Partners, a privately-owned company engaged in
developing and acquiring multi-family and retail real estate projects in
California, Illinois and Texas. In this position he raised over $60 million of
equity capital used to acquire and/or develop approximately 600,000 square feet
of retail centers and 9,000 apartment units. He then sold the $230 million
portfolio to two institutional buyers. Mr. Gee also has experience developing a
publicly traded, master-limited partnership and a tax-exempt participating-bond
fund with Shearson Lehman Brothers. Mr. Gee holds a degree in electrical
engineering from the University of Miami.
Don Ferrari has been Regional Marketing Director for our advisor since
September of 1998. Prior to joining our advisor, he served as National Marketing
Director of Ridgewood Power for 7 years. He also served as President of Amador
Financial, a real estate syndication company specializing in apartment buildings
and retail strip malls. Mr. Ferrari has over 37 years experience in the
securities industry where he specialized in mutual fund marketing and related
financial planning products and services. Mr. Ferrari is recognized as a
financial services public speaker by a number of groups including the
International Association of Financial Planners and Investment Dealers Digest.
He is a licensed real estate broker in California and a registered securities
principal with the National Association of Securities Dealers. He holds a degree
in organic chemistry from UC Berkeley.
Damian Gallagher has been Senior Vice President of Capital Markets for our
advisor and for the dealer manager since 1993. Since 1984, Mr. Gallagher has
been involved in the investment/syndication industry. He is a Registered
Representative with the National Association of Securities Dealers. Mr.
Gallagher received a degree in Economics from UCLA in 1983.
Dennis D. Thornton has been Redevelopment and Leasing Director for our
advisor since July of 1999. He has 21 years experience in real estate. Prior to
joining our advisor, Mr. Thornton was National Director of Real Estate for Econo
Lube N' Tune, a chain of full-service automotive repair and maintenance shops,
from 1996 to July 1999. Mr. Thornton was a co-owner of Walker and Associates,
CPA's from 1991 to 1996. From 1988 to 1991, Mr. Thornton served as the President
of Heron Properties of Colorado, an asset management firm with a real estate
portfolio of $220 million including over two million square feet of retail
shopping centers. Mr. Thornton was also a Vice President from 1982 to 1988 in
The ConReal Companies, a real estate syndication company that raised $150
million with EF Hutton, Kidder Peabody, Thompson McKinnon and other firms to
acquire income properties. He holds a BS from Brigham Young University in
accounting.
Mary J. Holcomb, Vice President of Real Estate Marketing and Finance, has
been involved in all aspects of real estate and the financial industry for over
28 years. She spent 14 years with Home Federal Savings and Loan and managed four
branch escrow offices, and 14 years as Chief Executive Officer and Manager of
three independent escrow companies. Ms. Holcomb is responsible for acquisition
and tenant-in-common escrows and exchanges, as well as interfacing with
broker-dealers and investors. She has a real estate license and is a Senior
Certified Escrow Officer.
Sterling McGregor. Mr. McGregor's background is described under "Management
of Our Company--The Directors and Executive Officers."
The Advisory Agreement
Under the terms of the advisory agreement, our advisor generally
. has responsibility for day-to-day operations of our company;
. administers our bookkeeping and accounting functions;
. serves as our consultant in connection with policy decisions to be
made by our board of directors;
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<PAGE>
. manages or causes to be managed our properties and other assets; and
. renders other services as our board of directors deems appropriate.
Our advisor is subject to the supervision of our board of directors and, except
as expressly provided in the advisory agreement, has only such additional
functions as are delegated to it. A copy of the advisory agreement has been
filed as an exhibit to the registration statement of which this prospectus is a
part and you may obtain a copy from us.
Expenses. Our advisor bears the expenses incurred by it in connection with
performance of its duties under the advisory agreement, including employment
expenses of its personnel, rent, telephone and equipment expenses and
miscellaneous administrative expenses incurred in supervising, monitoring and
inspecting real property or other assets owned by us, excluding proposed
acquisitions, or relating to its performance under the advisory agreement. We
will reimburse our advisor for some expenses it incurs, including expenses
related to proposed acquisitions and travel expenses as described under
"Compensation Table." We will not reimburse our advisor at the end of any fiscal
quarter for operating expenses that, in the four consecutive fiscal quarters
then ended exceed the greater of 2% of Average Invested Assets or 25% of net
income for such year. If our advisor receives an incentive distribution, net
income, for purposes of calculating operating expenses, will exclude any gain
from the sale of our assets. Any amount exceeding the greater of 2% of Average
Invested Assets or 25% of net income paid to our advisor during a fiscal quarter
will be repaid to us within sixty (60) days after the end of the fiscal year. We
bear our own expenses for functions not required to be performed by our advisor
under the advisory agreement, which generally include capital raising and
financing activities, corporate governance matters and other activities not
directly related to our properties and assets.
Term. The advisory agreement, which was entered into by our company after
our board of directors reviewed and evaluated the performance of our advisor and
with the approval of a majority of independent directors, is for a one-year term
subject to successive one-year renewals upon the mutual consent of the parties.
In determining whether to renew the advisory agreement, our board of directors
will re-evaluate the performance of our advisor. The criteria used in such
evaluation will be reflected in the minutes of our board of director's meetings.
The advisory agreement may be terminated by our advisor or a majority of
the independent directors upon 60 days' prior written notice without cause or
penalty, in which case we will not be required to pay any termination fee. If
the advisory agreement is terminated, the advisory agreement requires our
advisor to cooperate with us and take all reasonable steps requested to assist
the directors in making an orderly transition of all advisory functions. If the
advisory agreement is terminated, our board of directors will determine that any
successor advisor possess sufficient qualifications to:
. perform the advisory function for our company; and
. justify the compensation provided for in the contract with our
company.
If the advisory agreement is terminated as a result of the merger of our
advisor into our company in connection with the listing of our shares on a
national exchange or market, our advisor's incentive limited partnership
interest will be redeemed for cash, or if agreed by both parties, shares of
common stock of our company. Our cost to redeem the incentive units will be the
amount that would be payable to the advisor pursuant to the "incentive
distribution" and "incentive distribution upon dispositions" described under the
heading "Compensation Table" if we liquidated all of our assets for their fair
market value.
Our Right of First Opportunity. The advisory agreement gives us the first
opportunity to purchase any income-producing properties located in our focus
states placed under contract by our advisor, provided that:
. we have funds available to make the purchase;
. our acquisition committee or board of directors votes to make the
purchase within fourteen days of being offered such property by our
advisor; and
. the property meets our acquisition criteria.
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<PAGE>
Possible Merger. Many REITs that are listed on a national stock exchange or
included for quotation on a national market system are considered
"self-administered," because the employees of the REIT perform all significant
management functions. In contrast, REITs that are not self-administered, like
our company, typically engage a third-party to perform management functions on
its behalf. Accordingly, if we apply to have our shares listed for trading on a
national stock exchange or included for quotation on a national market system,
it may be in our best interest to become self-administered. If the independent
directors determine that we should become self-administered, the advisory
agreement contemplates the merger of our advisor and our company and the
termination of the advisory agreement, with the consideration in such merger and
for such termination to be determined by our company and our advisor. In the
event our advisor is merged into our company, many of our advisor's key
employees will become employees of our company. While we would then be relieved
of paying fees to our advisor under the advisory agreement, we would be required
to pay the salaries of our advisor's employees, the rent and "overhead"
associated with our advisor's office and related costs and expenses formerly
absorbed by our advisor under the advisory agreement.
Indemnification. We have agreed to indemnify our advisor, its managers,
members and employees and pay or reimburse reasonable expenses in advance of
final disposition of a proceeding with respect to acts or omissions of our
advisor, provided that:
. the indemnified person determined, in good faith, that the course of
conduct which caused a loss or liability was in our best interest;
. the indemnified person was acting on behalf of, or performing services
for, our company;
. such liability or loss was not the result of misconduct, negligence or
a knowing violation of the criminal law or any federal or state
securities laws; and
. such indemnification or agreement to hold harmless is recoverable only
out of our net assets and not from our shareholders.
Other Services. In addition to the services described above to be provided
by our advisor and its affiliates, affiliates of our advisor may provide other
property-level services to our company and may receive compensation for such
services, including leasing, development, construction management, loan
origination and servicing, property tax reduction and risk managing fees.
However, under no circumstances will such compensation exceed an amount that
would be paid to non-affiliated third parties for similar services. A majority
of the independent directors must approve all compensation for such other
services paid to our advisor or any of its affiliates.
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<PAGE>
COMPENSATION TABLE
The Compensation Table below outlines all the compensation that we will pay
to our advisor, the dealer manager and the broker-dealers participating in this
offering during the stages in the life of our company and other payments that
are subordinated to achieving the returns listed in the table. For ease of
presentation and understanding, we have used defined terms in the table. Those
terms have the following meanings:
Average Invested Assets means, for any period, the average of the aggregate
book value of our assets that are invested, directly or indirectly, in equity
interests and in loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, computed by taking the average
of the values at the end of each month during such period.
Invested Capital means the product of (1) the sum of (A) the total number
of outstanding shares of our common stock and (B) the number of partnership
units issued by our operating partnership to limited partners (other than our
advisor) and (2) a dollar amount that initially will be $10.00 and that will be
adjusted appropriately to reflect stock dividends, stock splits, or other
changes in the capital structure of our company or our operating partnership,
and, at our discretion, changes in the average price per share paid for our
common stock and partnership units in our operating partnership after this
offering. When a property is sold, Invested Capital will be reduced by the
lesser of (1) the net sale proceeds available for distribution from such sale or
(2) the sum of (A) the portion of Invested Capital that initially was allocated
to that property and (B) any remaining shortfall in the recovery of our Invested
Capital with respect to prior sales of properties.
Competitive Real Estate Commission means the real estate or brokerage
commission paid for the purchase or sale of a property which is reasonable,
customary and competitive in light of the size, type and location of such
property.
Our advisor and its affiliates will not be compensated for any services
other than those which have been fully disclosed in this Compensation Table. In
those instances in which there are maximum amounts or ceilings on the
compensation which may be received by our advisor or the dealer manager for
services rendered, our advisor and the dealer manager may not recover any
amounts in excess of such ceilings or maximum amounts for those services by
reclassifying such services under a different compensation or fee category.
Except as expressly provided in the table, we shall not pay, directly or
indirectly, a commission or fee to our advisor or its affiliates in connection
with the reinvestment of the proceeds of any resale, exchange, financing or
refinancing of a company property.
<TABLE>
<CAPTION>
OFFERING STAGE
- ------------------- ---------------------------------------------------------------- ------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- ------------------- ---------------------------------------------------------------- ------------------------------
<S> <C> <C>
Selling The dealer manager will receive 8% of the gross proceeds of Actual amount depends upon the
Commissions this offering, or $0.80 for each share sold (8%), and one number of shares sold. The dealer
warrant for every 40 shares of common stock sold in this manager will receive a total of
offering in states other than Arizona, Minnesota, Missouri, $80,000 if the minimum offering is
Nebraska, Ohio or Tennessee. Each of these warrants permits sold and $8,000,000 if the maximum
the holder to purchase one share of our common stock at a offering is sold.
purchase price of $12.00 per share (120% of the offering
price) prior to ____________, 2004. The dealer manager may
reallow a portion of the Selling Commissions and the
warrants to broker-dealers for each share they sell. Shares
purchased under the dividend reinvestment program will be
purchased without Selling Commissions.
- ------------------- ------------------------------------------------------------------- ------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OFFERING STAGE
- ------------------- ---------------------------------------------------------------- ------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- ------------------- ---------------------------------------------------------------- ------------------------------
<S> <C> <C>
Marketing We will pay the dealer manager an amount up to 1.5% of the gross Actual amount depends upon
Support and proceeds of this offering to pay expenses associated with the number of shares sold.
Due Diligence marketing fees, wholesaling fees, expense reimbursements, bonuses A total of $15,000 will be
Reimbursement and incentive compensation and volume discounts and to generally paid if the minimum offering
Fee reimburse the dealer manager for due diligence expenses. We will is sold and $1,500,000 will
not require the dealer manager to account for spending of amounts be paid if the maximum
comprising this fee. The dealer manager may reallow a portion of offering is sold.
this fee to broker-dealers participating in this offering. We
will not pay this fee with respect to shares purchased under
the dividend reinvestment program.
- ------------------- ------------------------------------------------------------------- ------------------------------
Other Our advisor may advance, and we will reimburse it for, Actual amounts will be based
Organizational organization and offering expenses incurred on our behalf in on actual funds advanced.
and Offering connection with this offering, including legal and accounting We estimate that a total of
Expenses fees, filing fees, printing costs and selling expenses. We $25,000 will be reimbursed
estimate such expenses will be approximately 2.5% of the net if the minimum offering is
proceeds of this offering. sold and $2,500,000 will be
reimbursed if the maximum
offering is sold.
- ------------------- ------------------------------------------------------------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION STAGE
- ----------------------------------------------------------------------------------------------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- ------------------- ------------------------------------------------------------------- ------------------------------
<S> <C> <C>
Real Estate In property acquisitions in which an affiliate of our advisor Actual amounts depend on the
Commission serves as our real estate broker, such affiliate may receive from purchase price of properties
the seller in such acquisitions a real estate commission of acquired.
up to 2% of the purchase price of the property.
Since any seller will attempt to set the selling price at an
amount to cover the cost of real estate commissions, we, as
purchaser, may be deemed to be indirectly paying such cost
in the form of a higher price.
- ------------------- ------------------------------------------------------------------- ------------------------------
Acquisition We will reimburse our advisor for costs and expenses of Actual amounts to be
Expenses selecting, evaluating and acquiring properties, whether or not reimbursed depend upon the
actually acquired, including surveys, appraisals, title insurance purchase price of properties
and escrow fees, legal and accounting fees and expenses, and actual cost of goods or
architectural and engineering reports, environmental and asbestos services. If the minimum
audits, travel and communication expenses, non-refundable option offering is sold,
payments on properties not acquired and other related expenses acquisition expenses are
payable to our advisor and its affiliates. Interest shall be estimated to be $5,000. If
paid on funds advanced at our advisor's actual cost of funds or the maximum offering is
as otherwise established by our board of directors. sold, acquisition expenses
are estimated to be $500,000.
- ------------------- ------------------------------------------------------------------- ------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OPERATIONAL STAGE
- -----------------------------------------------------------------------------------------------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- -------------------- ------------------------------------------------------------------- ------------------------------
<S> <C> <C>
Property We will pay our advisor a Property Management Fee equal to 5% of Actual amounts to be paid
Management Fee the gross income from the properties. This fee will be paid depend upon the gross income
monthly. of the properties and,
therefore, cannot be
determined at the present
time.
- -------------------- ------------------------------------------------------------------- ------------------------------
Compensation for We will pay our advisor for other property-level services Actual amounts to be
Services including leasing fees, construction management fees, loan received depend upon the
origination and servicing fees, property tax reduction fees services provided and,
and risk management fees. Such compensation will not therefore, cannot be
exceed the amount which would be paid to unaffiliated determined at the present
third parties providing such services. All such time.
compensation must be approved by a majority of our
independent directors.
- -------------------- ------------------------------------------------------------------- ------------------------------
Reimbursable We will reimburse our advisor for: Actual amounts are dependent
Expenses upon results of operations.
. the cost to our advisor or its affiliates of goods and
services used for and by us and obtained from unaffiliated
parties and
. administrative services related to such goods and
services limited to ministerial services such as typing,
record keeping, preparing and disseminating company reports,
preparing and maintaining records regarding shareholders,
record keeping and administration of our dividend
reinvestment program, preparing and disseminating responses
to shareholder inquiries and other communications with
shareholders and any other record keeping required.
- -------------------- ------------------------------------------------------------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIQUIDATION STAGE
- -----------------------------------------------------------------------------------------------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- -------------------- ------------------------------------------------------------------- ------------------------------
<S> <C> <C>
Property We will pay our advisor a Property Disposition Fee out of net Actual amounts to be
Disposition Fee profits upon the sale of each of the properties, in an amount received depend upon the
equal to the lesser of 3% of the property's contract sales price sale price of properties
or 50% of a customary Competitive Real Estate Commission given and, therefore, cannot be
the circumstances surrounding the sale. The amount paid, when determined at the present
added to the sums paid to unaffiliated parties, shall not exceed time.
the lesser of the customary Competitive Real Estate Commission or
an amount equal to 6% of the contracted for sales price. Payment
of such fees shall be made only if our advisor provides a
substantial amount of services in connection with the sale
of the property. We will pay the Property Disposition Fee
on all dispositions of properties, whether made in the
ordinary course of business, upon liquidation or otherwise.
- -------------------- ------------------------------------------------------------------- ------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SUBORDINATED PAYMENTS
- -----------------------------------------------------------------------------------------------------------------------
Type of Method of Estimated
Compensation Compensation Amount
- -------------------- ------------------------------------------------------------------- ------------------------------
<S> <C> <C>
Asset We will pay our advisor an Asset Management Fee of up to 1.5% of Actual amounts are dependent
Management the Average Invested Assets. The Asset Management Fee will be upon the actual amounts that
Fee paid or accrue quarterly, but will not be paid until our we invest in assets and,
shareholders have received distributions equal to a cumulative, therefore, cannot be
noncompounded rate of 8% per annum on their investment in our determined at this time.
company. If the fee is not paid in any quarter, it will accrue
and be paid once the shareholders have received a cumulative 8%
return.
- -------------------- ------------------------------------------------------------------- ------------------------------
Incentive Our operating partnership will pay an incentive distribution to Actual amounts to be
Distribution our advisor equal to 15% of our operating partnership's operating received depend upon results
cash flow after our company has received the sum of: of operations and the actual
amounts that we invest in
. an 8% cumulative, non-compounded return on our Invested properties and, therefore,
Capital, and cannot be determined at the
. any remaining shortfall in the recovery of our Invested present time.
Capital with respect to prior sales of properties.
If there is a shortfall in our 8% return on Invested Capital at
the end of any calendar year and our advisor previously has
received incentive distributions, other than those that have
previously been repaid, our advisor will be required to repay to
our operating partnership an amount of those distributions
sufficient to cause the cumulative 8% return threshold to be
met. In no event will the cumulative amount repaid by our
advisor to our operating partnership exceed the cumulative amount
of incentive distributions that our advisor previously has
received.
- -------------------- ------------------------------------------------------------------- ------------------------------
Incentive Our operating partnership will pay an incentive distribution upon Actual amounts to be
Distribution the sale of a property equal to 15% of the net proceeds from the received depend upon the
Upon sale after our company has received the sum of sale price of properties
Dispositions . our Invested Capital that initially was allocated to that and, therefore, cannot
property, be determined at the
. any remaining shortfall in the recovery of our Invested present time.
Capital with respect to prior sales of properties, and
. any remaining shortfall in our 8% return on Invested
Capital.
If we have not received a return of our Invested Capital or
if there is a shortfall in our 8% return after the sale of
the last property and our advisor previously has received
incentive distributions, other than those that have
previously been repaid, our advisor will be required to
repay to our operating partnership an amount of those
distributions sufficient to cause us to receive a full
return of our Invested Capital and a full distribution of
our 8% return. In no event will the cumulative amount
repaid by our advisor to our operating partnership exceed
the cumulative amount of incentive distributions that our
advisor previously has received.
- -------------------- ----------------------------------------------------------------------- --------------------------
</TABLE>
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Additional Payments for Additional Services
In extraordinary circumstances fully justified to the official or agency
administering the state securities laws, our advisor and its affiliates may
provide other goods and services to our company if all of the following criteria
are met:
. the goods or services must be necessary to our prudent operation;
and
. the compensation, price or fee must be equal to the lesser of 90%
of the compensation, price or fee we would be required to pay to
independent parties rendering comparable services or selling or
leasing comparable goods on competitive terms in the same
geographic location, or 90% of the compensation, price or fee
charged by our advisor or its affiliates for rendering comparable
services or selling or leasing comparable goods on competitive
terms.
Extraordinary circumstances shall be presumed only when there is an
emergency situation requiring immediate action by our advisor or its affiliates
and the goods or services are not immediately available from unaffiliated
parties. Services which may be performed in such extraordinary circumstances
include emergency maintenance of our properties, janitorial and other related
services due to strikes or lock-outs, emergency tenant evictions and repair
services which require immediate action, as well as operating and re-leasing
properties with respect to which the leases are in default or have been
terminated.
Limitations on Compensation
Limitations on Reimbursements
No reimbursement to our advisor or its affiliates is permitted for items
such as rent, depreciation, utilities, capital equipment, salaries, fringe
benefits and other administrative items of any controlling persons of our
advisor, its affiliates or any other supervisory personnel except in those
instances in which our board of directors believes it to be in our best interest
that our advisor or its affiliates operate or otherwise deal with, for an
interim period, a property with respect to which the lease is in default.
Permitted reimbursements, except as set forth above, include salaries and
related salary expenses for non-supervisory services which could be performed
directly for our company by independent parties such as legal, accounting,
transfer agent, data processing and duplication. Controlling persons include,
but are not limited to, any person, irrespective of his or her title, who
performs functions for our advisor similar to those of chairman or member of the
board of directors, president or executive vice president, or those entities or
individuals holding 5% or more of the stock of our advisor or a person having
the power to direct or cause the direction of our advisor, whether through
ownership of voting securities, by contract or otherwise. Despite the foregoing,
and subject to the approval of our board of directors, including a majority of
the independent directors, we may reimburse our advisor for expenses related to
the activities of controlling persons undertaken in capacities other than those
which cause them to be controlling persons. Our advisor has informed us that it
believes that its employees and the employees of its affiliates and controlling
persons who perform services for which reimbursement is allowed under clause (b)
above, have the experience and educational background, in their respective
fields of expertise, appropriate for the performance of such services.
Limitation on Acquisition-Related Compensation
The total of all real estate commissions and acquisition fees and expenses
paid in connection with our purchase of a property may not exceed an amount
equal to 6% of the contract purchase price for the property unless a majority of
our board of directors, including a majority of the independent directors, not
otherwise interested in the transaction approve the transaction as being
commercially competitive, fair and reasonable to our company. Notwithstanding
the foregoing, the total of all real estate commissions and acquisition fees and
expenses paid in connection with our purchase of a property from an affiliate
may not exceed 6% of the contract purchase price for the property.
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Limitation on Operating Expenses
In the absence of a satisfactory showing to the contrary, our total
operating expenses (as defined below) will be deemed to be excessive if, in any
fiscal year, they exceed the greater of:
. 2% of our Average Invested Assets or
. 25% of our net income for such year.
The independent directors have a fiduciary responsibility to limit such expenses
to amounts that do not exceed these limitations unless the independent directors
find that, based on unusual and nonrecurring factors which they deem sufficient,
a higher level of expenses is justified for such year. If the independent
directors find that a higher level of expenses is justified, they will reflect
this finding and the reasons in support of such finding in the minutes of the
meeting of the board of directors.
Within 60 days after the end of any fiscal quarter for which our total
operating expenses for the 12 months then ended exceeded the greater of 2% of
our Average Invested Assets or 25% of net income, we will send to our
shareholders a written disclosure of such fact, together with and explanation of
the factors the independent directors considered in arriving at their conclusion
that such higher expenses were justified.
In the event that the independent directors do not determine such expenses
are justified, our advisor will reimburse our company at the end of the 12 month
period the amount by which the aggregate annual expenses paid or incurred by our
company exceed the limitations provided above.
Total operating expenses include aggregate expenses of every character paid
or incurred by us as determined under generally accepted accounting principles,
including the fees we pay to our advisor. However, total operating expenses do
not include:
. the expenses we incur in raising capital such as organizational and
offering expenses, legal, audit, accounting, registration and other
fees, printing and other expenses, and tax incurring in connection
with the issuance, distribution, transfer and registration of our
shares;
. interest payment;
. taxes;
. non-cash expenditures such as depreciation, amortization and bad debt
reserves; and
. acquisition and disposition fees, acquisition expenses, real estate
commissions on resale of properties and other expenses connected with
the acquisition, disposition and ownership of real estate interests,
mortgage loans or other property, including the Incentive Distribution
Upon Disposition referred to in the Compensation Table.
Additional Important Information on Compensation to Our Affiliates
Our advisor and its affiliates will be involved in determining the types
and structure of the transactions in which we participate. Our advisor may
benefit from our acquiring properties, retaining ownership of our properties or
leveraging our properties, while it may be in your best interest as a
shareholder for us to buy, sell or hold such property on an unleveraged basis.
Furthermore, our advisor's receipt and retention of many of the fees it receives
and reimbursements depends upon our company making investments in properties.
Therefore, the interest of our advisor in receiving such fees may conflict with
the interest of our shareholders to earn income on their investment in shares
and may result in our entering into transactions that do not solely reflect your
interest as a shareholder. The independent directors must approve all
transactions between us and our advisor or its affiliates.
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PRIOR PERFORMANCE SUMMARY
The information presented in this section represents the historical
experience of real estate programs managed by our advisor. Investors in our
company should not assume that they will experience returns, if any, comparable
to those experienced by investors in such prior real estate programs.
Our advisor has served as manager or sponsor of a total of four real estate
investment entities. These real estate investment entities and the year in which
their offerings were commenced and/or completed are as follows:
1. Tulluride Barstow, LLC (1998)
2. Truckee River Office Tower, LLC (1998)
3. Western Real Estate Investment Trust (1998) (not completed)
4. Yerington Shopping Center, LLC (December 15, 1998-1999)
5. NNN Fund VIII, LLC (February 22, 1999) (not completed)
6. NNN Town & Country, LLC (May 10, 1999) (not completed)
These four programs constitute the "prior advisor programs." The prior
performance tables included in Exhibit A attached hereto set forth information
regarding these prior advisor programs as of the dates indicated with respect
to:
. experience in raising and investing funds (Table I);
. compensation to the sponsor (Table II); and
. annual operating results of the prior advisor programs (Table III).
No information is given as to results of completed programs or sales or
dispositions of property because, to date, none of the prior programs have sold
any of their properties.
Prior Programs of Our Advisor
Our advisor sponsored the prior advisor programs. The total amount of funds
raised from all investors in the offerings of the prior advisor programs, as of
June 30, 1999, was approximately $18,948,538, and the total number of investors
in all such entities was approximately 326.
The prior advisor programs have acquired a total of seven properties in
California, Colorado, South Dakota, Nevada and Kansas.
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by the prior advisor programs, as of June 30, 1999, was
approximately $97,415,495. Of the aggregate amount, approximately 19% was spent
on acquiring office buildings, and approximately 81% was spent on retail
properties.
All of these funds were spent on existing or used properties. The following
table shows a breakdown of the aggregate amount of the acquisition and
development costs of the properties purchased by the prior advisor programs as
of June 30, 1999:
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Type of Property Existing
---------------- --------
Office $18,242,342
Retail 80,173,153
----------
Total $98,415,495
===========
Each of the prior advisor programs and the properties that they have
acquired are described below.
Telluride Barstow, LLC, a Virginia limited liability company, was formed by
our advisor in June of 1998 to acquire Barstow Road Shopping Center, a community
shopping center in Barstow, California. Our advisor is the managing member of
Telluride Barstow, LLC. The center includes approximately 77,950 square feet of
leasable space and, as of February 1, 1999, was approximately 98% occupied.
Truckee River Office Tower, LLC, a Virginia limited liability company, was
formed by our advisor in August of 1998 to acquire Truckee River Office Tower, a
15-story office and parking facility located in downtown Reno, Nevada. Our
advisor is the managing member of Truckee River Office Tower, LLC, which closed
on the purchase of the office tower on December 1, 1998. The property contains
approximately 137,572 square feet of Class-B office space and, as of February 1,
1999, was approximately 58% occupied. The building was developed in 1981 by
casino operator, Harrah's, which currently leases over 40% of the space.
Yerington Shopping Center, LLC, a Virginia limited liability company, was
formed by our advisor in December of 1998 to acquire Yerington Plaza Shopping
Center, a neighborhood shopping center in Yerington, Nevada, about 80 miles
southeast of Reno, Nevada. The Plaza includes approximately 55,531 square feet
of leasable space and, as of February 1, 1999, was approximately 94% occupied.
Our advisor is the managing member of Yerington Shopping Center, LLC, which
closed the private placement of its equity interests and acquired the shopping
center on March 8, 1999.
NNN Fund VIII, LLC, a Virginia limited liability company, was formed by our
advisor and has acquired two properties. It acquired the Belmont Shopping Center
in Pueblo, Colorado on June 11, 1999 and the Village Fashion Center in Wichita,
Kansas on June 18, 1999. The Belmont Shopping Center is a retail shopping center
containing approximately 81,289 square feet of leasable space. The Village
Fashion Center is a retail shopping center containing approximately 129,973
square feet of leasable space. NNN Fund VIII began selling equity interests in
February of 1999 and, as of June 30, 1999 had raised $2,878,000 of the
$8,000,000 it is seeking to raise. NNN Fund VIII is in the process of acquiring
additional properties.
NNN Town & Country, LLC, a Virginia limited liability company, was formed
by our advisor in May, 1999, to acquire the Town & Country Shopping Center, a
retail shopping center in Sacramento, California, which it acquired on June 30,
1999. The Town & Country shopping center includes approximately 239,645 square
feet of leasable space, and as of May 10, 1999, was approximately 85% occupied.
Our advisor is the managing member of NNN Town & Country, LLC. As of October 1,
1999, this program had sold approximately $6,560,000 of the $7,200,000 in equity
interests that it is seeking to sell.
Western Real Estate Investment Trust, a Virginia corporation, was formed by
our advisor in July of 1998 and intends to qualify as a REIT for federal income
tax purposes. Western REIT is currently engaged in an ongoing best efforts
private placement of $50,000,000 of its common stock. Western REIT was formed to
acquire office and industrial properties and retail shopping centers with the
proceeds of its private placement. Our advisor manages the properties owned by
Western REIT and serves as the general partner of Western REIT's operating
partnership subsidiary. Western REIT's ongoing best efforts private placement is
being conducted by the dealer manager.
Western REIT currently owns the following properties:
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The Kress Energy Center is an office building located in the downtown
central business district of Wichita, Kansas. This six-story, historically
registered building with approximately 57,693 leasable square feet was
originally constructed in 1930. As of February 1, 1999, the building was
approximately 89% occupied.
The Phelan Village Shopping Center is an approximately 58,619 square foot
shopping center in Phelan, California built in 1989. Western REIT acquired this
property on October 16, 1998. As of February 1, 1999, Phelan Village was
approximately 93% occupied.
The Century Plaza East Shopping Center is a retail shopping center located
in East Lancaster, California, which is near Palmdale, California. The center
includes approximately 121,192 square feet and, as of February 1, 1999, was
approximately 90% occupied.
The Bryant Ranch Shopping Center is an approximately 93,892 square foot
neighborhood shopping center located in Yorba Linda, California, which is in
Orange County. Western REIT acquired this property on December 1, 1998 and, as
of February 1, 1999, the center was approximately 91% leased.
The Huron Mall Shopping Center is approximately 208,650 square foot
neighborhood shopping center in Huron, South Dakota. Western REIT acquired this
property on March 31, 1999 and, as of that date, the property was approximately
72% leased.
The Crossroads Shopping Center is a retail shopping center in Kona, Hawaii,
built in 1996. Western REIT acquired a leasehold interest in this property on
July 31, 1999. The center includes approximately 74,973 square feet of space and
is anchored by a Safeway grocery store. As of October 1, 1999, the center was
100% leased.
None of these prior programs has liquidated or sold any of its real
properties to date and, accordingly, no assurance can be made that prior
programs will ultimately be successful in meeting their investment objectives.
The information set forth above should not be considered indicative of results
to be expected from our company.
Potential investors are encouraged to examine the prior performance tables
attached as Exhibit A to this prospectus for more detailed information regarding
the prior experience of our advisor. In addition, upon request, prospective
investors may obtain from our advisor without charge copies of offering
materials and any reports prepared in connection with any of the prior advisor
programs. Any such request should be directed to our advisor. Additionally,
Table VI contained in Part II of the registration statement of which this
prospectus is a part gives additional information relating to properties
acquired by the prior advisor programs. We will furnish, without charge, copies
of such table upon request.
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CONFLICTS OF INTEREST
Our management will be subject to various conflicts of interest arising
out of our relationship with our advisor, the dealer manager and their
affiliates. All agreements and arrangements, including those relating to
compensation, between us and our advisor, the dealer manager and their
affiliates are not the result of arm's-length negotiations. The limitations on
our advisor described below have been adopted to control when we enter into
transactions with our advisor, the dealer manager and their affiliates. With
respect to the conflicts of interest described herein, our advisor, the dealer
manager and their affiliates have informed us that they will endeavor to balance
their interests with our interests.
We believe that the compensation paid to our advisor or its affiliates
under the advisory agreement is on terms no less favorable to our company than
those customary for similar services performed by independent firms in the
relevant geographic areas.
Competition for the Time and Service of Our Advisor and Affiliates
Our company relies on our advisor and its affiliates to manage our assets
and daily operations. Many of the same persons serve as directors, officers and
employees of our company and our advisor. Affiliates of our advisor have
conflicts of interest in allocating management time, services and functions
among various existing real estate programs, including the prior advisor
programs, and any future real estate programs or business ventures that they may
organize or serve. Our advisor and its affiliates have informed us that they
believe they have sufficient staff to be fully capable of discharging their
responsibilities in connection with various real estate programs and other
business ventures.
Process for Resolution of Conflicting Opportunities
Our advisor has sponsored privately offered real estate programs and may in
the future sponsor privately and publicly offered real estate programs that may
have investment objectives similar to ours. Therefore, our advisor and its
affiliates could be subject to conflicts of interest between our company and
other real estate programs. The advisory agreement gives us the first
opportunity to buy income-producing properties located in our focus states
placed under contract by our advisor or its affiliates, provided that:
. we have funds available to make the purchase;
. our board of directors or appropriate acquisition committee votes to
make the purchase within fourteen days of being offered such property
by our advisor; and
. the property meets our acquisition criteria.
Other factors that may be considered in connection with the decisions as to the
suitability of the property for investment include:
. the effect of the acquisition on the diversification of our portfolio;
. the amount of funds we have available for investment;
. cash flow; and
. the estimated income tax effects of the purchase and subsequent
disposition.
The independent directors must, by majority vote, approve all actions by our
advisor or its affiliates that present potential conflicts with our
company.
We believe that the three factors, including the obligations of our advisor
and its affiliates to present to us any income-producing investment
opportunities that could be suitable for our company, will help to lessen the
competition or conflicts with respect to the acquisition of properties.
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Acquisitions From Our Advisor and Its Affiliates
We may acquire properties from our advisor, our directors or officers or
their affiliates. The prices we pay for such properties will not be the subject
of arm's-length negotiations. However, we will not acquire a property from our
advisor or any affiliate, including our officers and directors, unless a
competent independent appraiser confirms that our purchase price is equal to or
less than the property's fair market value and a majority of our board of
directors not otherwise interested in the transaction, including a majority of
our independent directors, determines that the transaction and the purchase
price are fair, reasonable and in our best interests. There can be no absolute
assurance that the price we pay for any such property will not, in fact, exceed
that which would be paid by an unaffiliated purchaser. In no event, however,
will the cost of a property to our company exceed such property's current
appraised value.
We May Purchase Properties From Persons With Whom Affiliates of Our Advisor Have
Prior Business Relationships
We may purchase properties from sellers with whom our advisor or its
affiliates have purchased properties in the past and may purchase properties in
the future. If we purchase properties from such sellers, our advisor will
experience a conflict between the current interests of our company and its
interests in preserving any ongoing business relationship with such seller. Our
board of directors will not, and our advisor has informed us that it will not,
consummate such purchases in a manner that would effect a breach of any
fiduciary obligations to our company.
Our Advisor May Have Conflicting Fiduciary Obligations in the Event Our Company
Acquires Properties with Our Advisor or Affiliates
Our advisor may advise us to acquire an interest in a property through a
joint venture or co-ownership arrangement with our advisor or its affiliates. In
such instance, our advisor will have a fiduciary duty to our company, our
shareholders and the affiliate participating in the joint venture or
co-ownership arrangement. In order to minimize the likelihood of a conflict
between these fiduciary duties, the advisory agreement provides guidelines for
investments in such co-ownership or joint venture arrangements in various
respects. In addition, the advisory agreement provides that a majority of the
independent directors not otherwise interested in the transaction must determine
that the transaction is on terms and conditions no less favorable than from
unaffiliated third parties and is fair and reasonable to our company.
Property Management Services will be Rendered by Our Advisor
Our advisor will provide property and asset management services to our
company and other entities, some of whom may be in competition with our company.
Our advisor will render these services to our company for the price and on the
terms we would expect from an unaffiliated third party and in a manner
consistent with customary business practices. Our advisor has informed us that
it believes that it has sufficient personnel and other required resources to
discharge all responsibilities to the various properties that it manages and
will manage in the future.
Receipt of Commissions, Fees and Other Compensation by Our Advisor
Our advisor and its affiliates have received and will continue to
receive the compensation as described in "Compensation Table." Many of the fees
described under "Compensation Table" are based on acquisitions or asset value
and are payable to our advisor despite the lack of cash available to make
distributions to our shareholders. To that extent, our advisor benefits from our
retaining ownership of properties and leveraging our properties, while our
shareholders may be better served by our disposing of a property or holding a
property on an unleveraged basis. Furthermore, our advisor's receipt and
retention of many of the fees and reimbursements it receives from us are
dependent upon our making investments in properties. Therefore, the interest of
our advisor in receiving such fees may conflict with your interest in earning
income on your investment in the shares. Our advisor and its affiliates
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have a fiduciary duty to our company and our shareholders and have represented
to us that their actions and decisions will be made in compliance with their
fiduciary duty.
Non-Arm's-Length Agreements; Conflicts; Competition
The agreements and arrangements, including those relating to compensation,
between our company, our advisor and its affiliates are not the result of
arm's-length negotiations, but are expected to approximate the terms of
arm's-length transactions. While we will not make loans to our advisor or its
affiliates, we may borrow money from our advisor or its affiliates for various
business purposes, including working capital requirements, but only if a
majority of our board of directors, including a majority of the independent
directors, approve the transaction as being fair, competitive, commercially
reasonable and no less favorable to our company than loans between unaffiliated
parties under the same circumstances. Our advisor and its affiliates are not
prohibited from providing services to, and otherwise dealing or doing business
with, persons who deal with us, although there are no present arrangements with
respect to any such services. However, no rebates or "give-ups" may be received
by our advisor or its affiliates, nor may our advisor or any such affiliates
participate in any reciprocal business arrangements which would have the effect
of circumventing any of the provisions of the advisory agreement.
Legal Counsel for Our Company and Our Advisor is the Same Law Firm
Hirschler, Fleischer, Weinberg, Cox & Allen, a Professional Corporation
acts as legal counsel to our advisor and some of its affiliates and also is
expected to represent us with respect to matters of real estate law. Hirschler
is not acting as counsel for the shareholders or any potential investor. There
is a possibility in the future that the interests of the various parties may
become adverse and, under the Code of Professional Responsibility of the legal
profession, Hirschler may be precluded from representing any one or all of such
parties. If any situation arises in which our interests appear to be in conflict
with those of our advisor or its affiliates, additional counsel may be retained
by one or more of the parties to assure that their interests are adequately
protected. Moreover, should such a conflict not be readily apparent, Hirschler
may inadvertently act in derogation of the interest of parties which could
affect us and, therefore, our shareholders' ability to meet our investment
objectives.
NNN Capital Corp. is Participating as Dealer Manager in the Sale of Our Shares
NNN Capital Corp., a securities dealer affiliated with Anthony W. Thompson,
the Chairman of the Board, President and Chief Executive Officer of our company
and the President and Chief Executive Officer of our advisor, is participating
as the dealer manager in this offering. The dealer manager is entitled to the
Selling Commissions, Marketing Support and Due Diligence Reimbursement Fee and
warrants based on the number of shares sold in many states, which may be
retained or reallowed to broker-dealers participating in this offering. The
dealer manager may be subject to a conflict of interest, which may arise out of
its participation in this offering and its affiliation with Mr. Thompson, in
performing independent "due diligence" with respect to our company. Any review
of our structure, formation or operation performed by the dealer manager will be
conducted as if it was an independent review; however, because the dealer
manager is our affiliate, such review cannot be considered to represent an
independent review, and such review may not be as meaningful as a review
conducted by an unaffiliated broker-dealer. Therefore, this offering will not
necessarily have the independent review typically conducted by an underwriter or
managing broker-dealer.
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SUMMARY OF DIVIDEND REINVESTMENT PROGRAM
We have adopted a dividend reinvestment program under which our
shareholders may elect to have their cash dividends reinvested in additional
shares of our common stock. The following discussion summarizes the principal
terms of the dividend reinvestment program, which is attached to this prospectus
as Exhibit C.
General
Shareholders who have received a copy of this prospectus and participate in
this offering can elect to participate in and purchase shares through the
dividend reinvestment program at any time and will not need to receive a
separate prospectus relating solely to the dividend reinvestment program. A
person who becomes a shareholder otherwise than by participating in this
offering may purchase shares through the dividend reinvestment program only
after receipt of a separate prospectus relating solely to the dividend
reinvestment program.
Until the earlier to occur of the termination of this offering and the sale
of all the shares reserved for issuance under the dividend reinvestment program,
the purchase price for shares purchased under the dividend reinvestment program
will be the greater of $9.05 and the fair market value of a share of our common
stock as of the date of reinvestment.
Investment of Dividends
Dividends will be used to purchase shares on behalf of the participants
from our company. All such dividends shall be invested in shares within 30 days
after such payment date. Any dividends not so invested will be returned to the
participants in the dividend reinvestment program.
As of the date of this prospectus, participants will not have the option to
make voluntary contributions to the dividend reinvestment program to purchase
shares in excess of the amount of shares that can be purchased with their
dividends. The board of directors reserves the right, however, to amend the
dividend reinvestment program in the future to permit voluntary contributions to
the dividend reinvestment program by participants, to the extent consistent with
our objective of qualifying as a REIT.
Participant Accounts, Fee, and Allocation of Shares
For each participant in the dividend reinvestment program, we will maintain
a record which shall reflect for each dividend period the dividends received by
us on behalf of such participant. Any interest earned on such dividends will be
retained by us to defray costs relating to the dividend reinvestment program.
We will use the aggregate amount of dividends to all participants for each
dividend period to purchase shares for the participants. If the aggregate amount
of dividends to participants exceeds the amount required to purchase all shares
then available for purchase, our company will purchase all available shares and
will return all remaining dividends to the participants within 30 days after the
date such dividends are made. We will allocate the purchased shares among the
participants based on the portion of the aggregate dividends received on behalf
of each participant, as reflected in our records. The ownership of the shares
purchased under the dividend reinvestment program shall be reflected on our
books.
Shares acquired under the dividend reinvestment program will entitle the
participant to the same rights and to be treated in the same manner as those
purchased by the participants in this offering.
The allocation of shares among participants may result in the ownership of
fractional shares, computed to four decimal places.
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Reports to Participants
Within 90 days after the end of each fiscal year, we will mail to each
participant a statement of account describing, as to such participant:
. the dividends reinvested during the year;
. the number of shares purchased during the year;
. the per share purchase price for such shares;
. the total administrative charge retained by us on behalf of each
participant; and
. the total number of shares purchased on behalf of the participant
under the dividend reinvestment program.
Tax information with respect to income earned on shares under the dividend
reinvestment program for the calendar year will be sent to each participant.
Election to Participate or Terminate Participation
Shareholders who purchase shares in this offering may become participants
in the dividend reinvestment program by making a written election to participate
on their Subscription Agreements at the time they subscribe for shares. Any
other shareholder who receives a copy of this prospectus or a separate
prospectus relating solely to the dividend reinvestment program and who has not
previously elected to participate in the dividend reinvestment program may so
elect at any time by completing the enrollment form attached to such prospectus
or by other appropriate written notice to us of such shareholder's desire to
participate in the dividend reinvestment program. Participation in the dividend
reinvestment program will commence with the next dividend made after receipt of
the participant's notice, provided it is received at least ten days prior to the
record date for such dividend. Subject to the preceding sentence, the election
to participate in the dividend reinvestment program will apply to all dividends
attributable to the dividend period in which the shareholder made such written
election to participate in the dividend reinvestment program and to all
dividends. Participants will be able to terminate their participation in the
dividend reinvestment program at any time without penalty by delivering written
notice to us no less than ten days prior to the next record date. We may also
terminate the dividend reinvestment program for any reason at any time, upon ten
days' prior written notice to all participants.
A participant who chooses to terminate participation in the dividend
reinvestment program must terminate his or her entire participation in the
dividend reinvestment program and will not be allowed to terminate in part. If
the dividend reinvestment program is terminated, we will update our stock
records to account for all whole shares purchased by the participant(s) in the
dividend reinvestment program, and if any fractional shares exist, we may either
(a) send you a check in payment for any fractional shares in your account based
on the then-current market price for the shares, or (b) credit your stock
ownership account with any such fractional shares. There are no fees associated
with a participant's terminating his interest in the dividend reinvestment
program or our termination of the dividend reinvestment program. A participant
in the dividend reinvestment program who terminates his interest in the dividend
reinvestment program will be allowed to participate in the dividend reinvestment
program again by notifying us and completing any required forms.
We reserve the right to prohibit an employee benefit plan or other entity
subject to ERISA from participating in the dividend reinvestment program.
Federal Income Tax Considerations
Shareholders subject to federal income taxation who elect to participate in
the dividend reinvestment program will incur tax liability for dividends
reinvested under the dividend reinvestment program even though they will receive
no related cash. Specifically, shareholders will be treated as if they have
received the dividend from our company and then applied such dividend to
purchase shares in the dividend reinvestment program. A shareholder who
reinvests dividends will be taxed on distributions from our company as ordinary
income to the extent such distributions
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are made out of our current or accumulated earnings and profits, unless we have
designated all or a portion of the distribution as a capital gain dividend. In
such case, such designated portion of the distribution will be taxed as
long-term capital gain.
Amendments and Termination
We reserve the right to amend any aspect of the dividend reinvestment
program without the consent of shareholders, provided that notice of any
material amendment is sent to participants at least 30 days prior to the
effective date thereof. We also reserve the right to terminate the dividend
reinvestment program for any reason at any time by ten days' prior written
notice of termination to all participants. We may terminate a participant's
participation in the dividend reinvestment program immediately if in our
judgment such participant's participation jeopardizes in any way our status as a
REIT.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this prospectus, we had not yet commenced active
operations. Subscription proceeds may be released to us after the minimum
offering is achieved and will be applied to investment in properties and the
payment or reimbursement of Selling Commissions and other fees and expenses. We
will experience a relative increase in liquidity as we receive additional
subscriptions for shares and a relative decrease in liquidity as we spend net
offering proceeds in connection with the acquisition, development and operation
of properties.
As of the date of this prospectus, we have not entered into any
arrangements creating a reasonable probability that we will acquire a specific
property. The number of properties that we will acquire will depend upon the
number of shares sold and the resulting amount of the net proceeds available for
investment in properties.
We are not aware of any material trends or uncertainties, favorable or
unfavorable, other than national economic conditions affecting real estate
generally, which may be reasonably anticipated to have a material impact on
either capital resources or the revenues or income to be derived from the
operation of our properties.
Until required for the acquisition, development or operation of properties,
we will keep the net proceeds of this offering in short-term, liquid
investments. We expect the majority of leases for the properties that we will
acquire will be net leases that require the tenant to pay operating expenses.
Thus, we do not anticipate establishing a permanent reserve for maintenance and
repairs of our properties.
The Year 2000 Issue
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. We recognize the need to ensure that our operations will not be adversely
impacted by year 2000 related failures. The systems on which we will rely are
owned and maintained by our advisor and, to a more limited extent, our dealer
manger. Over the past 15 months, our advisor and our dealer manager have jointly
engaged in an analysis and remediation of their year 2000 exposure.
The advisor and the dealer manager have determined that all of their
systems are year 2000 compliant. The advisor and dealer manager reached this
conclusion as a result of a three-phase year 2000 plan, which they conducted
jointly. The first phase was the identification of information technology and
other systems that could be affected by the change to the year 2000, the second
phase was evaluating and modifying those systems to ensure they are year 2000
compliant, and the third phase is testing the modified systems and contingency
planning for worst case scenarios.
Identification of Systems: In the first phase of the Year 2000 plan, the
advisor and the dealer manager identified critical and non-critical systems that
could be affected by the change to the year 2000. Among the critical systems
were the computer-based investor reporting and accounting and property
management software. The identification of systems was completed by June 30,
1998.
Evaluation and Implementation: In the second phase, the advisor and dealer
manager evaluated the systems identified in the first phase and crafted
modifications or other remedies that would prevent the systems from being
adversely affected by the change to the year 2000. Next, the advisor and dealer
manager implemented those modifications. Key steps in phase two included:
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. the purchase and installation in June of 1998 of new hardware or
software for the accounting, property management, word processing, e-
mail and internet access systems from reputable vendors, many of whom
certified the product's year 2000 compliance;
. the purchase and installation of new telephone systems; and
. the completion of the dealer manager's year 2000 review required by
the NASD;
In addition, in connection with the financial audit for each fiscal year
performed by the advisor's independent certified public accountants, the advisor
is reviewed for year 2000 compliance. The second phase was completed by February
28, 1999.
Testing and Contingency Planning: The testing of critical and non-critical
systems at the advisor and dealer manager began in January of 1999 and is still
being performed by external consultants and internal information systems
personnel. These consultants and internal personnel have performed and are
performing various functions, including:
. the engagement of three external consulting firms to thoroughly review
and test the investor reporting systems and the new accounting and
property management system;
. the regular updating and testing for compliance all computer hardware
and software with a focus on critical testing of their investor
database and accounting systems; and
. overseeing the certification from the landlord of the office space
that the computer systems used in the office building are Year 2000
compliant.
If any of the advisor's or dealer manager's systems were affected by the
change to the year 2000, the reasonable worst case scenario would be a complete
failure of the system hardware for their critical systems. However, throughout
the contingency planning phases, the advisor and dealer manager have discovered
that even complete system failure could remedied or replaced promptly. The
advisor and dealer manager routinely "back up" and save in hard copy important
databases and system applications. The advisor and dealer manager anticipate
that all testing and contingency planning will be completed by September 30,
1999.
Throughout the course of the three phases of the advisor's and dealer
manager's year 2000 plan, they have collectively spent $60,000 and expect to
spend $2,000 more between now and September 20, 1999 in connection with year
2000 compliance. Approximately $55,000 of these total costs were incurred in the
ordinary course of business for system upgrades and other modifications made for
primary reasons other than year 2000 risk.
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PRINCIPAL SHAREHOLDERS
As of the date of this prospectus, none of the officers and directors of
our company or our advisor have committed to purchasing shares in this offering.
However, such individuals are not precluded from purchasing shares in this
offering, and may do so at the offering price of $10.00 net of the Selling
Commissions and the Marketing Allowance and Due Diligence Reimbursement Fee. We
do not contemplate that any such person will own beneficially in excess of 5% of
our shares. None of the purchases by the officers and directors of our company
and our advisor will count toward the minimum offering (100,000 shares) needed
to break escrow.
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DESCRIPTION OF CAPITAL STOCK
General
The following statements with respect to our capital stock are subject to
the provisions of our articles of incorporation and bylaws as in effect as of
the date of this prospectus. You should be aware that, while accurate, these
statements do not purport to be complete, or to give full effect to the terms of
the provisions of statutory or common law, and are subject to, and are qualified
in their entirety by reference to, the terms of our articles of incorporation
and bylaws, which are filed as exhibits to the registration statement of which
this prospectus is a part.
Common Stock
Under our articles of incorporation, we have 50,000,000 authorized shares
of common stock, $.01 par value per share, available. We have authorized the
issuance of 11,050,000 shares of common stock in connection with this offering.
The common stock offered by this prospectus will be duly authorized, fully paid
and nonassessable. The common stock is not convertible or subject to redemption.
Holders of our common stock:
. are entitled to receive dividends when and as declared by our board of
directors after payment of, or provision for, full cumulative
dividends on and any required redemptions of shares of preferred stock
then outstanding;
. are entitled to share ratably in the distributable assets of our
company remaining after satisfaction of the prior preferential rights
of the preferred stock and the satisfaction of all of our debts and
liabilities in the event of any voluntary or involuntary liquidation
or dissolution of our company; and
. do not have preemptive rights.
Initially, we will serve as our own transfer agent for the common stock.
Shareholder Voting
Except as otherwise provided, all shares of common stock shall have equal
voting rights. Shareholders do not have cumulative voting rights. The voting
rights per share of our equity securities issued in the future shall be
established by our board of directors. The shareholders purchasing shares in
this offering will not have preemptive rights to purchase any securities issued
by us in the future.
All elections for directors shall be decided, without the need for
concurrence by our board of directors, by the affirmative vote of a majority of
votes cast at a meeting, provided that a quorum, defined as a majority of the
aggregate number of votes entitled to be cast thereon, is present. Any or all
directors may be removed, with or without cause and without the necessity for
concurrence by our board of directors, by the affirmative vote of the holders of
at least a majority of the outstanding shares entitled to vote at an annual or
special meeting. All other questions shall be decided by a majority of the votes
cast at a meeting.
Our articles of incorporation provide that all of the matters listed below
require the affirmative vote of a majority of our shareholders:
. amend our articles of incorporation, including, by way of
illustration, amendments to provisions relating to director
qualifications, fiduciary duty, liability and indemnification,
conflicts of interest, investment policies or investment restrictions,
except for amendments with respect to authorizations of series of
preferred stock and amendments which do not adversely affect the
rights, preferences and privileges of our shareholders;
. sell all or substantially all of our assets other than in the ordinary
course of our business;
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. cause a merger or reorganization of our company;
. dissolve or liquidate our company; or
. take any action to disqualify our company as a REIT or otherwise
revoke our elective to be taxed as a REIT.
Our articles of incorporation further provide that, without the necessity
for concurrence by our board of directors our shareholders may:
. amend our articles of incorporation;
. remove any or all of our directors; or
. dissolve or liquidate our company.
Each shareholder entitled to vote on a matter may do so at a meeting in
person, by written proxy or by a signed writing or consent directing the manner
in which he or she desires that his or her vote be cast or without a meeting by
a signed writing or consent directing the manner in which he or she desires that
his or her vote be cast. Any such signed writing or written consent must be
received by the board of directors prior to the date on which the vote is
taken.
Pursuant to Virginia law, if no meeting is held, 100% of the shareholders
must consent in writing.
Preferred Stock
Our articles of incorporation authorize our board of directors without
further shareholder action to provide for the issuance of up to 10,000,000
shares of preferred stock, in one or more series, with such voting powers and
with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions, as our
board of directors shall approve. As of the date of this prospectus, there are
no preferred shares outstanding and we have no present plans to issue any
preferred shares.
Warrants Issued to the Dealer Manager in this Offering
We have agreed to issue and sell to the dealer manager one warrant to
purchase one share of common stock for every 40 shares sold by the dealer
manager in this offering in any state other than Arizona, Minnesota, Missouri,
Nebraska, Ohio or Tennessee, up to a maximum of 250,000 warrants to purchase an
equivalent number of shares. The dealer manager has agreed to pay our company
$0.0008 for each warrant. The warrants will be issued on a quarterly basis
commencing 60 days after the date on which the shares are first sold under this
offering. The dealer manager may retain or reallow warrants to the
broker-dealers participating in this offering, unless prohibited by either
federal or state securities laws.
The holder of a warrant will be entitled to purchase one share from our
company at a price of $12.00 (120% of the public offering price per share)
during the time period beginning on the first anniversary of the effective date
of this offering and ending on the fifth anniversary of the effective date of
this offering. A warrant may not be exercised unless the shares to be issued
upon the exercise of the warrant have been registered or are exempt from
registration in the state of residence of the holder of the warrant or if a
prospectus required under the laws of such state cannot be delivered to the
buyer on our behalf. Notwithstanding the foregoing, no warrants will be
exercisable until one year from the date of issuance. In addition, holders of
warrants may not exercise the warrants to the extent such exercise would
jeopardize our status as a REIT under the federal tax laws.
The terms of the warrants, including the exercise price and the number and
type of securities issuable upon exercise of a warrant and the number of such
warrants, may be adjusted pro rata in the event of stock dividends,
subdivisions, combinations and reclassification of shares or the issuance to
shareholder of rights, options or warrants entitling them to purchase shares or
securities convertible into shares. The terms of the warrants also may be
adjusted if we engage in a merger or consolidation transactions or if all or
substantially all of our assets are sold. Warrants are not transferable or
assignable for one year and thereafter may be assigned or transferred in
compliance
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with federal and state securities laws, except by the dealer manager, the
broker-dealers participating in this offering, their successors in interest, or
to individuals who are both officers and directors of such a person or licensed
representatives of the dealer manager or a participating broker-dealer. Exercise
of these warrants will be under the terms and conditions detailed in this
prospectus, in the dealer manager agreement and in the warrant.
Holders of warrants do not have the rights of shareholders and may not vote
on company matters and are not entitled to receive distributions.
Issuance of Additional Securities and Debt Instruments
Our board of directors is authorized to issue additional securities,
including common stock, preferred stock, convertible preferred stock and
convertible debt, for cash, property or other consideration on such terms as
they may deem advisable and to classify or reclassify any unissued shares of
capital stock of our company without approval of the holders of the outstanding
securities. We may issue debt obligations with conversion privileges on such
terms and conditions as the directors may determine, whereby the holders of such
debt obligations may acquire our common stock or preferred stock. We may also
issue warrants, options and rights to buy shares on such terms as the directors
deem advisable, despite the possible dilution in the value of the outstanding
shares which may result from the exercise of such warrants, options or rights to
buy shares, as part of a ratable issue to shareholders, as part of a private or
public offering or as part of other financial arrangements.
Restrictions on Ownership and Transfer
In order to qualify as a REIT under the federal tax laws, we must meet
several requirements concerning the ownership of our outstanding capital stock.
Specifically, no more than 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals, as defined in the
federal income tax laws to include specified private foundations, employee
benefit plans and trusts, and charitable trusts, during the last half of a
taxable year, other than our first REIT taxable year. Moreover, 100 or more
persons must own our outstanding shares of capital stock during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, other than our first REIT taxable year. The requirements
concerning the ownership of our outstanding capital stock are more fully
described under the heading "Federal Income Tax Consequences of Our Status as a
REIT--Requirements for Qualification."
Because our board of directors believes it is essential for our company to
qualify and continue to qualify as a REIT and for other corporate purposes, our
articles of incorporation, subject to the exceptions described below, provide
that no person may own, or be deemed to own by virtue of the attribution
provisions of the federal income tax laws, more than 9.9% of:
. the number of outstanding shares of our common stock; or
. the number of outstanding shares of our preferred stock of any class
or series of preferred stock.
Our articles of incorporation provide that, subject to the exceptions
described below, any transfer of common or preferred stock that would:
. result in any person owning, directly or indirectly, shares of our
common or preferred stock in excess of 9.9% of the outstanding shares
of common stock or any class or series of preferred stock;
. result in our common and preferred stock being owned by fewer than 100
persons, determined without reference to any rules of attribution;
. result in our company being "closely held" under the federal income
tax laws;
. cause our company to own, actually or constructively, 10% or more of
the ownership interests in a tenant of our real property, under the
federal income tax laws; or
. before our common stock qualifies as a class of "publicly-offered
securities," result in 25% or more of our common stock being owned by
ERISA investors;
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will be null and void, and the intended transferee will acquire no rights in
such shares of stock. In addition, such shares will be designated as
shares-in-trust and transferred automatically to a trust effective on the day
before the purported transfer of such shares. The record holder of the shares
that are designated as shares-in-trust, or the prohibited owner, will be
required to submit such number of shares of common stock or preferred stock to
our company for registration in the name of the trust. We will designate the
trustee, but he will not be affiliated with our company. The beneficiary of a
trust will be one or more charitable organizations that are named by our
company.
Shares-in-trust will remain shares of issued and outstanding common stock
or preferred stock and will be entitled to the same rights and privileges as all
other stock of the same class or series. The trust will receive all dividends
and distributions on the shares-in-trust and will hold such dividends or
distributions in trust for the benefit of the beneficiary. The trust will vote
all shares-in-trust. The trust will designate a permitted transferee of the
shares-in-trust, provided that the permitted transferee purchases such
shares-in-trust for valuable consideration and acquires such shares-in-trust
without such acquisition resulting in a transfer to another trust.
Our articles of incorporation require that the prohibited owner of the
shares-in-trust pay to the trust the amount of any dividends or distributions
received by the prohibited owner that are attributable to any shares-in-trust
and the record date of which was on or after the date that such shares of stock
became shares-in-trust. The prohibited owner generally will receive from the
trust the lesser of:
. the price per share such prohibited owner paid for the shares of
common stock or preferred stock that were designated as shares-in-
trust or, in the case of a gift or devise, the market price (as
defined below) per share on the date of such transfer; or
. the price per share received by the trust from the sale of such
shares-in-trust.
The trust will distribute any amounts received by the trust in excess of the
amounts to be paid to the prohibited owner to the beneficiary.
The shares-in-trust will be deemed to have been offered for sale to our
company, or our designee, at a price per share equal to the lesser of:
. the price per share in the transaction that created such shares-in-
trust or, in the case of a gift or devise, the market price per share
on the date of such transfer; or
. the market price per share on the date that our company, or our
designee, accepts such offer.
We will have the right to accept such offer for a period of 90 days after
the later of the date of the purported transfer which resulted in such
shares-in-trust or the date we determine in good faith that a transfer resulting
in such shares-in-trust occurred.
"Market price" on any date means the average of the closing prices for the
five consecutive trading days ending on such date. The "closing price" refers to
the last quoted price as reported by the primary securities exchange or market
on which our stock is then listed or quoted for trading. If our stock is not so
listed or quoted at the time of determination of the market price, our board of
directors will determine the market price in good faith.
If you acquire or attempt to acquire shares of our common or preferred
stock in violation of the foregoing restrictions, or if you owned shares of
common or preferred stock that were transferred to a trust, then we will require
you immediately to give us written notice of such event and to provide us with
such other information as we may request in order to determine the effect, if
any, of such transfer on our status as a REIT.
If you own, directly or indirectly, more than 5%, or such lower percentages
as required under the federal income tax laws, of our outstanding shares of
stock, then you must, within 30 days after January 1 of each year, provide to us
a written statement or affidavit stating your name and address, the number of
shares of common and preferred stock owned directly or indirectly, and a
description of how such shares are held. In addition, each direct
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or indirect shareholder shall provide to us such additional information as we
may request in order to determine the effect, if any, of such ownership on our
status as a REIT and to ensure compliance with the ownership limit.
The ownership limit generally will not apply to the acquisition of shares
of common or preferred stock by an underwriter that participates in a public
offering of such shares. In addition, our board of directors, upon receipt of a
ruling from the Internal Revenue Service or an opinion of counsel and upon such
other conditions as our board of directors may direct, may exempt a person from
the ownership limit. However, the ownership limit will continue to apply until:
. our board of directors determines that it is no longer in the best
interests of our company to attempt to qualify, or to continue to
qualify, as a REIT; and
. there is an affirmative vote of a majority of the number of shares of
outstanding common and preferred stock entitled to vote on such matter
at a regular or special meeting of our shareholders.
All certificates representing shares of common or preferred stock will bear
a legend referring to the restrictions described above.
The ownership limit in our articles of incorporation may have the effect of
delaying, deferring or preventing a takeover or other transaction or change in
control of our company that might involve a premium price for your shares of
common stock or otherwise be in your interest as a shareholder.
IMPORTANT PROVISIONS OF VIRGINIA CORPORATE LAW
AND OUR ARTICLES OF INCORPORATION AND BYLAWS
The following is a summary of some important provisions of Virginia
corporate law, our articles of incorporation and our bylaws in effect as of the
date of this prospectus, and is qualified in its entirety by reference to
Virginia law and to such documents, copies of which may be obtained from our
company.
Our Articles of Incorporation and Bylaws
Shareholder rights and related matters are governed by the Virginia Stock
Corporation Act, our articles of incorporation and bylaws. Provisions of our
articles of incorporation and bylaws, which are summarized below, may make it
more difficult to change the composition of our board of directors and may
discourage or make more difficult any attempt by a person or group to obtain
control of our company.
Shareholders' Meetings
An annual meeting of our shareholders will be held upon reasonable notice
and within a reasonable period, not less than 30 days, following delivery of the
annual report, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. A special meeting of our
shareholders may be called by the President or a majority of our board of
directors, and shall be called by the President upon written request of
shareholders holding in the aggregate at least 10% of the outstanding shares.
Upon receipt of a written request, either in person or by mail, stating the
purpose(s) of the meeting, we shall provide all shareholders, within ten days
after receipt of this request, written notice, either in person or by mail, of a
meeting and the purpose of such meeting to be held on a date not less than 15
nor more than 60 days after the distribution of such notice, at a time and place
specified in the request, or if none is specified, at a time and place
convenient to our shareholders. At any meeting of the shareholders, each
shareholder is entitled to one vote for each share owned of record on the
applicable record date. In general, the presence in person or by proxy of a
majority of the outstanding shares shall constitute a quorum, and the majority
vote of our shareholders will be binding on all of our shareholders.
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Our Board of Directors
Our articles of incorporation provide that the number of directors of our
company may not be fewer than three and that a majority of the directors shall
be independent directors. This provision may only be amended by a vote of a
majority of our shareholders. Our bylaws provide that the initial number of
directors shall be five. A vacancy in our board of directors caused by the
death, resignation or incapacity of a director or by an increase in the number
of directors may be filled by the vote of a majority of the remaining directors.
With respect to a vacancy created by the death, resignation or incapacity of an
independent director, the remaining independent directors shall nominate a
replacement. Vacancies occurring as a result of the removal of a director by our
shareholders shall be filled by a majority vote of our shareholders. Any
director may resign at any time and may be removed with or without cause by our
shareholders owning at least a majority of the outstanding shares.
Each director will serve a term beginning on the date of his or her
election and ending on the next annual meeting of the shareholders. Because
holders of common stock have no right to cumulative voting for the election of
directors, at each annual meeting of shareholders, the holders of the shares of
common stock with a majority of the voting power of the common stock will be
able to elect all of the directors.
Limitation of Liability and Indemnification
Subject to the conditions set forth below, our articles of incorporation
provide that we will indemnify and hold harmless our directors, officers,
advisors or their affiliates against any and all losses or liabilities
reasonably incurred by our directors, officers, advisors or any of their
affiliates in connection with or by reason of any act or omission performed or
omitted to be performed on our behalf.
Under articles of incorporation, our company shall indemnify any of our
directors, officers or advisors or any of their affiliates for any liability or
loss suffered by such party seeking indemnification nor shall we hold harmless
any of our directors, officers or advisors or any of their affiliates loss or
liability suffered by our company, provided, that:
. the party seeking indemnification was acting on behalf of or
performing services on the part of our company;
. our directors, officers, or our advisor or their affiliates have
determined, in good faith, that the course of conduct which caused the
loss or liability was in the best interest of our company;
. such indemnification or agreement to be held harmless is recoverable
only out of our net assets and not from our shareholders; and
. such liability or loss was not the result of:
. negligence or misconduct by our officers or directors,
excluding the independent directors or our advisor or their
affiliates; or
. gross negligence or willful misconduct by the independent
directors.
Our articles of incorporation further provide that our company shall
indemnify and hold harmless any of our directors, officers, our advisor or any
of their affiliates who is or was serving at our request as a director, trustee,
partner or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise to the same extent and subject to the
same conditions as set forth above.
Our company shall not indemnify any of our directors, officers, or our
advisor or any of their affiliates for losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws by such
party unless one or more of the following conditions are met:
. there has been a successful determination on the merits of each count
involving alleged securities law violations as to the party seeking
indemnification;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the party seeking
indemnification; or
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. a court of competent jurisdiction approves a settlement of the claims
against the party seeking indemnification and finds that
indemnification of the settlement and related costs should be made and
the court considering the request has been advised of the position of
the Securities and Exchange Commission and the published opinions of
any state securities regulatory authority in which shares of our stock
were offered and sold as to indemnification for securities law
violations.
We may advance amounts to persons entitled to indemnification for
reasonable expenses and costs incurred as a result of any proceeding for which
indemnification is being sought in advance of a final disposition of the
proceeding only if all of the following conditions are satisfied:
. the legal action relates to acts or omissions with respect to the
performance of duties or services by the indemnified party for or on
behalf of our company;
. the legal action is initiated by a third party who is not a
shareholder of our company or the legal action is initiated by a
shareholder of our company acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such
advancement;
. the party receiving such advances furnishes our company with a written
statement of his or her good faith belief that he or she has met the
standard of conduct described above; and
. the indemnified party receiving such advances furnishes to our company
a written undertaking, personally executed on his or her behalf, to
repay the advanced funds to our company, together with the applicable
legal rate of interest thereon, if it is ultimately determined that he
or she did not meet the standard of conduct described above.
Authorizations of payments shall be made by a majority vote of a quorum of
disinterested directors.
Also, our board of directors may cause our company to indemnify or contract
to indemnify any person not specified above who was, is, or may become a party
to any proceeding, by reason of the fact that he or she is or was an employee or
agent of our company, or is or was serving at the request of our company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, to the same extent as
if such person were specified as one whom indemnification is granted as
described above. Any determination to indemnify or contract to indemnify under
our articles of incorporation shall be made by a majority vote of a quorum
consisting of disinterested directors.
We may purchase and maintain insurance to indemnify it against the
liability assumed by it in accordance with our articles of incorporation.
The indemnification provided in our articles of incorporation is not
exclusive to any other right to which any person may be entitled, including any
right under policies of insurance that may be purchased and maintained by our
company or others, with respect to claims, issues, or matters in relation to
which our company would not have obligation or right to indemnify such person
under the provisions of our articles of incorporation.
To the extent that the indemnification may apply to liabilities arising
under the Securities Act, in the opinion of the Securities Exchange Commission,
such indemnification is contrary to public policy and, therefore, unenforceable.
Defenses Available
There are defenses available to our directors and officers and our advisor
under Virginia corporate law in the event of a shareholder action against them.
One such defense is the "business judgment rule." Under the business judgment
rule, a director or officer may contend that he or she performed the action
giving rise to the shareholder's action in good faith and in a manner he or she
reasonably believed to be in the best interests of our company. The directors
and officers also are entitled to rely on information, opinions, reports or
records prepared by experts, including accountants, consultants and counsel, who
were selected with reasonable care.
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Inspection of Books and Records
Our advisor will keep, or cause to be kept, on our behalf, full and true
books of account on an accrual basis of accounting, in accordance with generally
accepted accounting principles. We will maintain at all times at our principal
office all of our books of account, together with all of our other records,
including a copy of our articles of incorporation and any amendments to our
articles of incorporation.
Any shareholder or his or her agent will be permitted access to all of our
records at all reasonable times, and may inspect and copy any of them. We will
permit the official or agency administering the securities laws of a
jurisdiction to inspect our books and records upon reasonable notice and during
normal business hours. As part of our books and records, we will maintain an
alphabetical list of the names, addresses and telephone numbers of our
shareholders along with the number of shares held by each of them. We will make
the shareholder list available for inspection by any shareholder or his or her
agent at our principal office upon the request of the shareholder.
We will update, or cause to be updated, the shareholder list at least
quarterly to reflect changes in the information contained therein.
We will mail a copy of the shareholder list to any shareholder requesting
the shareholder list within ten days of the request. The copy of the shareholder
list will be printed in alphabetical order, on white paper, and in a readily
readable type size. We may impose a reasonable charge for copy work incurred in
reproducing the shareholder list.
The purposes for which a shareholder may request a copy of the shareholder
list include, without limitation, matters relating to shareholders' voting
rights and the exercise of shareholders' rights under federal proxy laws.
If our advisor or our board of directors neglects or refuses to exhibit,
produce or mail a copy of the shareholder list as requested, our advisor and our
board of directors will be liable to any shareholder requesting the list for the
costs, including attorneys' fees, incurred by that shareholder for compelling
the production of the shareholder list, and for actual damages suffered by any
shareholder by reason of such refusal or neglect. It will be a defense that the
actual purpose and reason for the requests for inspection or for a copy of the
shareholder list is to secure such list of shareholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a shareholder
relative to the affairs of our company. We may require that the shareholder
requesting the shareholder list represent that he or she is not requesting the
list for a commercial purpose unrelated to the shareholder's interests in our
company and that he or she will not make any commercial distribution of such
list or the information disclosed through such inspection. These remedies are in
addition to, and shall not in any way limit, other remedies available to
shareholders under federal law, or the laws of any state.
The list may not be sold for commercial purposes.
Restrictions on Roll-Up Transactions
In connection with a proposed "roll-up transaction," which, in general
terms, is any transaction involving the acquisition, merger, conversion, or
consolidation, directly or indirectly, of our company and the issuance of
securities of an entity that would be created or would survive after the
successful completion of the roll-up transaction, we will obtain an appraisal of
all of our properties from an independent appraiser. In order to qualify as an
independent appraiser for this purpose, the person or entity must have no
material current or prior business or personal relationship with our advisor or
directors and must be engaged to a substantial extent in the business of
rendering opinions regarding the value of assets of the type held by our
company. Our properties will be appraised on a consistent basis, and the
appraisal will be based on the evaluation of all relevant information and will
indicate the value of our properties as of a date immediately prior to the
announcement of the proposed roll-up transaction. The appraisal will assume an
orderly liquidation of properties over a 12-month period. The terms of the
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engagement of such independent appraiser will clearly state that the engagement
is for the benefit of our company and our shareholders. We will include a
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, will be included in a report to the shareholders in
connection with a proposed roll-up transaction.
In connection with a proposed roll-up transaction, the person sponsoring
the roll-up transaction must offer to shareholders who vote against the proposal
a choice of:
. accepting the securities of the entity that would be created or would
survive after the successful completion of the roll-up transaction
offered in the proposed roll-up transaction; or
. one of the following:
. remaining shareholders of our company and preserving their
interests in our company on the same terms and conditions as
existed previously; or
. receiving cash in an amount equal to the shareholder's pro rata
share of the appraised value of our net assets.
Our company is prohibited from participating in any proposed roll-up
transaction:
. which would result in the shareholders having voting rights in the
entity that would be created or would survive after the successful
completion of the roll-up transaction that are less than those
provided in our articles of incorporation, including rights with
respect to the election and removal of directors, annual reports,
annual and special meetings, amendment of the articles of
incorporation, and dissolution of our company;
. which includes provisions that would operate as a material impediment
to, or frustration of, the accumulation of shares by any purchaser of
the securities of the entity that would be created or would survive
after the successful completion of the roll-up transaction, except to
the minimum extent necessary to preserve the tax status of such
entity, or which would limit the ability of an investor to exercise
the voting rights of its securities of the entity that would be
created or would survive after the successful completion of the roll-
up transaction on the basis of the number of shares held by that
investor;
. in which our shareholder's rights to access of records of the entity
that would be created or would survive after the successful completion
of the roll-up transaction will be less than those provided in our
articles of incorporation and described in "Inspection of Books and
Records," above; or
. in which our company would bear any of the costs of the roll-up
transaction if our shareholders do not approve the roll-up
transaction.
Anti-takeover Provisions of the Virginia Stock Corporation Act
The Virginia Stock Corporation Act contains anti-takeover provisions
regarding affiliated transactions, control share acquisitions and the adoption
of shareholder rights plans. In general, the Virginia Stock Corporation Act's
affiliated transactions provisions prevent a Virginia corporation from engaging
in an affiliated transaction with an interested shareholder, unless approved by
a majority of the disinterested directors and the holders of at least two-thirds
of the outstanding voting stock not owned by the interested shareholder.
Generally, this provision would prevent us from engaging in a transaction with
any person owning more than 10% of any class of voting securities of our company
unless a majority of the disinterested directors on our board of directors and
at least two-thirds of the outstanding voting stock not owned by the interested
shareholder approved the transaction.
Under the control share acquisitions provisions of the Virginia Stock
Corporation Act, shares acquired in a control share acquisition, which means a
transaction that increases the voting strength of the person acquiring such
shares above statutory thresholds in director elections, generally have no
voting rights unless granted by a majority of the outstanding voting stock not
owned by such acquiring person. If such voting rights are granted and the
acquiring person controls 50% or more of the voting power, all shareholders,
other than the acquiring person, are entitled to receive fair value for their
shares. If such voting rights are not granted, the corporation may, if
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authorized by its articles of incorporation or bylaws, purchase the acquiring
person's shares at their cost to the acquiring person. As permitted by the
Virginia Stock Corporation Act, we have included a provision in our bylaws that
opts our company out of the control share acquisition statute. Our bylaws,
however, may be amended by our board of directors without shareholder approval.
Finally, the shareholder rights plan provisions of the Virginia Stock
Corporation Act permit our board of directors to adopt a shareholder rights plan
that could render a hostile takeover prohibitively expensive if our board of
directors determines that such a takeover is not in our best interests. The
existence of the shareholder rights plan provisions of the Virginia Stock
Corporation Act, as well as the affiliated transactions and control share
acquisition provisions, could delay or prevent a change in control of our
company, impede a merger, consolidation or other business combination involving
our company or discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
Dissolution or Termination of Our Company
We are an infinite-life corporation which may be dissolved under the
procedures explained in the Virginia Stock Corporation Act at any time by the
affirmative vote of a majority of our shareholders and without the necessity of
the concurrence of our board of directors. If, before the tenth anniversary of
the date of this prospectus, our common stock is not listed on a national stock
exchange or quoted on a quotation system of a national securities association or
we have not merged with an entity whose shares are so listed or quoted, we
intend to submit for a vote of the shareholders at the next annual meeting a
proposal to liquidate all of our properties in an orderly fashion and distribute
the proceeds to our shareholders. Our operating partnership will terminate on
December 31, 2050, unless its term is extended in accordance with the Virginia
Revised Uniform Limited Partnership Act.
Transactions with Affiliates
We have established restrictions upon dealings between our company, our
advisor and any of their officers, directors or affiliates in our articles of
incorporation and elsewhere. The Virginia Stock Corporation Act also governs
such transactions. In particular, unless a majority of the directors, including
a majority of the independent directors, not otherwise interested in such
transaction determines that the transaction is fair and reasonable to our
company and is on terms and conditions no less favorable than from unaffiliated
third parties, our company may not:
. borrow money from or sell property to our advisor, any officer,
director or affiliates of our advisor or our company; and
. enter into any other transaction with our advisor, any officer,
director or affiliates of our advisor or our company.
Under the Virginia Stock Corporation Act, each director is required to
discharge his duties in accordance with his good faith business judgment of the
best interest of our company. In addition, Virginia law provides that a
transaction with our company in which a director or officer of our company has a
direct or indirect interest is not voidable by us solely because of the
directors' or officers' interest in the transaction if:
. the material facts of the transaction and interest are disclosed to or
known by the directors and the transaction is authorized, approved or
ratified by the disinterested directors; or
. the material facts of the transaction and interest are disclosed to or
known by our shareholders and the transaction is authorized approved
or ratified by the disinterested shareholders; or
. the transaction is established to be fair to our company.
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SHARES AVAILABLE FOR FUTURE SALE
All of the shares of common stock offered and sold by this prospectus will
be freely tradable under the federal securities laws, except shares held by
affiliates of our company, such as officers and directors. We may issue up to
700,000 shares in connection with our dividend reinvestment program and up to
250,000 shares in connection with the exercise of the warrants issued to our
dealer manager in this offering. In addition, we may issue up to 800,000 shares
upon exercise of the options granted under two stock option plans.
AGREEMENT OF LIMITED PARTNERSHIP
The following description of the Agreement of Limited Partnership is a
summary of the provisions that may be included in the Agreement of Limited
Partnership when a party other than our company and our advisor is admitted as a
partner of our operating partnership. Our operating partnership may issue units
of limited partnership interest in exchange for interests in properties, thus
creating additional limited partners in our operating partnership.
Management
Our operating partnership has been organized as a Virginia limited
partnership under the terms of the Agreement of Limited Partnership. As the sole
general partner of our operating partnership, we will have full, exclusive and
complete responsibility and discretion in the management and control of it. When
and if additional limited partners are admitted, they will have no authority in
their capacity as limited partners to transact business for, or participate in
the management activities or decisions of, our operating partnership. However,
any amendment to the Agreement of Limited Partnership that would affect the
limited partners' redemption rights described below would require the consent of
limited partners holding more than 50% of the units of limited partnership
interest held by such partners.
Transferability of Interests
It is anticipated that our company may not voluntarily withdraw from our
operating partnership or transfer or assign our interest in our 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 their redemption rights
immediately prior to such transaction, or unless the successor to our company
contributes substantially all of its assets to our operating partnership in
return for an interest in our operating partnership. Except in the limited
situations described in the Agreement of Limited Partnership, it is anticipated
that the limited partners may not transfer their interests in our operating
partnership, in whole or in part, without our written consent, which consent we
may withhold in our sole discretion.
Capital Contribution
We will contribute to our operating partnership all the net proceeds of the
offering as an initial capital contribution in exchange for 100% of the initial
interests in our operating partnership, other than our advisor's incentive
limited partnership interest. The Agreement of Limited Partnership provides that
if our operating partnership requires additional funds at any time or from time
to time in excess of funds available to our operating partnership from borrowing
or capital contributions, we may borrow such funds from a financial institution
or other lender and lend such funds to our operating partnership on the same
terms and conditions as are applicable to our borrowing of such funds. Under the
Agreement of Limited Partnership, it is anticipated that we generally will be
obligated to contribute the proceeds of a securities offering as additional
capital to our operating partnership. Moreover, we will be authorized to cause
our operating partnership to issue partnership interests for less than fair
market value if our company has concluded in good faith that such issuance is in
the best interests of our company and our operating partnership. If we so
contribute additional capital to our operating partnership, we will receive
additional units of limited partnership interest of our operating partnership
and our percentage interest in our operating partnership will be increased on a
proportionate basis based upon the amount of such additional capital
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contributions and the value of our operating partnership at the time of such
contributions. Conversely, the percentage interests of any limited partners will
be decreased on a proportionate basis in the event of additional capital
contributions by our company. In addition, if we contribute additional capital
to our operating partnership, we will revalue the property of our operating
partnership to its fair market value, as determined by us, and the capital
accounts of the partners will be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property that has not been reflected in
the capital accounts previously would be allocated among the partners under the
terms of the Agreement of Limited Partnership if there were a taxable
disposition of such property for such fair market value on the date of the
revaluation.
Redemption Rights
Under the Agreement of Limited Partnership, it is anticipated that any
limited partners, other than our advisor, will receive redemption rights, which
will enable them to cause our operating partnership to redeem their units of
limited partnership interests in our operating partnership in exchange for cash
or, at our option, common stock on a one-for-one basis. The redemption price
will be paid in cash, at our discretion, or if the issuance of common stock to
the redeeming limited partner would:
. result in any person owning, directly or indirectly, stock in excess
of the ownership limit;
. result in our shares of capital stock being owned by fewer than 100
persons, determined without reference to any rules of attribution;
. result in our company being "closely held" under the federal income
tax laws;
. cause us to own, actually or constructively, 10% or more of the
ownership interests in a tenant of our real property; or
. cause the acquisition of common stock by such redeeming limited
partner to be "integrated" with any other distribution of common stock
for purposes of complying with the Securities Act.
A limited partner may exercise the redemption rights at any time after one
year following the date on which he received such units of limited partnership
interest in our operating partnership, provided that a limited partner may not
exercise the redemption right for fewer than 1,000 units or, if such limited
partner holds fewer than 1,000 units, all of the units held by such limited
partner. In addition, a limited partner may not exercise the redemption right
more than two times annually.
The number of shares of common stock issuable upon exercise of the
redemption rights will be adjusted upon the occurrence of share splits, mergers,
consolidations or similar pro rata share transactions, which otherwise would
have the effect of diluting or increasing the ownership interests of the limited
partners or our shareholders.
Incentive Units
Our operating partnership will issue 100 units of incentive limited
partnership interest to our advisor. The incentive units will entitle our
advisor to receive an incentive distribution equal to 15% of our operating
partnership's operating cash flow after our company has received the sum of:
. an 8% cumulative, non-compounded return on our Invested Capital; and
. any remaining shortfall in the recovery of our Invested Capital with
respect to prior sales of our operating partnership's properties.
Invested Capital will equal the product of:
. the sum of (1) the number of shares of common stock that we issue,
including any shares actually issued through the dividend reinvestment
program, the director stock options, or the warrants issued to the
dealer manager in this offering and (2) the number of partnership
units issued by our operating partnership to limited partners other
than our advisor; and
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. a dollar amount that initially will be $10.00 and that will be
adjusted appropriately to reflect stock dividends, stock splits, or
other changes in the capital structure of our company or our operating
partnership, and, at our discretion, changes in the average price per
share paid for our common stock and partnership units in our operating
partnership after this offering.
When a property is sold, Invested Capital will be reduced by the lesser of:
. the net sale proceeds available for distribution; or
. the sum of (1) the portion of Invested Capital that initially was
allocated to that property and (2) any remaining shortfall in the
recovery of our Invested Capital with respect to prior sales of
properties.
If there is a shortfall in our 8% return on Invested Capital at the end of
any calendar year and our advisor previously has received incentive
distributions, other than those that have previously been repaid, our advisor
will be required to repay to our operating partnership an amount of those
distributions sufficient to cause the cumulative 8% return threshold to be met.
In no event will the cumulative amount repaid by our advisor to our operating
partnership exceed the cumulative amount of incentive distributions that our
advisor previously has received.
The incentive units also will entitle our advisor to receive an incentive
distribution equal to 15% of the net proceeds of the sale of a property after
our company has received the sum of:
. our Invested Capital that initially was allocated to the property
sold;
. any remaining shortfall in the recovery of our Invested Capital with
respect to prior sales of properties; and
. any remaining shortfall in our 8% return.
If we have not received a return of our Invested Capital or if there is a
shortfall in our 8% return after the sale of the operating partnership's last
property and our advisor previously has received incentive distributions, other
than those that have previously been repaid, our advisor will be required to
repay to our operating partnership an amount of those distributions sufficient
to cause us to receive a full return of our Invested Capital and a full
distribution of our 8% return. In no event will the cumulative amount repaid by
our advisor to our operating partnership exceed the cumulative amount of
incentive distributions that our advisor previously has received.
We will redeem the advisor's incentive units if the advisory agreement
between our company and the advisor is terminated as a result of the advisor's
merger into our company in connection with the listing of our common stock on a
national securities exchange or market. We may redeem the incentive units for
cash, or upon the agreement of both parties, shares of our common stock. The
price at which we redeem the incentive units shall be amount that would be
payable to the advisor pursuant to the "incentive distribution" and "incentive
distribution upon dispositions" described under the heading "Compensation Table"
if we liquidated all of our assets for their fair market value.
Operations
The Agreement of Limited Partnership requires that our operating
partnership be operated in a manner that will enable our company to satisfy the
requirements for being classified as a REIT, to avoid any federal income or
excise tax liability imposed by the federal income tax laws, other than any
federal income tax liability associated with our retained capital gains, and to
ensure that our operating partnership will not be classified as a "publicly
traded partnership" for purposes of the federal income tax laws.
In addition to the administrative and operating costs and expenses incurred
by our operating partnership, our operating partnership will pay all
administrative costs and expenses of our company, including:
. all expenses relating to our formation and continuity of existence;
. all expenses relating to our public offering;
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. all expenses associated with the preparation and filing of any
periodic reports under federal, state or local laws or regulations;
. all expenses associated with compliance with laws, rules and
regulations promulgated by any regulatory body; and
. all other operating or administrative costs incurred by our company in
the ordinary course of business on behalf of our operating
partnership.
Distributions
The Agreement of Limited Partnership provides that our operating
partnership will distribute to the partners cash from operations, including net
sale or refinancing proceeds, but excluding net proceeds from the sale of our
operating partnership's property in connection with the liquidation of our
operating partnership, on a quarterly or, at the election of our company, more
frequent basis. In our sole discretion, we will determine the amounts of such
distributions. Distributions of cash from operations will be made first to our
company until we have received an 8% cumulative, non-compounded return on our
Invested Capital plus any remaining shortfall in the recovery of our Invested
Capital with respect to prior sales of our operating partnership's properties.
Any remaining cash from operations will be distributed 85% to us and 15% to our
advisor. The net sale proceeds from the sale of one of our operating
partnership's properties will be distributed 100% to us until we have received
an amount equal to the sum of (1) our Invested Capital that initially was
allocated to that property, (2) any remaining shortfall in the recovery of our
Invested Capital with respect to prior sales of properties, and (3) any
remaining shortfall in our 8% return. Any remaining net sale proceeds will be
distributed 85% to us and 15% to our advisor.
Notwithstanding the foregoing, if there is a shortfall in the distribution
of the 8% return to us at the end of any calendar year and the advisor
previously has received incentive distributions, other than distributions that
have previously been repaid, the advisor will be required to repay to the
operating partnership whatever portion of those prior distributions is necessary
to cause our 8% return to be met.
Upon liquidation of our operating partnership, after payment of, or
adequate provision for, debts and obligations of our operating partnership,
including any partner loans, any remaining assets of our operating partnership
will be distributed to all partners with positive capital accounts in accordance
with their respective positive capital account balances. Notwithstanding the
foregoing, if we have not received a full return of our Invested Capital or
there is a shortfall in our 8% return when the operating partnership's last
property has been sold and the advisor previously has received distributions,
other than distributions that have previously been repaid, the advisor will be
required to repay to the operating partnership whatever portion of those prior
distributions is necessary to cause a full return of our Invested Capital and a
full distribution of our 8% return.
Allocations
Operating Income. Operating income of our operating partnership will be
allocated as follows:
(1) First, 100% to our company to the extent operating losses previously
allocated 100% to us pursuant to clause (3) under Operating Losses
below and losses from property sales previously allocated 100% to us
pursuant to clause (2) under Losses from Capital Transactions
below;
(2) Second, 85% to our company and 15% to our advisor to the extent of
operating losses and losses from property sales previously allocated
to us and the advisor in that same proportion pursuant to clause (2)
under "Operating Losses" below and clause (1) under "Losses from
Capital Transactions" below;
(3) Third, 100% to our company to the extent of operating losses
previously allocated to us pursuant to clause (1) under Operating
Losses below;
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(4) Fourth, 100% to our company until we have been allocated operating
income and gain from property sales in an amount equal to the
distributions to us of our 8% return on Invested Capital;
(5) Fifth, 85% to our company and 15% to our advisor until the advisor has
been allocated operating income and gain from property sales in an
amount equal to the cash from operations and net sale proceeds
distributed to the advisor; and
(6) Thereafter, any remaining operating income will be allocated 100% to
our company.
Operating Losses. Operating losses of our operating partnership will be
allocated as follows:
(1) First, 100% to our company to the extent of operating income
previously allocated 100% to us pursuant to clause (6) under Operating
Income above;
(2) Second, 85% to our company and 15% to our advisor to the extent of
operating income and gain from property sales previously allocated to
us and the advisor in that same proportion pursuant to clause (5)
under Operating Income above and clause (4) under Gains from Capital
Transactions below; and
(3) Thereafter, any remaining operating losses will be allocated 100% to
our company.
All depreciation and amortization deductions of our operating partnership
will be allocated 100% to our company.
Gains from Capital Transactions. Gains from the sale of property other than
the disposition of all or substantially all of the assets of the operating
partnership will be allocated as follows:
(1) First, 100% to our company to the extent of operating losses and
losses from property sales previously allocated 100% to us pursuant to
clause (3) under Operating Losses above and clause (2) under Losses
from Capital Transactions below;
(2) Second, 85% to our company and 15% to our advisor to the extent of
operating losses and losses from property sales previously allocated
to us and the advisor in that same proportion pursuant to clause (2)
under Operating Losses above and clause (1) under Losses from Capital
Transactions below;
(3) Third, 100% to our company until we have been allocated an aggregate
amount equal to the sum of (A) any depreciation or amortization
recapture associated with the operating partnership's investment in
the property, (B) the amount by which our Invested Capital allocable
to the property sold exceeds the operating partnership's investment in
the property, (C) any remaining shortfall in the recovery of our
Invested Capital with respect to prior sales of properties that is
distributed to us in connection with the sale of the property, and (D)
any remaining shortfall in our 8% return that is distributed to us in
connection with the sale of the property; and
(4) Thereafter, any remaining gain will be allocated 85% to our company
and 15% to our advisor.
Losses from Capital Transactions. Losses from the sale of property other
than the disposition of all or substantially all of the assets of the operating
partnership will be allocated as follows:
(1) First, 85% to our company and 15% to our advisor to the extent of
operating income and gain from property sales previously allocated to
us and the advisor in that same proportion pursuant to clause (5)
under Operating Income above and clause (4) under Gains from Capital
Transactions above; and
(2) Thereafter, any remaining loss will be allocated 100% to our
company.
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Gains from Terminating Capital Transactions. Gains from the sale of all or
substantially all of the assets of the operating partnership will be allocated
as follows:
(1) First, to our company until our aggregate capital account balance
equals the sum of (A) the Invested Capital and (B) the cumulative 8%
return that has not previously been distributed; and
(2) Thereafter, any remaining gain will be allocated 85% to our company
and 15% to our advisor.
Losses from Terminating Capital Transactions. Losses from the sale of all
or substantially all of the assets of the operating partnership will be
allocated as follows:
(1) First, 85% to our company and 15% to our advisor to the extent of
operating income and gain from property sales previously allocated to
us and the advisor in that same proportion pursuant to clause (5)
under "Operating Income" above and clause (4) under "Gains from
Capital Transactions" above; and
(2) Thereafter, any remaining loss will be allocated 100% to our
company.
Notwithstanding the foregoing, to the extent that our advisor is required
to repay distributions to the operating partnership, the allocations will be
adjusted to reflect such repayment.
All allocations are subject to compliance with the provisions of the
federal income tax laws.
Term
Our operating partnership will continue until December 31, 2050, or until
sooner dissolved upon the bankruptcy, dissolution or withdrawal of our company,
unless the limited partners elect to continue our operating partnership; the
sale or other disposition of all or substantially all the assets of our
operating partnership; or the election by the general partner.
Tax Matters
Under the Agreement of Limited Partnership, we will be the tax matters
partner of our operating partnership and, as such, will have authority to handle
tax audits and to make tax elections under the federal income tax laws on behalf
of our operating partnership.
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FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
This section summarizes the federal income tax issues that you, as a
prospective shareholder, may consider relevant. Because this section is a
summary, it does not address all of the tax issues that may be important to you.
In addition, this section does not address the tax issues that may be important
to shareholders that are subject to special treatment under the federal income
tax laws, such as insurance companies, tax-exempt organizations, except to the
extent discussed in "--Taxation of Tax-Exempt Shareholders" below, financial
institutions or broker-dealers, and non-U.S. individuals and foreign
corporations, except to the extent discussed in "--Taxation of Non-U.S.
Shareholders" below, among others.
The statements in this section are based on the current federal income tax
laws governing qualification as a REIT. We cannot assure you that new laws,
interpretations thereof, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.
We urge you to consult your own tax advisor regarding the specific tax
consequences to you of investing in our common stock and of our election to be
taxed as a REIT. Specifically, you should consult your own tax advisor regarding
the federal, state, local, foreign, and other tax consequences of such
investment and election, and regarding potential changes in applicable tax laws.
Taxation of Our Company
We currently have in effect an election to be taxed as an S corporation for
federal income tax purposes. Effective on the day prior to the closing of the
offering, we plan to revoke our election to be taxed as an S corporation. We
plan to elect to be taxed as a REIT under the federal income tax laws commencing
with our short taxable year beginning on the day before the closing of the
offering and ending on December 31, 1999. We believe that, commencing with such
short taxable year, we will be organized and will operate in a manner so as to
qualify as a REIT under the federal income tax laws. We cannot assure you,
however, that we will qualify or remain qualified as a REIT. This section
discusses the laws governing the federal income tax treatment of a REIT and its
shareholders, which laws are highly technical and complex.
Hunton & Williams, our counsel, has given us an opinion that we will
qualify as a REIT under the federal income tax laws beginning with our short
taxable year beginning on the day before the closing of this offering and ending
on December 31, 1999, and that our organization and proposed method of operation
will enable us to continue to qualify as a REIT. You should be aware that Hunton
& Williams' opinion is not binding upon the Internal Revenue Service or any
court. In addition, Hunton & Williams' opinion is based on specified assumptions
and on the factual representations we have made, all of which are described in
Hunton & Williams' opinion.
Our REIT qualification depends on our ability to meet on a continuing basis
several qualification tests set forth in the federal tax laws. Those
qualification tests involve the percentage of income that we earn from specified
sources, the percentage of our assets that fall within specified categories, the
diversity of our share ownership, and the percentage of our earnings that we
distribute. We describe the REIT qualification tests, and the consequences of
our failure to meet those tests, in more detail below. Hunton & Williams will
not review our compliance with those tests on a continuing basis. Accordingly,
neither we nor Hunton & Williams can assure you that we will satisfy those
tests.
If we qualify as a REIT, we generally will not be subject to federal
income tax on the taxable income that we distribute to our shareholders. The
benefit of that tax treatment is that it avoids the "double taxation," which
means taxation at both the corporate and shareholder levels, that generally
results from owning stock in a corporation. However, we will be subject to
federal tax in the following circumstances:
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. we will pay federal income tax on taxable income, including net capital
gain, that we do not distribute to our shareholders during, or within a
specified time period after, the calendar year in which the income is
earned;
. we may be subject to the "alternative minimum tax" on any items of tax
preference that we do not distribute or allocate to our shareholders;
. we will pay income tax at the highest corporate rate on (1) net income from
the sale or other disposition of property acquired through foreclosure that
we hold primarily for sale to customers in the ordinary course of business
and (2) other non-qualifying income from foreclosure property;
. we will pay a 100% tax on our net income from sales or other dispositions
of property, other than foreclosure property, that we hold primarily for
sale to customers in the ordinary course of business;
. if we fail to satisfy the 75% gross income test or the 95% gross income
test, as described below under "--Requirements for Qualification--Income
Tests," and nonetheless continue to qualify as a REIT because we meet other
requirements, we will pay a 100% tax on (1) the gross income attributable
to the greater of the amounts by which we fail the 75% and 95% gross income
tests, multiplied by (2) a fraction intended to reflect our profitability;
. if we fail to distribute during a calendar year at least the sum of (1) 85%
of our REIT ordinary income for such year, (2) 95% of our REIT capital gain
net income for such year, and (3) any undistributed taxable income from
prior periods, we will pay a 4% excise tax on the excess of such required
distribution over the amount we actually distributed;
. we may elect to retain and pay income tax on our net long-term capital
gain; and
. if we acquire any asset from a C corporation, or a corporation generally
subject to full corporate-level tax, in a merger or other transaction in
which we acquire a basis determined by reference to the C corporation's
basis in the asset, we will pay tax at the highest regular corporate rate
if we recognize gain on the sale or disposition of such asset during the
10-year period after we acquire such asset. The amount of gain on which we
will pay tax is the lesser of (1) the amount of gain that we recognize at
the time of the sale or disposition and (2) the amount of gain that we
would have recognized if we had sold the asset at the time we acquired the
asset. The rule described in this paragraph will apply assuming that we
make an election under IRS Notice 88-19 upon our acquisition of an asset
from a C corporation.
Requirements for Qualification
A REIT is a corporation, trust, or association that meets the following
requirements:
(1) it is managed by one or more trustees or directors;
(2) its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
(3) it would be taxable as a domestic corporation, but for the REIT
provisions of the federal income tax laws;
(4) it is neither a financial institution nor an insurance company subject
to specified provisions of the federal income tax laws;
(5) at least 100 persons are beneficial owners of its shares or ownership
certificates;
(6) not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, including specified entities, during the last half of any
taxable year;
(7) it elects to be a REIT, or has made such election for a previous
taxable year, and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue
Service that must be met to elect and maintain REIT status;
(8) it uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the federal income tax laws;
and
(9) it meets other qualification tests, described below, regarding the
nature of its income and assets.
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We must meet requirements 1 through 4 during our entire taxable year and must
meet requirement 5 during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months.
Requirements 5 and 6 will not apply to us until our taxable year ending December
31, 2000.
If we comply with all the requirements for ascertaining the ownership of
our outstanding shares in a taxable year and have no reason to know that we
violated requirement 6 above, we will be deemed to have satisfied that
requirement for such taxable year. For purposes of determining share ownership
under requirement 6, an "individual" generally includes a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust permanently set aside or used exclusively for charitable purposes. An
"individual," however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under the federal income tax laws, and
beneficiaries of such a trust will be treated as holding our shares in
proportion to their actuarial interests in the trust for purposes of requirement
6.
We plan to issue sufficient common stock with sufficient diversity of
ownership to satisfy requirements 5 and 6 set forth above. In addition, our
articles of incorporation restrict the ownership and transfer of our stock so
that we should continue to satisfy requirements 5 and 6. The provisions of our
articles of incorporation restricting the ownership and transfer of our stock
are described in "Description of Capital Stock--Restrictions on Ownership and
Transfer."
A corporation that is a "qualified REIT subsidiary" is not treated as a
corporation separate from its parent REIT. All assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
of our "qualified REIT subsidiaries" 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 our company. We currently do not have any corporate subsidiaries, but
we may have corporate subsidiaries in the future.
In the case of a REIT that is a partner in a partnership, the REIT is
treated as owning its proportionate share of the assets of the partnership and
as earning its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. Thus, our proportionate
share of the assets, liabilities, and items of income of our operating
partnership will be treated as assets and gross income of our company for
purposes of applying the requirements described in this prospectus.
Income Tests
We must satisfy two gross income tests annually to qualify and maintain
our qualification as a REIT. First, at least 75% of our gross income, excluding
gross income from prohibited transactions, for each taxable year must consist of
defined types of income that we derive, directly or indirectly, from investments
relating to real property or mortgages on real property or temporary investment
income. Qualifying income for purposes of the 75% gross income test includes:
. "rents from real property;"
. interest on debt secured by mortgages on real property or on interests
in real property; and
. dividends or other distributions on and gain from the sale of shares
in other REITs.
Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must consist of income that is
qualifying income for purposes of the 75% gross income test described above,
dividends, other types of interest, gain from the sale or disposition of stock
or securities, or any combination of the foregoing. The following paragraphs
discuss the specific application of those tests to our company.
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Rents and Interest
Rent that we receive from our tenants will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if the following conditions are met:
. The amount of rent must not be based, in whole or in part, on the
income or profits of any person, but may be based on a fixed
percentage or percentages of receipts or sales.
. Neither we nor a direct or indirect owner of 10% or more of our stock
may own, actually or constructively, 10% or more of a tenant from whom
we receive rent, known as a related party tenant.
. If the rent attributable to the personal property leased in connection
with a lease of our real property exceeds 15% of the total rent
received under the lease, the rent that is attributable to personal
property will not qualify as "rents from real property." We generally
must not operate or manage our real property or furnish or render
services to our tenants, other than through an "independent
contractor" who is adequately compensated and from whom we do not
derive revenue. However, we need not provide services through an
independent contractor, but instead may provide services directly, if
the services are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." In addition, we may render a de
minimis amount of "non-customary" services to the tenants of a
property, other than through an independent contractor, as long as our
income from the services does not exceed 1% of our income from the
related property.
We do not expect to charge rent for any of our properties 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 of gross revenues, as described above.
Furthermore, we have represented that, to the extent that the receipt of such
rent would jeopardize our REIT status, we will not charge rent for any of our
properties that is based, in whole or in part, on the income or profits of any
person. In addition, we do not anticipate receiving rent from a related party
tenant, and we have represented that, to the extent that the receipt of such
rent would jeopardize our REIT status, we will not lease any of our properties
to a related party tenant. We also do not anticipate that we will receive rent
attributable to the personal property leased in connection with a lease of our
real property that exceeds 15% of the total rent received under the lease.
Furthermore, we have represented that, to the extent that the receipt of such
rent would jeopardize our REIT status, we will not allow the rent attributable
to personal property leased in connection with a lease of our real property to
exceed 15% of the total rent received under the lease. Finally, we do not expect
to furnish or render, other than under the 1% de minimis rule described above,
"non-customary" services to our tenants other than through an independent
contractor, and we have represented that, to the extent that the provision of
such services would jeopardize our REIT status, we will not provide such
services to our tenants other than through an independent contractor.
If our rent attributable to the personal property leased in connection with
a lease of our real property exceeds 15% of the total rent we receive under the
lease for a taxable year, the portion of the rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if such rent attributable to personal property,
plus any other income that we receive during the taxable year that is not
qualifying income for purposes of the 95% gross income test, exceeds 5% of our
gross income during the year, we would lose our REIT status. Furthermore, if
either (1) the rent we receive under a lease of our property is considered
based, in whole or in part, on the income or profits of any person or (2) the
tenant under such lease is a related party tenant, none of the rent we receive
under such lease would qualify as "rents from real property." In that case, if
the rent we receive under such lease, plus any other income that we receive
during the taxable year that is not qualifying income for purposes of the 95%
gross income test, exceeds 5% of our gross income during the year, we would lose
our REIT status. Finally, if the rent we receive under a lease of our property
does not qualify as "rents from real property" because we furnish non-customary
services to the tenant under such lease, other than through a qualifying
independent contractor or under the 1% de minimis exception described above,
none of the rent we receive from the related property would qualify as "rents
from real property." In that case, if the rent we receive from such property,
plus any other income that we receive during the taxable year that is not
qualifying
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income for purposes of the 95% gross income test, exceeds 5% of our gross income
during the year, we would lose our REIT status.
To the extent that we receive from our tenants reimbursements of amounts
that the tenants are obligated to pay to third parties or penalties for the
nonpayment or late payment of such amounts, those amounts should qualify as
"rents from real property." However, to the extent that we receive interest
accrued on the late payment of the rent or other charges, that interest will not
qualify as "rents from real property," but instead will be qualifying income for
purposes of the 95% gross income test. We may receive income not described above
that is not qualifying income for purposes of the gross income tests. We will
monitor the amount of non-qualifying income that our assets produce and we will
manage our portfolio to comply at all times with the gross income tests.
For purposes of the 75% and 95% gross income tests, the term "interest"
generally excludes any amount that is based in whole or in part on the income or
profits of any person. However, the term "interest" generally does not exclude
an amount solely because it is based on a fixed percentage or percentages of
receipts or sales. Furthermore, if a loan contains a provision that entitles a
REIT to a percentage of the borrower's gain upon the sale of the secured
property or a percentage of the appreciation in the property's value as of a
specific date, income attributable to such provision 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.
Hedging Transactions
From time to time, we may enter into hedging transactions with respect to
one or more of our assets or liabilities. Our hedging activities may include
entering into interest rate swaps, caps, and floors, or options to purchase such
items, futures and forward contracts, and options. To the extent that we enter
into an interest rate swap or cap contract, option, futures contract, forward
rate agreement, or any similar financial instrument to hedge our indebtedness
incurred to acquire or carry assets that are qualifying real estate-related
assets under the federal income tax laws, any periodic income or gain from the
disposition of such contract should be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. To the extent that we
hedge with other types of financial instruments, or in other situations, it is
not entirely clear how the income from those transactions will be treated for
purposes of the gross income tests. We intend to structure any hedging
transactions in a manner that does not jeopardize our status as a REIT.
Failure to Satisfy Income Tests
If we fail to satisfy one or both of the 75% and 95% gross income tests for
any taxable year, we nevertheless may qualify as a REIT for such year if we
qualify for relief under the relief provisions of the federal income tax laws.
Those relief provisions generally will be available if:
. our failure to meet such tests is due to reasonable cause and not due
to willful neglect;
. we attach a schedule of the sources of our income to our tax return;
and
. any incorrect information on the schedule was not due to fraud with
intent to evade tax.
We cannot predict, however, whether in all circumstances we would qualify
for the relief provisions. In addition, as discussed above in "--Taxation of Our
Company," even if the relief provisions apply, we would incur a 100% tax on the
gross income attributable to the greater of the amounts by which we fail the 75%
and 95% gross income tests, multiplied by a fraction intended to reflect our
profitability.
Prohibited Transaction Rules
A REIT will incur a 100% tax on the net income derived from any sale or
other disposition of property, other than foreclosure property, that the REIT
holds primarily for sale to customers in the ordinary course of a trade or
business. We anticipate that none of our assets will be held for sale to
customers and that a sale of any such asset would not be in the ordinary course
of our business. Whether a REIT holds an asset "primarily for sale to customers
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in the ordinary course of a trade or business" depends, however, on the facts
and circumstances in effect from time to time, including those related to a
particular asset. Nevertheless, we will attempt to comply with the terms of
safe-harbor provisions in the federal income tax laws prescribing when an asset
sale will not be characterized as a prohibited transaction. We cannot provide
assurance, however, that we can comply with such safe-harbor provisions or that
we will avoid owning property that may be characterized as property that we hold
"primarily for sale to customers in the ordinary course of a trade or business."
Asset Tests
To qualify as a REIT, we also must satisfy two asset tests at the close of
each quarter of each taxable year. First, at least 75% of the value of our total
assets must consist of:
. cash or cash items, including receivables specified in the federal tax
laws;
. government securities;
. interests in mortgages on real property;
. stock of other REITs;
. investments in stock or debt instruments during the one-year period
following our receipt of new capital that we raise through equity
offerings or offerings of debt with a term of at least five years; or
. interest in real property, including leaseholds and options to acquire
real property and leaseholds.
The second asset test has two components. First, of our investments not
included in the 75% asset class, the value of our interest in any one issuer's
securities may not exceed 5% of the value of our total assets. Second, we may
not own more than 10% of any one issuer's outstanding voting securities.
For purposes of both components of the second asset test, "securities" does
not include our stock in other REITs or any qualified REIT subsidiary or our
interest in any partnership, including our operating partnership.
We anticipate that, at all relevant times, (1) at least 75% of the value of
our total assets will be represented by real estate assets, cash and cash items,
including receivables, and government securities and (2) we will not own any
securities in violation of the 5% or 10% asset tests. In addition, we will
monitor the status of our assets for purposes of the various asset tests and we
will manage our portfolio to comply at all times with such tests.
If we should fail to satisfy the asset tests at the end of a calendar
quarter, we would not lose our REIT status if (1) we satisfied the asset tests
at the close of the preceding calendar quarter and (2) the discrepancy between
the value of our assets and the asset test requirements arose from changes in
the market values of our assets and was not wholly or partly caused by an
acquisition of one or more non-qualifying assets. If we did not satisfy the
condition described in clause (2) of the preceding sentence, we still could
avoid disqualification as a REIT by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which the discrepancy arose.
Distribution Requirements
To qualify as a REIT, each taxable year, we must make distributions, other
than capital gain dividends and deemed distributions of retained capital gain,
to our shareholders in an aggregate amount at least equal to:
. the sum of (1) 95% of our "REIT taxable income," computed without
regard to the dividends paid deduction and our net capital gain or
loss, and (2) 95% of our after-tax net income, if any, from
foreclosure property; minus
. the sum of specified items of non-cash income.
We must pay such distributions in the taxable year to which they relate, or
in the following taxable year if we declare the distribution before we timely
file our federal income tax return for such year and pay the distribution on or
before the first regular dividend payment date after such declaration.
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We will pay federal income tax on any taxable income, including net capital
gain, that we do not distribute to our shareholders. Furthermore, if we fail to
distribute during a calendar year or, in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January following such calendar year, at least the sum of:
. 85% of our REIT ordinary income for such year;
. 95% of our REIT capital gain income for such year; and
. any undistributed taxable income from prior periods;
we will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts we actually distributed. We may elect to retain
and pay income tax on the net long-term capital gain we receive in a taxable
year. If we so elect, we will be treated as having distributed any such retained
amount for purposes of the 4% excise tax described above. We intend to make
timely distributions sufficient to satisfy the annual distribution requirements.
From time to time, we may experience timing differences between (1) our
actual receipt of income and actual payment of deductible expenses and (2) the
inclusion of that income and deduction of such expenses in arriving at our REIT
taxable income. In that case, we still would be required to recognize such
excess as income in the calendar quarter in which it was due. Further, it is
possible that, from time to time, we may be allocated a share of net capital
gain attributable to the sale of depreciated property which exceeds our
allocable share of cash attributable to that sale. Therefore, we may have less
cash available for distribution than is necessary to meet the 95% distribution
requirement or to avoid corporate income tax or the excise tax imposed on
undistributed income. In such a situation, we might be required to borrow money
or raise funds by issuing additional stock.
We may be able to correct a failure to meet the distribution requirements
for a year by paying "deficiency dividends" to our shareholders in a later year.
We may include such deficiency dividends in our deduction for dividends paid for
the earlier year. Although we may be able to avoid income tax on amounts we
distribute as deficiency dividends, we will be required to pay interest to the
Internal Revenue Service based on the amount of any deduction we take for
deficiency dividends.
Recordkeeping Requirements
We must maintain specified records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, we must request on an annual basis
information from our shareholders designed to disclose the actual ownership of
our outstanding stock. We intend to comply with such requirements.
Failure to Qualify
If we fail to qualify as a REIT in any taxable year, and no relief
provision applies, we will be subject to federal income tax and any applicable
alternative minimum tax on our taxable income at regular corporate rates. In
such a year, we would not be able to deduct amounts paid out to shareholders in
calculating our taxable income. In fact, we would not be required to distribute
any amounts to our shareholders in such year. In such event, to the extent of
our current and accumulated earnings and profits, all distributions to our
shareholders would be taxable as ordinary income. Subject to limitations in the
federal income tax laws, corporate shareholders might be eligible for the
dividends received deduction. Unless we qualified for relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which we ceased to qualify as a
REIT. We cannot predict whether in all circumstances we would qualify for such
statutory relief.
Taxation of Taxable U.S. Shareholders
As long as we qualify as a REIT, a taxable "U.S. shareholder" must take
into account distributions out of our current or accumulated earnings and
profits and that we do not designate as capital gain dividends or retained
long-term capital gain as ordinary income. A U.S. shareholder will not qualify
for the dividends received deduction
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generally available to corporations. As used herein, the term "U.S. shareholder"
means a holder of our common stock that for U.S. federal income tax purposes is:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of an political subdivision
thereof;
. an estate whose income from sources without the United States is
includable in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States; or
. any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one
or more U.S. persons have the authority to control all substantial
decisions of the trust.
A U.S. shareholder generally will recognize distributions that we designate
as capital gain dividends as long-term capital gain without regard to the period
for which the U.S. shareholder has held its common stock. We generally will
designate our capital gain dividends as either 20% or 25% rate distributions. A
corporate U.S. shareholder, however, may be required to treat up to 20% of
capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term capital gain
that it receives in a taxable year. In that case, a U.S. shareholder would be
taxed on its proportionate share of our undistributed long-term capital gain.
The U.S. shareholder would receive a credit or refund for its proportionate
share of the tax we paid. The U.S. shareholder would increase the basis in its
stock by the amount of its proportionate share of our undistributed long-term
capital gain, minus its share of the tax we paid.
If a distribution exceeds our current and accumulated earnings and profits
but does not exceed the adjusted basis of the a U.S. shareholder's common stock,
the U.S. shareholder will not incur tax on the distribution. Instead, such
distribution will reduce the adjusted basis of the common stock. A U.S.
shareholder will recognize a distribution that exceeds both our current and
accumulated earnings and profits and the U.S. shareholder's adjusted basis in
its common stock as long-term capital gain, or short-term capital gain if the
common stock has been held for one year or less, assuming the common stock is a
capital asset in the hands of the U.S. shareholder. In addition, if we declare a
distribution in October, November, or December of any year that is payable to a
U.S. shareholder of record on a specified date in any such month, such
distribution shall be treated as both paid by us and received by the U.S.
shareholder on December 31 of such year, provided that we actually pay the
distribution during January of the following calendar year. We will notify U.S.
shareholders after the close of our taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income or
capital gain dividends.
Taxation of U.S. Shareholders on the Disposition of the Common Stock
In general, a U.S. shareholder who is not a dealer in securities must treat
any gain or loss realized upon a taxable disposition of the common stock as
long-term capital gain or loss if the U.S. shareholder has held the common stock
for more than one year and otherwise as short-term capital gain or loss.
However, a U.S. shareholder generally must treat any loss upon a sale or
exchange of common stock held by such shareholder for six months or less as a
long-term capital loss to the extent of capital gain dividends and other
distributions from us that such U.S. shareholder treats as long-term capital
gain. All or a portion of any loss a U.S. shareholder realizes upon a taxable
disposition of the common stock may be disallowed if the U.S. shareholder
purchases other shares of common stock within 30 days before or after the
disposition.
Capital Gains and Losses
A taxpayer generally must hold a capital asset for more than one year for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on long-term capital gain applicable to non-corporate
taxpayers is 20% for sales and exchanges of assets held for more than one year.
The maximum tax rate on long-term capital gain from the sale or
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exchange of depreciable real property is 25% to the extent that such gain would
have been treated as ordinary income if the property were a type of depreciable
property other than real property. With respect to distributions that we
designate as capital gain dividends and any retained capital gain that we are
deemed to distribute, we generally may designate whether such a distribution is
taxable to our non-corporate shareholders at a 20% or 25% rate. Thus, the tax
rate differential between capital gain and ordinary income for non-corporate
taxpayers may be significant. In addition, the characterization of income as
capital gain or ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by capital gains
against its ordinary income only up to a maximum annual amount of $3,000. A
non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.
Information Reporting Requirements and Backup Withholding
We will report to our shareholders and to the Internal Revenue Service the
amount of distributions we pay during each calendar year, and the amount of tax
we withhold, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
unless such holder either:
. is a corporation or comes within another exempt category and, when
required, demonstrates this fact; or
. provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the
applicable requirements of the backup withholding rules.
A shareholder who does not provide us with its correct taxpayer
identification number also may be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions to any shareholders who fail
to certify their non-foreign status to us. The Treasury Department has issued
final regulations regarding the backup withholding rules as applied to non-U.S.
shareholders. Those regulations alter the current system of backup withholding
compliance and are effective for distributions made after December 31, 2000. See
"--Taxation of Non-U.S. shareholders."
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities, generally are
exempt from federal income taxation. However, they are subject to taxation on
their unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a published ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute unrelated business taxable income,
provided that the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based
on that ruling, amounts that we distribute to tax-exempt shareholders generally
should not constitute unrelated business taxable income. However, if a
tax-exempt shareholder were to finance its acquisition of the common stock with
debt, a portion of the income that they receive from us would constitute
unrelated business taxable income under the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services plans that are
exempt from taxation under special provisions of the federal income tax laws are
subject to different unrelated business taxable income rules, which generally
will require them to characterize distributions that they receive from us as
unrelated business taxable income. Finally, in some circumstances, a qualified
employee pension or profit sharing trust that owns more than 10% of our stock is
required to treat a percentage of the dividends that it receives from us as
unrelated business taxable income. The percentage of the dividends that the
tax-exempt trust must treat as unrelated business taxable income is equal to the
gross income we derive from an unrelated trade or business, determined as if our
company were a pension trust, divided by our total gross income for the year in
which we pay
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the dividends. The unrelated business taxable income rule applies to a pension
trust holding more than 10% of our stock only if:
. the percentage of the dividends that the tax-exempt trust must
otherwise treat as unrelated business taxable income is at least 5%;
. we qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our shares be owned by five or
fewer individuals that allows the beneficiaries of the pension trust
to be treated as holding our stock in proportion to their actuarial
interests in the pension trust; and
. either (A) one pension trust owns more than 25% of the value of our
stock or (B) a group of pension trusts individually holding more than
10% of the value of our stock collectively owns more than 50% of the
value of our stock.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders are complex. This section is only a summary of such rules. We urge
those non-U.S. shareholders to consult their own tax advisors to determine the
impact of federal, state, and local income tax laws on ownership of the common
stock, including any reporting requirements.
A non-U.S. shareholder that receives a distribution that is not
attributable to gain from our sale or exchange of U.S. real property interests,
as defined below, and that we do not designate as a capital gain dividend or
retained capital gain will recognize ordinary income to the extent that we pay
such distribution out of our current or accumulated earnings and profits. A
withholding tax equal to 30% of the gross amount of the distribution ordinarily
will apply to such distribution unless an applicable tax treaty reduces or
eliminates the tax. However, if a distribution is treated as effectively
connected with the non-U.S. shareholder's conduct of a U.S. trade or business,
the non-U.S. shareholder generally will be subject to federal income tax on the
distribution at graduated rates, in the same manner as U.S. shareholders are
taxed with respect to such distributions. A non-U.S. shareholder may also be
subject to the 30% branch profits tax We plan to withhold U.S. income tax at the
rate of 30% on the gross amount of any such distribution paid to a non-U.S.
shareholder unless either:
. a lower treaty rate applies and the non-U.S. shareholder files the
required form evidencing eligibility for that reduced rate with us; or
. the non-U.S. shareholder files an IRS Form 4224 with us claiming that
the distribution is effectively connected income.
The U.S. Treasury Department has issued final regulations that modify the
manner in which we will comply with the withholding requirements. Those
regulations are effective for distributions made after December 31, 2000.
A non-U.S. shareholder will not incur tax on a distribution that exceeds
our current and accumulated earnings and profits but does not exceed the
adjusted basis of its common stock. Instead, such a distribution will reduce the
adjusted basis of such stock. A non-U.S. shareholder will be subject to tax on a
distribution that exceeds both our current and accumulated earnings and profits
and the adjusted basis of its common stock, if the non-U.S. shareholder
otherwise would be subject to tax on gain from the sale or disposition of its
common stock, as described below. Because we generally cannot determine at the
time we make a distribution whether or not the distribution will exceed our
current and accumulated earnings and profits, we normally will withhold tax on
the entire amount of any distribution at the same rate as we would withhold on a
dividend. However, a non-U.S. shareholder may obtain a refund of amounts that we
withhold if it later determines that a distribution in fact exceeded our current
and accumulated earnings and profits.
We must withhold 10% of any distribution that exceeds our current and
accumulated earnings and profits. Consequently, although we intend to withhold
at a rate of 30% on the entire amount of any distribution, to the
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extent that we do not do so, we will withhold at a rate of 10% on any portion of
a distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a non-U.S. shareholder will
incur tax on distributions that are attributable to gain from our sale or
exchange of "U.S. real property interests" under special provisions of the
federal income tax laws. The term "U.S. real property interests" includes
interests in U.S. real property and stock in corporations at least 50% of whose
assets consists of interests in U.S. real property. Under those rules, a
non-U.S. shareholder is taxed on distributions attributable to gain from sales
of U.S. real property interests as if such gain were effectively connected with
a U.S. business of the non-U.S. shareholder. A non-U.S. shareholder thus would
be taxed on such a distribution at the normal capital gain rates applicable to
U.S. shareholders and might also be subject to the alternative minimum tax. A
nonresident alien individual also might be subject to a special alternative
minimum tax. A non-U.S. corporate shareholder not entitled to treaty relief or
exemption also may be subject to the 30% branch profits tax on such
distributions. We must withhold 35% of any distribution that we could designate
as a capital gain dividend. A non-U.S. shareholder will receive a credit against
its tax liability for the amount we withhold.
A non-U.S. shareholder generally will not incur tax under the provisions
applicable to distributions that are attributable to gain from the sale of U.S.
real property interests on gain from the sale of its common stock as long as at
all times non-U.S. persons hold, directly or indirectly, less than 50% in value
of our stock. We cannot assure you that this test will be met. If the gain on
the sale of the common stock were taxed under those provisions, a non-U.S.
shareholder would be taxed in the same manner as U.S. shareholders with respect
to such gain, subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations. Furthermore, a non-U.S. shareholder will incur tax on gain not
subject to the provisions applicable to distributions that are attributable to
gain from the rule of U.S. real property interests if either:
. the gain is effectively connected with the non-U.S. shareholder's U.S.
trade or business, in which case the non-U.S. shareholder will be
subject to the same treatment as U.S. shareholders with respect to
such gain; or
. the non-U.S. shareholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year, in
which case the non-U.S. shareholder will incur a 30% tax on his
capital gains.
Other Tax Consequences
We and/or you may be subject to state and local tax in various states and
localities, including those states and localities in which we or you transact
business, own property, or reside. The state and local tax treatment in such
jurisdictions may differ from the federal income tax treatment described above.
Consequently, you should consult your own tax advisor regarding the effect of
state and local tax laws upon an investment in our common stock.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of the federal income tax laws that
may be relevant to a prospective purchaser. This discussion does not deal with
all aspects of either ERISA or the prohibited transaction provisions of the
federal income tax laws or, to the extent not preempted, state law that may be
relevant to particular employee benefit plan shareholders, including plans
subject to Title I of ERISA, other employee benefit plans and IRAs subject to
the prohibited transaction provisions of the federal income tax laws, and
governmental plans and church plans that are exempt from ERISA and the
prohibited transaction provisions of the federal income tax laws but that may be
subject to state law requirements, in light of their particular circumstances.
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In considering whether to invest a portion of the assets of a pension,
profit-sharing, retirement or other employee benefit plan, fiduciaries should
consider, among other things, whether the investment:
. will be in accordance with the documents and instruments covering the
investments by such plan;
. will allow the plan to satisfy the diversification requirements of
ERISA, if applicable;
. will result in unrelated business taxable income to the plan;
. will provide sufficient liquidity; and
. is prudent under the general ERISA standards.
In addition to imposing general fiduciary standards of investment prudence
and diversification, ERISA and the corresponding provisions of the federal
income tax laws prohibit a wide range of transactions involving the assets of
the plan and persons who have specified relationships to the plan, who are
"parties in interest" within the meaning of ERISA and, "disqualified persons"
within the meaning of the federal income tax laws. Thus, a designated plan
fiduciary considering an investment in our shares should also consider whether
the acquisition or the continued holding of our shares might constitute or give
rise to a direct or indirect prohibited transaction. The fiduciary of an IRA or
of an employee benefit plan not subject to Title I of ERISA because it is a
governmental or church plan or because it does not cover common law employees
should consider that such an IRA or plan not subject to Title I of ERISA may
only make investments that are authorized by the appropriate governing
documents, not prohibited under the prohibited transaction provisions of the
federal income tax laws and permitted under applicable state law.
The Department of Labor has issued final regulations that provide guidance
on the definition of plan assets under ERISA. Under the regulations, if a plan
acquires an equity interest in an entity which is neither a "publicly-offered
security" nor a security issued by an investment company registered under the
Investment Company Act of 1940, the plan's assets would include, for ERISA
purposes, both the equity interest and an undivided interest in each of the
entity's underlying assets unless an exception from the plan asset regulations
applies.
The regulations define a publicly-offered security as a security that is:
. "widely-held;"
. "freely-transferable;" and
. either part of a class of securities registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, or sold in connection
with an effective registration statement under the Securities Act,
provided the securities are registered under the Exchange Act within
190 days after the end of the fiscal year of the issuer during which
the offering occurred.
Our shares of common stock are being sold in connection with an effective
registration statement under the Securities Act.
The regulations provide that a security is "widely held" only if it is part
of a class of securities that is owned by 100 or more investors independent of
the issuer and of one another. A security will not fail to be widely held
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control.
Although we anticipate that upon completion of the sale of the maximum offering,
our common stock will be "widely held," our common stock will not be widely held
until we sell shares to 100 or more independent investors.
The regulations list restrictions on transfer that ordinarily will not
prevent securities from being freely transferable. Such restrictions on transfer
include:
. any restriction on or prohibition against any transfer or assignment
that would result in the termination or reclassification of an entity
for federal or state tax purposes, or that otherwise would violate any
federal or state law or court order;
. any requirement that advance notice of a transfer or assignment be
given to the issuer;
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. any administrative procedure that establishes an effective date, or an
event, such as completion of an offering, prior to which a transfer or
assignment will not be effective; and
. any limitation or restriction on transfer or assignment that is not
imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our articles of
incorporation on the ownership and transfer of our common stock will not result
in the failure of our common stock to be "freely transferable." We also are not
aware of any other facts or circumstances limiting the transferability of our
common stock that are not enumerated in the regulations as those not affecting
free transferability. However, no assurance can be given that the Department of
Labor or the Treasury Department will not reach a contrary conclusion.
One exception to the regulations provides that the assets of a plan or
ERISA investor, which is a person acting on behalf of or using the assets of a
plan, will not include any of the underlying assets of an entity in which it
invests if at all times less than 25% of the value of each class of equity
interests in the entity is held by ERISA investors (the "insignificant
participation exception"). Because our common stock will not be "widely held"
until we sell shares to 100 or more independent investors, prior to the date
that either our common stock qualifies as a class of "publicly-offered
securities" or we qualify for another exception to the regulations, other than
the insignificant participation exception, our articles of incorporation will
prohibit ERISA investors from owning, directly or indirectly, in the aggregate,
25% or more of our common stock. Accordingly, our assets should not be deemed to
be "plan assets" of any plan, IRA, or plan not subject to Title I of ERISA that
invests in our common stock.
If the underlying assets of our company were treated by the Department of
Labor as "plan assets," the management of our company would be treated as
fiduciaries with respect to plan shareholders and the prohibited transaction
restrictions of ERISA and the federal income tax laws would apply unless an
exception under ERISA were to apply. If the underlying assets of our company
were treated as "plan assets," an investment in our company also might
constitute an improper delegation of fiduciary responsibility to our company and
expose the fiduciary of the plan to co-fiduciary liability under ERISA and might
result in an impermissible commingling of plan assets with other property.
If a prohibited transaction were to occur, the federal income tax laws
and ERISA would impose an excise tax equal to 15% of the amount involved and
authorize the Internal Revenue Service to impose an additional 100% excise tax
if the prohibited transaction is not "corrected." Such taxes will be imposed on
any disqualified person who participates in the prohibited transaction. In
addition, our advisor and possibly other fiduciaries of plan shareholders
subject to ERISA who permitted such prohibited transaction to occur or who
otherwise breached their fiduciary responsibilities would be required to restore
to the plan any profits realized by these fiduciaries as a result of the
transaction or beach. With respect to an IRA that invests in our company, the
occurrence of a prohibited transaction involving the individual who established
the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt
status under the federal income tax laws. In that event, the IRA owner generally
would be taxed on the fair market value of all the assets in the IRA as of the
first day of the owner's taxable year in which the prohibited transaction
occurred.
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PLAN OF DISTRIBUTION
The total of 11,050,000 shares registered in this offering includes:
. a maximum of 10,000,000 shares offered to residents of our sales
states;
. up to 700,000 shares offered to our shareholders under our dividend
reinvestment program;
. up to 250,000 shares issuable upon exercise of the warrants issued to
our dealer manager in this offering; and
. up to 800,000 shares issuable under two stock option plans.
The 10,000,000 shares offered to residents of our sales states are being
offered through NNN Capital Corp., our dealer manager, a registered
broker-dealer affiliated with our advisor, and unaffiliated broker-dealers. NNN
Capital Corp. recently changed its name from Cunningham Capital Corp. and has
also operated under the name TMP Capital Corp. The shares are being offered at a
price of $10.00 per share on a "best efforts" basis, which means generally that
the dealer manager will be required to use only its best efforts to sell the
shares and has no firm commitment or obligation to purchase any of the shares.
Our advisor will purchase $200,000 of our common stock on the date we
commence this offering to the public, at a price of $9.05 per share. At least a
portion of the purchase price for those shares, and perhaps a substantial
portion, will be paid in the form of our advisor's forgiveness of debt we owe to
our advisor for expenses it incurred on our behalf in connection with the
formation of our company and this offering. Any shares sold to the advisor will
not count toward the minimum amount of shares required to break escrow. In
addition, neither the dealer manager or any other broker dealer will receive any
compensation with respect to shares sold to our advisor.
Our board of directors and the dealer manager have determined the offering
price of the shares. When determining the offering price, our board considered
primarily the per share offering prices in similar offerings conducted by
companies formed for the purpose of acquiring properties similar to the
properties we seek to acquire. Because we do not own any assets as of the
commencement of this offering and have no historical earnings, the offering
price is not related to the company's historical book value or earnings.
Except as provided below, the dealer manager will receive commissions of 8%
of the gross offering proceeds. In addition, we may reimburse the expenses
incurred by the dealer manager and nonaffiliated dealers for actual marketing
support and due diligence purposes in the maximum amount of 1.5% of the gross
offering proceeds. We will not pay referral or similar fees to any accountants,
attorneys or other persons in connection with the distribution of the shares.
The dealer manager will also receive one warrant for each 40 shares sold during
this offering in states other than Arizona, Minnesota, Missouri, Nebraska, Ohio
and Tennessee. The dealer manager may reallow these warrants to broker-dealers
participating in this offering, subject to federal and state securities laws.
Each warrant will entitle the holder to purchase one share from our company at a
price of $12.00 during the period commencing on the first anniversary of the
effective date of this offering and ending five years after the effective date
of this offering. The shares issuable upon exercise of the warrants are being
registered as part of this offering. For the life of these warrants, the holders
are given, at nominal cost, the opportunity to profit from a rise in the market
price for the common stock without assuming the risk of ownership, with a
resulting dilution in your interest and the interests of other shareholders.
Moreover, the holders of these warrants might be expected to exercise them at a
time when we would, in all likelihood, be able to obtain needed capital by a new
offering of its securities on terms more favorable than those provided by the
warrants.
The dealer manager may authorize other broker-dealers who are members of
the NASD to sell shares. In the event of the sale of shares by such other
broker-dealers, the dealer manager may reallow its commissions in the amount of
up to 8% of the gross offering proceeds and part or all of its warrants to such
participating broker-dealers.
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We have agreed to indemnify the participating broker-dealers, including the
dealer manager, against liabilities arising under the Securities Act unless such
liability arises from information in this prospectus relating to the dealer
manager and supplied by the dealer manager. Causes of action resulting from
violations of federal or state securities laws shall be governed by such law.
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any shares will be sold.
Our advisor and its affiliates may at their option purchase shares offered
hereby at the public offering price, net of the Selling Commission and Marketing
Support and Due Diligence Reimbursement Fee in which case they have advised us
that they would expect to hold such shares as shareholders for investment and
not for distribution. We will not pay any Selling Commissions in connection with
any shares purchased by our advisor.
Payment for shares should be made by check payable to "American
International Bank, as Escrow Agent for T REIT, Inc." Subscriptions will be
effective only upon acceptance by us, and we reserve the right to reject any
subscription in whole or in part. In no event may a subscription for shares be
accepted until at least five business days after the date the subscriber
receives this prospectus. Each subscriber will receive a confirmation of his
purchase. Except for purchase under the dividend reinvestment program, all
accepted subscriptions will be for whole shares and for not less than 100 shares
($1,000), except in Minnesota, which requires a minimum investment of 250
shares, or $2,500.
Subscription proceeds will be placed in interest-bearing accounts with the
escrow agent by noon of the business day after the proceeds are received by us
until subscriptions for at least the minimum offering of 100,000 shares
aggregating at least $1,000,000 have been received and accepted by us. Neither
the shares purchased by our officers, employees or directors under the option
plans nor the shares purchased by our advisor or its affiliates will be counted
in calculating the minimum offering. Subscription proceeds held in the escrow
accounts will be invested in obligations of, or obligations guaranteed by, the
United States government or bank money-market accounts or certificates of
deposit of national or state banks that have deposits insured by the Federal
Deposit Insurance Corporation, including certificates of deposit of any bank
acting as depository or custodian for any such funds, as directed by our
advisor. Subscribers may not withdraw funds from the escrow account.
If subscriptions for at least 100,000 shares have not been received and
accepted by ___________, 2000, the escrow agent will promptly so notify us and
this offering will be terminated. In such event, the escrow agent is obligated
to use its best efforts to obtain an executed IRS Form W-9 from each subscriber
whose subscription is rejected. No later than ten business days after rejection
of a subscription, the escrow agent will refund and return all monies to
rejected subscribers and any interest earned thereon without deducting escrow
expenses. In the event that a subscriber fails to remit an executed IRS Form W-9
to the escrow agent prior to the date the escrow agent returns the subscriber's
funds, the escrow agent will be required to withhold from such funds 31% of the
earnings attributable to such subscriber in accordance with Internal Revenue
Service regulations. During any period in which subscription proceeds are held
in escrow, interest earned thereon will be allocated among subscribers on the
basis of the respective amounts of their subscriptions and the number of days
that such amounts were on deposit.
Initial subscribers may be admitted as shareholders of our company and the
payments transferred from escrow to us at any time after we have received and
accepted the minimum offering. We will inform subscribers, with a supplement to
this prospectus, if the state in which they reside has different escrow
requirements.
After the close of the minimum offering, subscriptions will be accepted or
rejected within 30 days of receipt by us, and if rejected, all funds shall be
returned to subscribers within 10 business days. Investors whose subscriptions
are accepted will be admitted as shareholders of our company periodically, but
not less often than quarterly. Escrowed proceeds will be released to us on the
date that the applicable shareholder is admitted to our company.
The dealer manager may sell shares to our advisor, its officers, directors
and affiliates, to retirement plans of broker-dealers participating in this
offering, to broker-dealers in their individual capacities, to IRAs and
qualified
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plans of their registered representatives or to any one of their registered
representatives in their individual capacities net of the Selling Commission and
Marketing Support and Due Diligence Reimbursement Fees in consideration of the
services rendered by such broker-dealers and registered representatives in the
distribution. The net proceeds to our company from such sales will be identical
to our net proceeds from other sales of shares.
In connection with sales of 25,000 or more shares ($250,000) to a
"purchaser" (as defined below), investors may agree with their registered
representatives to reduce the amount of selling commissions payable to
participating broker-dealers. Such reduction will be credited to the purchaser
by reducing the total purchase price payable by such purchaser. The following
table illustrates the various discount levels:
Purchase Selling Marketing and Net Proceeds
Dollar Volume Price Commissions Due Diligence to Company
of Shares Purchased Per Share Per Share Fee Per Share Per Share
- ------------------- --------- --------- ------------- ---------
$250,000-$499,999 $9.75 $0.55 $0.15 $9.05
$500,000-$999,999 $9.60 $0.40 $0.15 $9.05
$1,000,000-$1,999,999 $9.45 $0.25 $0.15 $9.05
$2,000,000-$5,000,000 $9.30 $0.10 $0.15 $9.05
Over $5,000,000 $9.25 $0.05 $0.15 $9.05
For example, if an investor purchases 100,000 shares in our company, he
would pay $945,000 rather than $1,000,000 for the shares, in which event the
commission on the sale of such shares would be $25,000 ($0.25 per share), and we
would receive net proceeds of $905,000 ($9.05 per Share). Our net proceeds will
not be affected by volume discounts.
Because all investors will be deemed to have contributed the same amount
per share to our company for purposes of distributions of cash available for
distribution, an investor qualifying for a volume discount will receive a higher
return on his investment in our company than investors who do not qualify for
such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such shares are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing, and must set forth the basis for
such request. Any such request will be subject to verification by our advisor
that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes:
. an individual, his or her spouse and their children under the age of
21 who purchase the shares for his, her or their own accounts;
. a corporation, partnership, association, joint-stock company, trust
fund or any organized group of persons, whether incorporated or not;
. an employees' trust, pension, profit sharing or other employee benefit
plan qualified under the federal income tax laws; and
. all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to
investors in our company, the dealer manager may, in its sole discretion, waive
the "purchaser" requirements and aggregate subscriptions as part of a combined
order for purposes of determining the number of shares purchased, provided that
any aggregate group of
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subscriptions must be received from the same broker-dealer, including the dealer
manager. Any such reduction in selling commission will be prorated among the
separate subscribers except that, in the case of purchases through the dealer
manager, the dealer manager may allocate such reduction among separate
subscribers considered to be a single "purchaser" as it deems appropriate. An
investor may reduce the amount of his purchase price to the net amount shown in
the foregoing table, if applicable. If such investor does not reduce the
purchase price, the excess amount submitted over the discounted purchase price
shall be returned to the actual separate subscribers for shares. Except as
provided in this paragraph, separate subscriptions will not be cumulated,
combined or aggregated.
California residents should be aware that volume discounts will not be
available in connection with the sale of shares made to California residents to
the extent such discounts do not comply with the provisions of the California
corporate securities laws. Under these laws, volume discounts can be made
available to California residents only in accordance with the following
conditions:
. there can be no variance in the net proceeds to our company from the
sale of the shares to different purchasers of the same offering;
. all purchasers of the shares must be informed of the availability of
quantity discounts;
. the same volume discounts must be allowed to all purchasers of shares
which are part of the offering;
. the minimum amount of shares as to which volume discounts are allowed
cannot be less than $10,000;
. the variance in the price of the shares must result solely from a
different range of commissions, and all discounts allowed must be
based on a uniform scale of commissions; and
. no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of shares purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of shares purchased.
Investors who, in connection with their purchase of shares, have engaged
the services of a registered investment advisor with whom the investor has
agreed to pay a fee for investment advisory services in lieu of normal
commissions based on the volume of securities sold may agree with the
participating broker-dealer selling such shares and the dealer manager to reduce
the amount of selling commissions payable with respect to such sale to zero. The
net proceeds to our company will not be affected by eliminating the commissions
payable in connection with sales to investors purchasing through such investment
advisors. All such sales must be made through registered broker-dealers.
Neither the dealer manager nor its affiliates will directly or indirectly
compensate any person engaged as an investment advisor by a potential investor
as an inducement for such investment advisor to advise favorably for investment
in our company.
EXPERTS
The balance sheet of T REIT, Inc. as of June 30, 1999 included in this
prospectus and elsewhere in this registration statement, has been audited by
Haskell & White LLP, independent auditors, as stated in their report appearing
in this prospectus and elsewhere in this registration statement, and is included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
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REPORTS TO SHAREHOLDERS
We intend to furnish our shareholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants.
LEGAL MATTERS
The validity of the shares offered by this prospectus will be passed
upon by Hunton & Williams, Richmond, Virginia. Hirschler, Fleischer, Weinberg,
Cox & Allen will advise us with respect to real estate law and other matters.
LEGAL PROCEEDINGS
None of our company, our operating partnership or our advisor is currently
involved in any material litigation nor, to their knowledge, is any material
litigation threatened against any of them.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-11 of which this prospectus is a part under the Securities
Act with respect to the shares offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration statement,
portions of which have been omitted as permitted by the rules and regulations of
the Securities and Exchange Commission. Statements contained in this prospectus
as to the content of any contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference and the schedules and exhibits to this prospectus. For further
information regarding our company and the shares offered by this prospectus,
reference is made by this prospectus to the registration statement and such
schedules and exhibits.
The registration statement and the schedules and exhibits forming a part of
the registration statement filed by us with the Securities and Exchange
Commission can be inspected and copies obtained from the Securities and Exchange
Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Securities and Exchange
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Securities
and Exchange Commission maintains a Web site that contains reports, proxies and
information statements and other information regarding our company and other
registrants that have been filed electronically with the Securities and Exchange
Commission. The address of such site is http://www.sec.gov.
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T REIT, INC.
(A Development Stage Enterprise)
Table of Contents
Page
----
Report of Independent Auditors F-2
Financial Statements
Balance Sheet as of June 30, 1999 F-3
Notes to Balance Sheet F-4
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder
T REIT, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheet of T REIT, Inc. (A Development
Stage Enterprise) (the "Company") as of June 30, 1999. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Company as of June 30,
1999, in conformity with generally accepted accounting principles.
/s/ HASKELL & WHITE LLP
Newport Beach, California
July 1, 1999
F-2
<PAGE>
T REIT, INC.
(A Development Stage Enterprise)
Balance Sheet
As of June 30, 1999
ASSETS
Cash $100
----
Total assets $100
====
STOCKHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 authorized,
10 shares issued and outstanding (Note 2) $100
----
Total stockholder's equity $100
====
See Accompanying Notes to Balance Sheet
F-3
<PAGE>
T REIT, INC.
(A Development Stage Enterprise)
Notes to Balance Sheet
As of June 30, 1999
1. Business and Organizational Structure
T REIT, Inc. (a Development Stage Enterprise) (the "Company") was
incorporated in December 1998 under the laws of the Commonwealth of
Virginia. When the Company has met the qualification requirements, it
intends to elect to be treated as a real estate investment trust for
federal income tax purposes. The Company was incorporated to raise capital
and acquire ownership interests in office, industrial, retail and service
properties, including single user retail and office properties rented to
tenants under net leases. As of June 30, 1999, the Company does not own any
properties.
The Company intends to operate in an umbrella partnership REIT structure,
in which its subsidiary operating partnership will own substantially all of
the properties that the Company acquires. The Company will be the sole
general partner of our operating partnership, T REIT L.P., a Virginia
limited partnership.
The activities to date have focused primarily on raising capital and
establishing a corporate infrastructure to support planned operations.
Accordingly, the Company is considered to be a development stage enterprise
as of June 30, 1999.
2. Subsequent Events
The Company is planning to commence an initial public offering in which it
intends to sell a minimum of 100,000 shares of its common stock and a
maximum of 10,000,000 shares of its common stock for $10 per share. The
Company also intends to amend its articles of incorporation to increase the
number of authorized shares of common stock from 1,000 to 50,000,000.
Concurrent with the commencement of the initial public offering, the
Company intends to grant 25,000 options to purchase its common stock to
directors at $9.05 per share.
See Accompanying Notes to Balance Sheet
F-4
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to all prior real estate investment programs sponsored by our advisor
("Prior Programs").
As a prospective investor, you should read these Tables carefully together
with the summary information concerning the Prior Programs as set forth in
"PRIOR PERFORMANCE SUMMARY" elsewhere in this prospectus.
AS AN INVESTOR IN OUR COMPANY, YOU WILL NOT OWN ANY INTEREST IN THE PRIOR
PROGRAMS AND SHOULD NOT ASSUME THAT YOU WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
Our advisor is responsible for managing our day-to-day business affairs and
assets, administering our bookkeeping and accounting functions, serving as our
consultant in connection with policy decisions to be made by our board of
directors, managing or causing to be managed our properties, and rendering other
services as our board of directors deems necessary. The financial results of the
Prior Programs thus provide an indication of our advisor's performance of its
obligations during the periods covered. However, general economic conditions
affecting the real estate industry and other factors contribute significantly to
financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Prior Programs
Table IV (Results of completed programs) and Table V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in Table VI, which is included in the registration
statement which our Company has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. We will provide to you copies of any or all information
concerning the Prior Programs at no charge upon request.
A-1
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS (UNAUDITED)(1)
<TABLE>
<CAPTION>
Truckee
River Yerington NNN NNN
Telluride Office Shopping Fund VIII, Town &
Barstow, LLC WREIT, INC. Tower, LLC Center, LLC LLC Country, LLC
------------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount Offered $ 1,620,000 $ 50,000,000 $ 5,550,000 $ 1,625,000 $ 8,000,000 $ 7,200,000
============= ============ =========== =========== =========== ============
Dollar Amount Raised 1,620,000 6,350,815 5,525,000 1,599,063 2,878,660 975,000
============= ============ =========== =========== =========== ============
Percentage Amount Raised 100.0% 12.7% 99.5% 98.4% 36.0% 13.5%
============= ============ =========== =========== =========== ============
Less Offering Expenses:
Selling Commissions & Discounts to 10.0% 8.0% 10.0% 10.0% 10.0% 10.0%
Affiliates
Organization & Offering Expenses (1) 2.5% 4.5% 3.0% 4.9% 3.0% 3.0%
Due Diligence Allowance (2) 1.5% 1.5% 0.5% 0.5% 0.5% 0.5%
Reserves 3.6% 1.5% 3.7% 7.8% 8.9% 2.0%
------------- ------------ ----------- ----------- ----------- ------------
Percent Available for Investment 82.5% 84.5% 82.8% 76.8% 77.6% 84.5%
Acquisition Cost:
Cash Down Payment 75.6% 82.0% 74.1% 70.1% 68.0% 72.5%
Loan Fees 5.3% 2.5% 5.1% 2.0% 2.4% 5.7%
Acquisition Fees Paid to Affiliates 1.5% 0.0% 4.0% 4.6% 4.5% 4.5%
------------- ------------ ----------- ----------- ----------- ------------
Total Acquisition Cost 82.5% 84.5% 83.2% 76.7% 74.9% 82.7%
============= ============ =========== =========== =========== ============
Percent Leveraged 71% 75% 75% 75% 75% 75%
Date Offering Began 1-Jun-98 1-Jul-98 21-Aug-98 15-Dec-98 22-Feb-99 10-May-99
Date Offering Ended 16-Dec-98 Open Open Open Open Open
Length of Offering (days) 198 Open Open Open Open Open
Days to Invest 90% of Amount Available for
Investment (Measured from Beginning of 46 N/A 102 83 N/A N/A
Offering)
Number of Investors 14 165 67 9 51 20
</TABLE>
Notes:
(1) Includes legal, accounting, printing and other offering expenses, including
amounts for the reimbursement for marketing, salaries and direct expenses
of employees engaged in marketing and other organization expenses.
(2) Nonaccountable due diligence reimbursement to Sponsor and other members of
the Selling Group.
A-2
<PAGE>
TABLE II
COMPENSATION TO SPONSOR (UNAUDITED)
<TABLE>
<CAPTION>
Truckee NNN
River Yerington NNN Town & Total
Telluride Office Shopping Fund Country, All
Barstow, LLC WREIT, INC. Tower, LLC Center, LLC VIII, LLC LLC Programs
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Date Offering Commenced 1-Jun-98 1-Jul-98 21-Aug-98 15-Dec-98 22-Feb-99 10-May-99
Dollar Amount Raised
to Sponsor from Proceeds of Offering $1,620,000 $6,350,815 $5,525,000 $1,599,063 $2,878,660 $ 975,000 $18,948,538
========== ========== ========== ========== ========== ========== ===========
Amounts Paid to Sponsor from Proceeds of
Offering:
Selling Commissions to Selling Group $ 162,000 $ 508,065 $ 529,948 $ 159,906 $ 287,866 $ 97,500 $ 1,745,285
Members
Organization & Marketing Expenses 64,000 285,787 166,500 78,354 86,360 29,250 710,251
Due Diligence Allowance -- 95,262 30,000 7,995 14,393 4,875 152,526
Acquisition Fees 25,000 -- 220,000 75,000 129,540 43,875 493,415
---------- ---------- ---------- ---------- ---------- ---------- -----------
Totals $ 251,000 $ 889,114 $ 946,448 $ 321,256 518,159 175,500 3,101,477
========== ========== ========== ========== ========== ========== ===========
Dollar Amount of Cash Generated from
Operations Before Deducting Payments
to Sponsor $ 311,145 573,963 461,623 65,494 $ 34,170 -- $ 1,446,394
========== ========== ========== ========== ========== ========== ===========
Amounts Paid to Sponsor from Operations-
Year 1998
Property Management Fees $ 27,506 $ 26,103 $ 9,390 $ 62,999
Asset Management Fees 14,550 26,932 6,781 48,263
Leasing Commissions -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- -----------
Totals $ 42,056 $ 53,035 $ 16,171 N/A N/A N/A $ 111,262
========== ========== ========== ========== ========== ========== ===========
Amounts Paid to Sponsor from Operations -
Six Months Ending June 30, 1999
Property Management Fees $ 18,576 $ 99,360 $ 58,804 $ 5,941 Note 1 Note 1 $ 182,681
Asset Management Fees 16,480 98,759 20,125 737 136,101
Leasing Commissions 12,457 13,246 14,304 -- 40,007
---------- ---------- ---------- ---------- ---------- ---------- -----------
Totals $ 47,513 $ 211,365 $ 93,233 $ 6,678 $ -- $ -- $ 358,789
========== ========== ========== ========== ========== ========== ===========
</TABLE>
Notes:
(1) Operating results are shown for 1998 only because all programs started in
1998.
A-3
<PAGE>
TABLE III
1998 OPERATING RESULTS OF PRIOR PROGRAMS (UNAUDITED)
<TABLE>
<CAPTION>
Telluride Truckee Yerington Total
Barstow, WREIT, River Office Shopping All
LLC INC. Tower, LLC Center, LLC Programs
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 497,240 $ 594,158 $ 195,692 $ 30,432 $1,287,090
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses 209,494 258,680 42,840 2,218 511,014
Interest Expense 177,908 208,078 88,346 17,461 474,332
Depreciation 47,183 77,537 15,417 3,360 140,137
---------- ---------- ---------- ---------- ----------
Net Income - GAAP Basis $ 62,655 $ 49,863 $ 49,089 $ 7,122 $ 161,607
========== ========== ========== ========== ==========
Taxable Income From:
Operations 62,655 49,863 49,089 7,122 161,607
Gain on Sale -- -- -- -- --
Cash Generated From:
Operations 109,838 127,400 64,506 7,122 301,744
Sales -- -- -- -- --
Refinancing -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Cash Generated From Operations, Sales &
Refinancing $ 109,838 $ 127,400 $ 64,506 $ 7,122 $ 301,744
========== ========== ========== ========== ==========
Less Cash Distributions to Investors From:
Operating Cash Flow 77,052 48,028 -- -- 125,080
Sales & Refinancing -- -- -- -- --
Other -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Cash Generated (Deficiency) after Cash
Distributions 32,786 79,372 64,506 7,122 176,664
Less Special Items (not including Sales &
Refinancing) -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ 32,786 79,372 $ 64,506 $ 7,122 $ 176,664
========== ========== ========== ========== ==========
Tax and Distribution Data Per $1,000 Invested
Federal Income Tax Results:
Ordinary Income (Loss)
-- from operations $ 38.68 $ 14.73 $ 8.84 $ 4.45 $ 62.25
-- from recapture -- -- -- -- --
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors
Sources (on GAAP basis)
-- Investment Income $ 47.56 $ 14.18 $ -- $ -- $ 61.75
-- Return of Capital -- -- -- -- --
Sources (on Cash basis)
-- Sales -- -- -- -- --
-- Refinancing -- -- -- -- --
-- Operations $ 47.56 $ 14.18 $ -- $ -- $ 61.75
-- Other -- -- -- -- --
Amount remaining invested in program
properties as of 12-31-98 100% 100% 100% 100% 100%
</TABLE>
Notes:
- ------
(1) Operating results are shown for 1998 only because all programs started in
1998.
A-4
<PAGE>
TABLE III - Continued
OPERATING RESULTS OF PRIOR PROGRAMS (UNAUDITED)
SIX MONTHS ENDING JUNE 30, 1999
<TABLE>
<CAPTION>
Yerington NNN NNN
Telluride Truckee Shopping Fund Town & Total
Barstow, WREIT, River Office Center, VIII, Country, All
LLC INC. Tower, LLC LLC LLC LLC Programs
----------- ----------- ----------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Revenues $ 381,645 $ 1,973,516 $ 1,222,047 $ 151,470 $ 72,821 Note 1 $ 3,801,499
Profit on Sale of Properties -- -- -- -- -- -- --
Less: Operating Expenses 147,584 742,865 373,428 25,868 3,202 -- 1,292,947
Interest Expense 122,323 1,108,056 408,197 60,108 35,449 -- 1,734,133
Depreciation 45,543 290,284 152,709 17,789 -- -- 506,353
=========== =========== =========== =========== =========== ======= ===========
Net Income - GAAP Basis $ 66,195 $ (167,689) $ 287,713 $ 47,705 $ 34,170 $ -- $ 268,094
=========== =========== =========== =========== =========== ======= ===========
Taxable Income From:
Operations 66,195 (167,689) 287,713 47,705 34,170 -- 268,094
Gain on Sale -- -- -- -- -- -- --
Cash Generated From:
Operations 111,738 182,163 287,713 65,494 34,170 -- 681,278
Sales -- -- -- -- -- -- --
Refinancing -- -- -- -- -- -- --
=========== =========== =========== =========== =========== ======= ===========
Cash Generated From Operations,
Sales & Refinancing $ 111,738 $ 182,163 $ 287,713 $ 65,494 $ 34,170 $ -- $ 681,278
=========== =========== =========== =========== =========== ======= ===========
Less: Cash Distributions to
Investors From:
Operating Cash Flow $ 94,161 $ 191,828 $ 239,476 $ 34,863 $ -- $ -- $ 560,328
Sales & Refinancing -- -- -- -- -- -- --
Other -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------- -----------
Cash Generated (Deficiency) after Cash 17,577 (9,665) 48,236 30,631 -- -- 86,780
Distributions
Less: Special Items (not including
Sales & Refinancing) -- -- -- -- -- -- --
=========== =========== =========== =========== =========== ======= ===========
Cash Generated (Deficiency) after Cash $ 17,577 $ (9,665) $ 48,236 $ 30,631 $ -- $ -- $ 86,780
Distributions and Special Items
=========== =========== =========== =========== =========== ======= ===========
Tax and Distribution Data Per $1,000
Invested
Federal Income Tax Results:
Ordinary Income (Loss)
-- from operations $ 40.86 $ (1.52) $ 52.07 $ 29.83 $ -- $ -- $ 91.41
-- from recapture -- -- -- -- -- -- --
Capital Gain (Loss) -- -- -- -- -- -- --
Cash Distributions to Investors
Sources (on GAAP basis)
-- Investment Income $ 58.12 $ (1.52) $ 43.34 $ 21.80 $ -- $ -- $ 99.95
-- Return of Capital -- -- -- -- -- -- --
Sources (on Cash basis)
-- Sales -- -- -- -- -- -- --
-- Refinancing -- -- -- -- -- -- --
-- Operations $ 58.12 $ (1.52) $ 43.34 $ 21.80 $ -- $ -- $ 99.95
</TABLE>
Notes:
(1) The property for NNN Town & County was not acquired until June 30, 1999.
A-5
<PAGE>
EXHIBIT B
SUBSCRIPTION AGREEMENT
To: T REIT, Inc.
1551 N. Tustin Avenue, Suite 650
Santa Ana, California 92705
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of shares of common stock ("Shares") in T
REIT, Inc., a Virginia corporation (the "Company"), set forth on such
Subscription Agreement Signature Page. Payment for the Shares is hereby made by
check payable to "American International Bank, as Escrow Agent for T REIT, Inc."
Payments for Shares will be held in an interest-bearing escrow account
until the Company has received and accepted subscriptions for an aggregate of
100,000 Shares ($1,000,000), at which time American International Bank will
release the proceeds to the Company. If the Company does not sell 100,000 Shares
before _______________, 2000, the offering will be terminated and the Company
will refund all the monies in escrow (plus interest and without deducting for
escrow expenses) proportionately to investors.
I hereby acknowledge receipt of the Prospectus for the offering of the
Shares dated ______________, 1999 (the "Prospectus").
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, and disbursed on the terms described in the
Prospectus. I agree that subscriptions may be rejected in whole or in part by
the Company in its sole and absolute discretion. In addition, I understand and
agree that subscriptions are irrevocable, and I will not have the right to
cancel or rescind my subscription, except as required under applicable law.
I acknowledge and agree that:
(a) The assignability and transferability of the Shares is restricted
and will be governed by the Amended and Restated Articles of Incorporation and
Bylaws and all applicable laws as described in the Prospectus.
(b) I have an adequate means of providing for my current needs and personal
contingencies and have no need for liquidity in this investment.
(c) There will be no public market for the Shares, and accordingly, it may
not be possible to readily liquidate my investment in the Shares.
B-1
<PAGE>
SPECIAL NOTICE FOR SOUTH DAKOTA RESIDENTS ONLY
This subscription is made pursuant to, and is subject to, the terms and
conditions of the registration approved by the director of the Division of
Securities of the State of South Dakota for T REIT, Inc. under the date of
_________________.
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
In connection with secondary trading of the Shares, the Commissioner of the
State of California Department of Corporations will withhold the Section
25104(h) exemption which permits secondary trading of the Shares for 18 months
from the date of qualification of the Shares.
B-2
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
(1) INDIVIDUAL: One signature required.
(2) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
(3) TENANTS IN COMMON: All parties must sign.
(4) COMMUNITY PROPERTY: Only one investor signature required.
(5) PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
(6) TRUST: The trustee signs the Signature Page. Provide the name of the trust,
the name of the trustee and the name of the beneficiary.
(7) COMPANY: Identify whether the entity is a general or limited partnership.
The general partners must be identified and their signatures obtained on
the Signature Page. In the case of an investment by a general partnership,
all partners must sign (unless a "managing partner") has been designated
for the partnership, in which case he may sign on behalf of the partnership
if a certified copy of the document granting him authority to invest on
behalf of the partnership is submitted).
(8) CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designation of
the officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
(9) IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of the
trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
(10) KEOGH (HR 10): Same rules as those applicable to IRAs.
(11) UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
B-3
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO T REIT, INC. SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
INVESTMENT Please follow these instructions carefully. Failure to do so
INSTRUCTIONS may result in the rejection of your subscription. All
information on the Subscription Agreement Signature Page
should be completed as follows:
- --------------------------------------------------------------------------------
1. INVESTMENT A minimum investment of $1,000 (100 Shares) is required,
except for Minnesota which requires a $2,500 (250 Shares)
minimum investment. A CHECK FOR THE FULL PURCHASE PRICE OF
THE SHARES SUBSCRIBED FOR SHOULD BE MADE PAYABLE TO THE
ORDER OF "AMERICAN INTERNATIONAL BANK, AS ESCROW AGENT FOR T
REIT, INC." Shares may be purchased only by persons meeting
the standards set forth under the Section of the Prospectus
entitled "INVESTOR SUITABILITY STANDARDS." Please indicate
the state in which the sale was made.
- --------------------------------------------------------------------------------
2. TYPE OF Please check the appropriate box to indicate the type of
OWNERSHIP entity or type of individuals subscribing.
- --------------------------------------------------------------------------------
3. REGISTRATION Please enter the exact name in which the Shares are to be
NAME AND held. For joint tenants with right of survivorship or
ADDRESS tenants in common, include the names of both investors. In
the case of partnerships or corporations, include the name
of an individual to whom correspondence will be addressed.
Trusts should include the name of the trustee. All investors
must complete the space provided for taxpayer identification
number or social security number. By signing in Section 6,
the investor is certifying that this number is correct.
Enter the mailing address and telephone numbers of the
registered owner of this investment. In the case of a
Qualified Plan or trust, this will be the address of the
trustee. Indicate the birthday and occupation of the
registered owner unless the registered owner is a
partnership, corporation or trust.
- --------------------------------------------------------------------------------
4. INVESTOR NAME Complete this Section only if the investor's name and
AND ADDRESS address is different from the registration name and address
provided in Section 4. If the Shares are registered in the
name of a trust, enter the name, address, telephone number,
social security number, birth date and occupation of the
beneficial owner of the trust.
- --------------------------------------------------------------------------------
5. SUBSCRIBER Please separately initial each representation made by the
SIGNATURE investor where indicated. Except in the case of fiduciary
accounts, the investor may not grant any person a power of
attorney to make such representations on his or her behalf.
Each investor must sign and date this Section. If title is
to be held jointly, all parties must sign. If the registered
owner is a partnership, corporation or trust, a general
partner, officer or trustee of the entity must sign. PLEASE
NOTE THAT THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
- --------------------------------------------------------------------------------
6. ADDITIONAL Please check if you plan to make one or more additional
INVESTMENTS investments in the Company. All additional investments must
be increments of at least $100 (10 Shares). If additional
investments in the Company are made, the investor agrees to
notify the Company and the Broker-Dealer named
B-4
<PAGE>
- --------------------------------------------------------------------------------
on the Subscription Agreement Signature Page in writing if
at any time he fails to meet the applicable suitability
standards or he is unable to make any other representations
or warranties set forth in the Prospectus or the
Subscription Agreement. The investor acknowledges that the
Broker-Dealer named in the Subscription Agreement Signature
Page may receive a commission not to exceed 8% of any such
additional investments in the Company.
- --------------------------------------------------------------------------------
7. DISTRIBUTIONS a. DIVIDEND REINVESTMENT PLAN: By electing the Dividend
Reinvestment Program, the investor elects to reinvest
dividends in the Company. The investor agrees to notify
the Company and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing if at
any time he fails to meet the applicable suitability
standards or he is unable to make any other
representations and warranties as set forth in the
Prospectus or Subscription Agreement.
b. DIVIDEND ADDRESS: If cash dividends are to be sent to
an address other than that provided in Section 5 (i.e.,
a bank, brokerage firm or savings and loan, etc.),
please provide the name, account number and address.
- --------------------------------------------------------------------------------
8. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please complete all BROKER-DEALER
information contained in Section 8 including suitability
certification. SIGNATURE PAGE MUST BE SIGNED BY AN
AUTHORIZED REPRESENTATIVE.
- --------------------------------------------------------------------------------
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-877-888-7348
B-5
<PAGE>
T REIT, INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<TABLE>
<S> <C>
1. INVESTMENT
Make Investment Check Payable to:
_________________ __________________ American International Bank as Escrow Agent for T REIT, Inc.
# of Shares Total $ Invested
[_] Initial Investment (Minimum $1,000) (except in
(#Shares x $10.00 = $ Invested) Minnesota, which requires a minimum
Minimum purchase 100 Shares or $1,000 investment of $2,500)
(250 Shares or $2,500 in Minnesota) [_] Additional Investment (Minimum $100.00)
State in which sale was made ____________________
</TABLE>
2. ADDITIONAL INVESTMENTS
Please check if you plan to make additional investments in the Corporation [_]
(If additional investments are made, please include social security number
or other taxpayer identification number on your check.)
(All additional investments must be made in increments of at least $100.00
except purchases pursuant to the Dividend Reinvestment Program, which
may be made in lesser amounts.)
3. TYPE OF OWNERSHIP
<TABLE>
<S> <C>
[_] Individual (01) [_] IRA (06)
[_] Joint Tenants With Right of Survivorship (02) [_] Keogh (10)
[_] Community Property (03) [_] Qualified Pension Plan (11)
[_] Tenants in Common (04) [_] Qualified Profit Sharing Plan (12)
[_] Custodian: A Custodian for____________ under the Uniform [_] Other Trust____________________
Gift to Minors Act or the Uniform Transfers to Minors Act of For the Benefit of ________________
the State of _____________________________________(08) [_] Partnership (15)
[_] Other_____________________________________________
</TABLE>
4. REGISTRATION NAME AND ADDRESS
<TABLE>
<S> <C>
Please print name(s) in which Shares are to be registered. Include trust
name, if applicable.
Mr. Mrs. Ms. MD Ph.D. DDS Other_________________ Taxpayer Identification Number
-
------------------------------------------------------------------- -- -------
-------------------------------------------------------------------
-------------------------------------------------------------------
Social Security Number
- -
--- -- ----
Street Address
or P.O. Box --------------------------------------------------------
City State Zip Code
----------------------- ---------------- ------
Home Business
Telephone No. Telephone No.
----------------- -------------------------
Birth Date Occupation
-------------------- ----------------------------
</TABLE>
B-6
<PAGE>
<TABLE>
5. INVESTOR NAME AND ADDRESS
<S> <C>
(Complete only if different from registration name and address).
Mr. Mrs. Ms. MD Ph.D. DDS Other___________
Name Social Security Number
--------------------------------------------------------- - -
--- -- ----
Street Address
or P.O. Box
--------------------------------------------------
City State Zip Code
---------------- --------------- -------------
Home Business
Telephone No. ( ) Telephone No. ( )
--------------- -------------------
Birth Date Occupation
------------------ ----------------------
</TABLE>
6. INVESTOR SIGNATURE
Please separately initial each of the representations below. Except in the
case of fiduciary accounts, you may not grant any person a power of attorney to
make such representations on your behalf. In order to induce the Company to
accept this subscription, I hereby represent and warrant to you as follows:
<TABLE>
<S> <C> <C>
(a) I have received the Prospectus _________ _________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions
of the Amended and Restated Articles of Incorporation. _________ _________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings
and automobiles) of $150,000 or more, or (ii) a net worth
(as described above) of at least $45,000 and had during the
last tax year or estimate that I will have during the
current tax year a minimum of $45,000 annual gross income,
or that I meet the higher suitability requirements imposed
by my state of primary residence as set forth in the
Prospectus under "INVESTOR SUITABILITY STANDARDS". _________ ________
Initials Initials
(d) I am purchasing the Shares for my own account. _________ ________
Initials Initials
(e) I acknowledge that the Shares are not liquid. _________ ________
Initials Initials
(f) If I am a California resident or if the Person to whom I
subsequently propose to assign or transfer any Shares is a
California resident, I may not consummate a sale or transfer
of my Shares, or any interest therein, or receive any
consideration therefor, without the prior written consent of
the Commissioner of the Department of Corporations of the
State of California, except as permitted in the
Commissioner's Rules, and I understand that my Shares, or
any document evidencing my Shares, will bear a legend
reflecting the substance of the foregoing understanding. _________ ________
Initials Initials
</TABLE>
I declare that the information supplied above is true and correct and may be
relied upon the Company in connection with my investment in the Company. Under
penalties of perjury, by signing this Signature Page, I hereby certify that (a)
I have provided herein my correct Taxpayer Identification Number, and (b) I am
not subject to back-up withholding as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me that I am
no longer subject to back-up withholding.
B-7
<PAGE>
BY SIGNING THIS AGREEMENT, YOU ARE NOT WAIVING ANY RIGHTS
UNDER FEDERAL OR STATE SECURITIES LAWS.
<TABLE>
<S> <C> <C>
________________________________ _______________________________________ ____
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
</TABLE>
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN).
7. DISTRIBUTIONS
7(a). Check the following box to participate in the Dividend Reinvestment
Program. ___
7(b). Complete following section only to direct distributions to a party
other than registered owner:
Name
--------------------------------------------------------------------
Account Number
----------------------------------------------------------
Street Address
or P.O. Box
-------------------------------------------------------------
City State Zip Code
---------------------- ---- ------------
8. BROKER-DEALER
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete
the subscription. The Broker-Dealer warrants that it is a duly licensed
Broker-Dealer and may lawfully offer Shares in the state designated as the
investor's address or the state in which the sale was made, if different. The
Broker-Dealer or authorized representative warrants that he has reasonable
grounds to believe this investment is suitable for the subscriber as set
forth in the Section of the Prospectus entitled "INVESTOR SUITABILITY
STANDARDS" and that he has informed the subscriber of all aspects of
liquidity and marketability of this investment as required by the Dealer
Manager Agreement and/or the Participating Broker-Dealer Agreement.
<TABLE>
<S> <C>
Broker-Dealer Name Telephone No.
-------------------------- --------------------------------
Broker-Dealer Street
Address or P.O. Box
----------------------------------------------------------------------
City State Zip Code
----------------------------- --- -----------------------
Registered Telephone No.
Representative Name ------------------
------------------------
Reg. Rep. Street
Address or P.O. Box
----------------------------------------------------------------------
City State Zip Code
----------------------------- --- --------------------
- ------------------------------------- -------------------------------------
Broker-Dealer Signature, if applicable Registered Representative Signature
</TABLE>
B-8
<PAGE>
Please mail completed Subscription Agreement (with all signatures) and check(s)
made payable to
American International Bank, as Escrow Agent for:
T REIT, Inc.
1-877-888-7348
1551 N. Tustin Avenue, Suite 650
Santa Ana, California 92705
B-9
<PAGE>
EXHIBIT C
T REIT, INC.
DIVIDEND REINVESTMENT PROGRAM
The Dividend Reinvestment Program (the "DRIP") for T REIT, Inc., a Virginia
corporation (the "Company"), offers to holders of the Company's common stock,
$.01 par value per share (the "Common Stock") the opportunity to purchase,
through reinvestment of dividends, additional shares of Common Stock, on the
terms, subject to the conditions and at the prices herein stated.
The DRIP will be implemented in connection with the registered initial
public offering of 11,050,000 shares of the Company's Common Stock (the "Initial
Offering"), of which amount 700,000 shares will be registered and reserved for
distribution pursuant to the DRIP.
Dividends reinvested pursuant to the DRIP will be applied to the purchase
of shares of Common Stock at a price per share (the "DRIP Price") equal to the
greater of (i) $9.05 or (ii) 95% of the "Market Price" (as defined below) of the
stock until all 700,000 shares reserved initially for the DRIP (the "Initial
DRIP Shares") have been purchased or until the termination of the initial public
offering, whichever occurs first. Thereafter, the Company may in its sole
discretion effect additional registrations of common stock for use in the DRIP.
In any case, the per share purchase price under the DRIP for such additionally
acquired shares will equal the DRIP Price. For purposes of the DRIP, "Market
Price" means:
. the average sale price for our stock on the applicable distribution
date, as reported on the New York Stock Exchange or another principal
national securities exchange on which our stock is listed; or
. if our stock is not listed on such an exchange, the average quoted
price for our stock on the applicable distribution date, as reported
by the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq") or another principal automated quotations
system on which our stock is quoted; or
. if our stock is not listed or quoted on any such exchange or system,
the average of the closing bid and asked prices for our stock on the
applicable distribution date, as furnished by a professional market
maker making a market in our stock selected by our board of directors;
or
. if no professional market maker makes a market in our stock, a price
determined by our board of directors in good faith.
The DRIP
The DRIP provides you with a simple and convenient way to invest your cash
dividends in additional shares of Common Stock. As a participant in the DRIP,
you may purchase shares at the DRIP Price until all 700,000 Initial DRIP Shares
have been purchased or until the Company elects to terminate the DRIP. The
Company may, in its sole discretion, effect registration of additional shares of
Common Stock for issuance under the DRIP.
C-1
<PAGE>
You receive free custodial service for the shares you hold through the
DRIP.
Shares for the DRIP will be purchased directly from the Company. Such
shares will be authorized and may be either previously issued or unissued
shares. Proceeds from the sale of the DRIP Shares provide the Company with funds
for general corporate purposes.
Eligibility
Holders of record of Common Stock are eligible to participate in the DRIP
with respect to any whole number of their shares. If your shares are held of
record by a broker or nominee and you want to participate in the DRIP, you must
make appropriate arrangements with your broker or nominee.
The Company may refuse participation in the DRIP to shareholders residing
in states where shares offered pursuant to the DRIP are neither registered under
applicable securities laws nor exempt from registration.
Administration
As of the date of this Prospectus, the DRIP will be administered by the
Company or an affiliate of the Company (the "DRIP Administrator"), but a
different entity may act as DRIP Administrator in the future. The DRIP
Administrator will keep all records of your DRIP account and sends statements of
your account to you. Shares of Common Stock purchased under the DRIP will be
registered in the name of each participating shareholder.
Enrollment
You must own shares of Common Stock in order to participate in the DRIP.
You may become a participant in the DRIP by completing and signing the
enrollment form enclosed with this Prospectus and returning it to us at the time
you subscribe for shares. If you receive a copy of this Prospectus or a separate
prospectus relating solely to the DRIP and have not previously elected to
participate in the DRIP, then you may so elect at any time by completing the
enrollment form attached to such prospectus or by other appropriate written
notice to the Company of your desire to participate in the DRIP.
Your participation in the DRIP will begin with the first dividend payment
after your signed enrollment form is received, provided such form is received on
or before ten days prior to the record date established for that dividend. If
your enrollment form is received after the record date for any dividend and
before payment of that dividend, that dividend will be paid to you in cash and
reinvestment of your dividends will not begin until the next dividend payment
date.
Costs
Purchases under the DRIP will not be subject to Selling Commissions or the
Marketing and Due Diligence Reimbursement Fee. All costs of administration of
the DRIP will be paid by the Company. However, any interest earned on dividends
on shares within the DRIP will be paid to the Company to defray certain costs
relating to the DRIP. If you ask that your dividend reinvestment program shares
be sold, you will pay certain charges as explained in "Certificates for Shares"
below.
C-2
<PAGE>
Purchases and Price of Shares
Common Stock dividends will be invested within 30 days after the date on
which Common Stock dividends are paid each quarter (the "Investment Date").
Payment dates for Common Stock dividends will be ordinarily on or about the last
calendar day of March, June, September and December, but may be changed from
time to time in the sole discretion of the Company. Any dividends not so
invested will be returned to participants in the DRIP.
You become an owner of shares purchased under the DRIP as of the Investment
Date. Dividends paid on shares held in the DRIP (less any required withholding
tax) will be credited to your DRIP account. Dividends will be paid on both full
and fractional shares held in your account and are automatically reinvested.
Reinvested Distributions. The Company will use the aggregate amount of
dividends to all participants for each dividend period to purchase shares for
the participants. If the aggregate amount of dividends to participants exceeds
the amount required to purchase all shares then available for purchase, the
Company will purchase all available shares and will return all remaining
dividends to the participants within 30 days after the date such dividends are
made. The Company will allocate the purchased shares among the participants
based on the portion of the aggregate dividends received on behalf of each
participant, as reflected in the books.
You may elect dividend reinvestment with respect to any whole number of
shares registered in your name on the records of the Company. Specify on the
enrollment form the number of shares for which you want dividends reinvested.
Dividends on all shares purchased pursuant to the DRIP will be automatically
reinvested. The number of shares purchased for you as a participant in the DRIP
will depend on the amount of your dividends on these shares (less any required
withholding tax) and the DRIP Price. Your account will be credited with the
number of shares, including fractions computed to four decimal places, equal to
the total amount invested divided by the DRIP Price.
Optional Cash Purchases. Until determined otherwise by the Company, DRIP
participants may not make additional cash payments for the purchase of Common
Stock under the DRIP.
Dividends on Shares Held in the DRIP
Dividends paid on shares held in the DRIP (less any required withholding
tax) will be credited to your DRIP account. Dividends will be paid on both full
and fractional shares held in your account and will be automatically reinvested.
Account Statements
You will receive a statement of your account within 90 days after the end
of the fiscal year. The statements will contain a report of all transactions
with respect to your account since the last statement, including information
with respect to the dividends reinvested during the year, the number of shares
purchased during the year, the per share purchase price for such shares, the
total administrative charge retained by the Company or Plan Administrator on
your behalf and the total number of shares purchased on your behalf pursuant to
the DRIP. In addition, tax information with respect to income earned on shares
under the DRIP for the year will be included in the account statements. These
statements are your continuing record of the cost of your purchase and should be
retained for income tax purposes.
C-3
<PAGE>
Certificates for Shares
Within 90 days after the end of the fiscal year, the Company will issue
certificates evidencing ownership of shares purchased under the DRIP during the
prior fiscal year. The ownership of shares purchased under the DRIP will be in
book-entry form prior to the issuance of certificates. The number of shares
purchased will be shown on your statement of account. This feature permits
ownership of fractional shares, protects against loss, theft or destruction of
stock certificates and reduces the costs of the DRIP. The Company reserves the
right to delay the production and/or dissemination of actual certificates in any
given year, in which case it will continue to evidence ownership of shares
purchased in the DRIP in book entry form.
Certificates for any number of whole shares credited to your account will
be issued in your name. Certificates for fractional shares will not be issued.
Should you want your certificates issued in a different name, you must notify
the DRIP Administrator in writing and comply with applicable transfer
requirements. If you wish to sell any whole shares credited to your account
under the DRIP, you will have the option of either (i) receiving a certificate
for such whole number of shares and arranging for the sale yourself, or (ii)
requesting that such shares held in your account be sold, in which case the
shares will be sold on the open market as soon as practicable. Brokerage
commissions on such sales will not be paid by the Company and will be deducted
from the sales proceeds. If you wish to pledge shares credited to your account,
you must first have the certificate for those shares issued in your name.
Termination of Participation
You may discontinue reinvestment of dividends under the DRIP with respect
to all, but not less than all, of your shares (including shares held for your
account in the DRIP) at any time without penalty by notifying the DRIP
Administrator in writing no less than ten days prior to the next record date. A
notice of termination received by the DRIP Administrator after such cutoff date
will not be effective until the next following Investment Date. Participants who
terminate their participation in the DRIP may thereafter rejoin the DRIP by
notifying the Company and completing all necessary forms and otherwise as
required by the Company.
If you notify the DRIP Administrator of your termination of participation
in the DRIP or if your participation in the DRIP is terminated by the Company,
the stock ownership records will be updated to include the number of whole
shares in your DRIP account. For any fractional shares of stock in your DRIP
account, the DRIP Administrator may either (i) send you a check in payment for
any fractional shares in your account, or (ii) credit your stock ownership
account with any such fractional shares.
A participant who changes his or her address must promptly notify the DRIP
Administrator. If a participant moves his or her residence to a state where
shares offered pursuant to the DRIP are neither registered nor exempt from
registration under applicable securities laws, the Company may deem the
participant to have terminated participation in the DRIP.
The Company reserves the right to prohibit certain employee benefit plans
from participating in the DRIP if such participation could cause the underlying
assets of the Company to constitute "plan assets" of such plans.
C-4
<PAGE>
Amendment and Termination of the DRIP
The Board of Directors may, in its sole discretion, terminate the DRIP or
amend any aspect of the DRIP without the consent of participants or other
shareholders, provided that written notice of any material amendment is sent to
participants at least 10 days prior to the effective date thereof. You will be
notified if the DRIP is terminated or materially amended. The Board of Directors
may also terminate any participant's participation in the DRIP at any time by
notice to such participant if continued participation will, in the opinion of
the Board of Directors, jeopardize the status of the Company as a REIT under the
Code.
Voting of Shares Held Under the DRIP
You will be able to vote all shares of Common Stock (including fractional
shares) credited to your account under the DRIP at the same time that you vote
the shares registered in your name on the records of the Company.
Stock Dividends, Stock Splits and Rights Offerings
Your DRIP account will be amended to reflect the effect of any stock
dividends, splits, reverse splits or other combinations or recapitalizations by
the Company on shares held in the DRIP for you. If the Company issues to its
shareholders rights to subscribe to additional shares, such rights will be
issued to you based on your total share holdings, including shares held in your
DRIP account.
Responsibility of the DRIP Administrator and the Company Under the DRIP
The DRIP Administrator will not be liable for any claim based on an act
done in good faith or a good faith omission to act. This includes, without
limitation, any claim of liability arising out of failure to terminate a
participant's account upon a participant's death, the prices at which shares are
purchased, the times when purchases are made, or fluctuations in the market
price of Common Stock.
All notices from the DRIP Administrator to a participant will be mailed to
the participant at his or her last address of record with the DRIP
Administrator, which will satisfy the DRIP Administrator's duty to give notice.
Participants must promptly notify the DRIP Administrator of any change in
address.
You should recognize that neither the Company nor the DRIP Administrator
can provide any assurance of a profit or protection against loss on any shares
purchased under the DRIP.
Interpretation and Regulation of the DRIP
The Company reserves the right, without notice to participants, to
interpret and regulate the DRIP as it deems necessary or desirable in connection
with its operation. Any such interpretation and regulation shall be conclusive.
Federal Income Tax Consequences of Participation in the DRIP
The following discussion summarizes the principal federal income tax
consequences, under current law, of participation in the DRIP. It does not
address all potentially relevant federal income tax matters, including
consequences peculiar to persons subject to special provisions of federal income
tax law (such as tax-exempt organizations, insurance companies, financial
institutions, broker-dealers and
C-5
<PAGE>
foreign persons). The discussion is based on various rulings of the Internal
Revenue Service regarding several types of dividend reinvestment programs. No
ruling, however, has been issued or requested regarding the DRIP. The following
discussion is for your general information only, and you must consult your own
tax advisor to determine the particular tax consequences (including the effects
of any changes in law) that may result from your participation in the DRIP and
the disposition of any shares purchased pursuant to the DRIP.
Reinvested Dividends. Shareholders subject to federal income taxation who
elect to participate in the DRIP will incur a tax liability for distributions
allocated to them even though they have elected not to receive their dividends
in cash but rather to have their dividends reinvested pursuant to the DRIP.
Specifically, participants will be treated as if they received the distribution
from the Company and then applied such distribution to purchase the shares in
the DRIP. To the extent that a shareholder purchases shares through the DRIP at
a discount to fair market value, the shareholders will be treated for tax
purposes as receiving an additional distribution equal to the amount of such
discount. A shareholder designating a distribution for reinvestment will be
taxed on the amount of such distribution as ordinary income to the extent such
distribution is from current or accumulated earnings and profits, unless the
Company has designated all or a portion of the distribution as capital gain
dividend. In such case, such designated portion of the distribution will be
taxed as a capital gain. The amount treated as a distribution to you will
constitute a dividend for federal income tax purposes to the same extent as a
cash distribution.
Receipt of Share Certificates and Cash. You will not realize any income if
you receive certificates for whole shares credited to your account under the
DRIP. Any cash received for a fractional share held in your account will be
treated as an amount realized on the sale of the fractional share. You therefore
will recognize gain or loss equal to any difference between the amount of cash
received for a fractional share and your tax basis in the fractional share.
C-6
<PAGE>
ENROLLMENT FORM
---------------
T REIT, INC.
DIVIDEND REINVESTMENT PROGRAM
To Join the Dividend Reinvestment Program:
(l) Complete this card. Be sure to include your social security or tax
identification number and signature.
(2) Staple or tape the card closed so that your signature is enclosed.
Please indicate your participation below. Return this card only if you wish
to participate in the DRIP.
I hereby appoint T REIT, Inc. (the "Company") (or any successor), acting as
DRIP Administrator, as my agent to receive cash dividends that may hereafter
become payable to me on shares of Common Stock of the Company registered in my
name as set forth below, and authorize the Company to apply such dividends to
the purchase of full shares and fractional interests in shares of the Common
Stock.
I understand that the purchases will be made under the terms and conditions
of the DRIP as described in the Prospectus and that I may revoke this
authorization at any time by notifying the DRIP Administrator, in writing, of my
desire to terminate my participation.
_____________ Yes, I would like to participate in the Dividend Reinvestment
Program for ____ of my shares of Common Stock (you may elect
dividend reinvestment only with respect to a whole number of
shares).
- ------------------------------- ---------------------------------------
Signature Date
- ------------------------------- --------------------------------------------
Please Print Full Legal Name(s) Social Security or Tax Identification Number
If your shares are held of record by a broker or nominee, you must make
appropriate arrangements with the broker or nominee to participate in the DRIP.
C-7
<PAGE>
[outside back cover]
TREIT, INC.
[LOGO]
NNN CAPITAL CORP.
[LOGO]
Dealer Prospectus Delivery Requirements
All dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Shares.
Securities and Exchange Commission, registration fee...... $ 32,665
Printing and mailing...................................... *
Accountant's fees and expenses............................ 3,000
Blue Sky fees and expenses................................ 200,000
Counsel fees and expenses................................. 175,000
Miscellaneous............................................. *
--------
Total................................................ $ *
* To be supplied by amendment.
Item 32. Sales to Special Parties
None.
Item 33. Recent Sales of Unregistered Securities
On December 28, 1998, the Company was capitalized with the issuance to
Louis J. Rogers of 10 shares of common stock for a purchase price of $10 per
share for an aggregate purchase price of $100. The shares were purchased for
investment and for the purpose of organizing the Company. The Company issued
these Common Shares in reliance on an exemption from registration under Section
4(2) of the Securities Act. Mr. Rogers' shares of common stock will be redeemed
for $10.00 per share as soon as the minimum offering has been sold.
Item 34. Indemnification of Directors and Officers
The Virginia Stock Corporation Act permits a Virginia corporation to
include in its articles of incorporation a provision limiting the liability of
its Directors and Officers for monetary damages to the Company or the
shareholders of the Company with respect to any transaction, occurrence or
course of conduct, except for liability resulting from such person's having
engaged in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. The Amended and Restated Articles of
Incorporation of the Company contains such a provision that eliminates such
liability to the maximum extent permitted by the Virginia Stock Corporation Act.
II-1
<PAGE>
The Amended and Restated Articles of Incorporation of the Company provide
that in any proceeding brought by or in the right of the Company or brought by
or on behalf of the shareholders, the Company shall indemnify any of the
Directors and Officers for any liability or loss suffered by such party seeking
indemnification and shall hold harmless any of the Directors and Officers loss
or liability suffered by the Company, provided, that:
. the party seeking indemnification has determined, in good faith, that
the course of conduct which caused the loss or liability was in the
best interest of the Company;
. the party seeking indemnification was acting on behalf of or
performing services on the part of the Company;
. such indemnification or agreement to be held harmless is recoverable
only out of the Company's net assets and not from the shareholders;
and
. such liability or loss was not the result of:
. negligence or misconduct by the Officers or Directors,
excluding the Independent Directors; or
. gross negligence or willful misconduct by the Independent
Directors.
The Company shall not indemnify any of the Directors or Officers for losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws by such party unless one or more of the following
conditions are met:
. there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the party seeking
indemnification;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the party seeking
indemnification; or
. a court of competent jurisdiction approves a settlement of the claims
and finds that indemnification of the settlement and related costs
should be made and the court considering the request has been advised
of the position of the Securities and Exchange Commission and the
published opinions of any state securities regulatory authority in
which shares of our stock were offered and sold as to indemnification
for securities law violations.
The Company may pay for or reimburse amounts to persons entitled to
indemnification for reasonable expenses and costs incurred as a result of any
proceeding for which indemnification is being sought in advance of a final
disposition of the proceeding only if all of the following conditions are
satisfied:
. the legal proceeding relates to acts or omissions with respect to the
performance of duties or services by the indemnified party for or on
behalf of the Company;
. the legal proceeding is initiated by a third party and a court of
competent jurisdiction specifically approves such advancement;
. the party receiving such advances furnishes our company with a written
statement of his or her good faith belief that he or she has met the
standard of conduct described above; and
. the indemnified party receiving such advances furnishes to the Company
a written undertaking, personally executed on his or her behalf, to
repay the advanced funds to the Company, together with the applicable
legal rate of interest thereon, if it is ultimately determined that he
or she did not meet the standard of conduct described above.
II-2
<PAGE>
Authorizations of payments shall be made by a majority vote of a quorum of
disinterested Directors.
The Company may, but shall not be required or obligated to, purchase and
maintain insurance to indemnify it against the liability assumed by it in
accordance with the Articles.
The indemnification provided in the Articles is not exclusive to any other
right to which any person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Company or others, with
respect to claims, issues, or matters in relation to which the Company would not
have obligation or right to indemnify such person under the provisions of the
Articles.
Item 35. Treatment of Proceeds from Stock Being Registered
None.
Item 36. Financial Statements and Exhibits
(a) Index to Financial Statements
(b) Exhibits:
Exhibit
- -------
Number Exhibit
- ------ -------
1.1 Dealer Manager Agreement between T REIT, Inc. and NNN Capital Corp.
1.2 Form of Participating Broker-Dealer Agreement
3.1** Articles of Incorporation of the Registrant
3.2* Form of Amended and Restated Articles of Incorporation of the Registrant
3.3 Form of By-Laws of the Registrant
4.1* Share Certificate
5.1* Opinion of Hunton & Williams
8.1* Opinion of Hunton & Williams as to Tax Matters
10.1 Form of Agreement of Limited Partnership of T REIT, L.P.
10.2 Dividend Reinvestment Program (included as Exhibit C to the Prospectus)
10.3* Independent Director Stock Option Plan
10.4* Employee and Officer Stock Option Plan
10.5 Advisory Agreement between T REIT, Inc. and Triple Net Properties, LLC
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 Consent of Haskell & White LLP
24.1 Powers of Attorney (Included on Signature Page)
99.1** Consent of Debra Meyer Kirby to be named as a director
99.2** Consent of Warren H. James to be named as a director
99.3** Consent of James R. Nance to be named as a director
99.4** Consent of Sterling McGregor to be named as a director
* To be filed by amendment.
** Filed previously.
Item 37. Undertakings
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred to in
Item 34 of this registration statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
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 as to whether such indemnification by it is against
public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the dealer
manager at the closing specified in the Dealer Manager Agreement certificates in
such denominations and registered in such names as required by the underwriters
to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The Registrant undertakes: (a) to file any prospectuses required by Section
10(a)(3) as post-effective amendments to the registration statement, (b) that
for the purpose of determining any liability under the Securities Act each such
post-effective amendment may be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time may be deemed to be the initial bona fide offering thereof, (c)
that all post-effective amendments will comply with the applicable forms, rules
and regulations of the Commission in effect at the time such post-effective
amendments are filed, and (d) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain at
the termination of the offering.
The Registrant undertakes to send to each shareholder at least on an annual
basis a detailed statement of any transactions with the advisor or its
affiliates, and of fees, commissions, compensation and other benefits paid, or
accrued to the advisor or its affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
The Registrant undertakes to provide to the shareholders the financial
statements required by Form 10-K for the first full year of operations of the
company.
The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period describing each property not
identified in the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three months,
with the information contained in such amendment provided simultaneously to the
existing shareholders. Each sticker supplement should disclose all compensation
and fees received by the advisor and its affiliates in connection with any such
acquisition. The post-effective amendment shall include
II-4
<PAGE>
audited financial statements meeting the requirements of Rule 3-14 of Regulation
S-X only for properties acquired during the distribution period.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment (i.e., the signing of a binding purchase agreement) made after the
end of the distribution period involving the use of 10 percent or more (on a
cumulative basis) of the net proceeds of the offering and to provide the
information contained in such report to the shareholders at least once each
quarter after the distribution period of the offering has ended.
II-5
<PAGE>
Table VI. Acquisitions of Properties by Programs
June 30, 1999
Program: Telluride Barstow, LLC
Name,location,type of property: Barstow Road Shopping Center
Barstow, California
Retail shopping center
Gross leasable square footage 77,950
Date of purchase: May 1, 1998
Mortgage financing at date of purchase $3,300,000
Cash down payment $1,325,000
Contract purchase price plus acquisition fee $4,625,000
Other cash expenditures expensed $9,722
Other cash expenditures capitalized $107,485
Total acquisition cost $4,742,207
Program: Truckee River Office Tower, LLC
Name,location,type of property: Truckee River Office Tower
Reno, Nevada
Office Building
Gross leasable square footage 137,572
Date of purchase: Dec. 1, 1998
Mortgage financing at date of purchase $12,000,000
Cash down payment $4,030,000
Contract purchase price plus acquisition fee $16,030,000
Other cash expenditures expensed $9,715
Other cash expenditures capitalized $320,904
Total acquisition cost $16,360,619
Program: Yerington Shopping Center, LLC.
Name,location,type of property: Yerington Shopping Center
Yerington, Nevada
Retail Shopping Center
Gross leasable square footage 55,531
Date of purchase: March 8, 1999
Mortgage financing at date of purchase $3,316,297
Cash down payment $1,105,433
Contract purchase price plus acquisition fee $4,421,730
Other cash expenditures expensed $1,542
Other cash expenditures capitalized $66,404
Total acquisition cost $4,489,676
II-6
<PAGE>
Table VI. Acquisitions of Properties by Programs - continued
June 30, 1999
Program: Western Real Estate Investment Trust, Inc.
Name, location, type of property: Kress Energy Center
Wichita, Kansas
Office Building
Gross leasable square footage 57,693
Date of purchase: July 13, 1998
Mortgage financing at date of purchase $925,000
Cash down payment $925,000
Contract purchase price plus acquisition fee $1,850,000
Other cash expenditures expensed $7,439
Other cash expenditures capitalized $24,284
Total acquisition cost $1,881,723
Program: Western Real Estate Investment Trust, Inc.
Name, location, type of property: Huron Mall Shopping Center
Huron South Dakota
Retail Shopping Center
Gross leasable square footage 208,650
Date of purchase: March 31, 1999
Mortgage financing at date of purchase $1,440,000
Cash down payment $360,000
Contract purchase price plus acquisition fee $1,800,000
Other cash expenditures expensed $(24,278.00)
Other cash expenditures capitalized $30,958.78
Total acquisition cost $1,806,681
Program: Western Real Estate Investment Trust, Inc.
Name, location, type of property: Phelan Village Shopping Center
Phelan, California
Retail Shopping Center
Gross leasable square footage 93,851
Date of purchase: October 16, 1998
Mortgage financing at date of purchase $3,625,000
Cash down payment $1,320,600
Contract purchase price plus acquisition fee $4,945,600
Other cash expenditures expensed $14,273
Other cash expenditures capitalized $111,032
Total acquisition cost $5,070,905
II-7
<PAGE>
Table VI. Acquisitions of Properties by Programs - continued
June 30, 1999
Program: Western Real Estate Investment Trust, Inc.
Name, location, type of property: Century Plaza East Shopping Center
Lancaster, California
Retail Shopping Center
Gross leasable square footage 121,192
Date of purchase: Nov. 3, 1998
Mortgage financing at date of purchase $6,937,000
Cash down payment $2,163,000
Contract purchase price plus acquisition fee $9,100,000
Other cash expenditures expensed $18,746
Other cash expenditures capitalized $131,793
Total acquisition cost $9,250,539
Program: Western Real Estate Investment Trust, Inc.
Name, location, type of property: Bryant Ranch Shopping Center
Yorba Linda, California
Retail Shopping Center
Gross leasable square footage 93,892
Date of purchase: Dec. 18, 1998
Mortgage financing at date of purchase $7,950,000
Cash down payment $1,590,000
Contract purchase price plus acquisition fee $9,540,000
Other cash expenditures expensed $642
Other cash expenditures capitalized $127,031
Total acquisition cost $9,667,673
Program: NNN Fund VIII, LLC
Name, location, type of property: Belmont Shopping Center
Pueblo, Colorado
Retail Shopping Center
Gross leasable square footage 81,289
Date of purchase: June 11, 1999
Mortgage financing at date of purchase $2,840,000
Cash down payment $ 664,879
Contract purchase price plus acquisition fee $3,504,879
Other cash expenditures expensed --
Other cash expenditures capitalized $ 159,399
Total acquisition cost $3,664,278
II-8
<PAGE>
Table VI. Acquisitions of Properties by Programs - continued
June 30, 1999
Program: NNN Fund VIII, LLC
Name, location, type of property: Village Fashion Centre
Wichita, Kansas
Retail Shopping Center
Gross leasable square footage 129,973
Date of purchase: June 18, 1999
Mortgage financing at date of purchase $7,200,000
Cash down payment $1,600,000
Contract purchase price plus acquisition fee $8,800,000
Other cash expenditures expensed --
Other cash expenditures capitalized $283,555
Total acquisition cost $9,083,555
Program: Town & Country, LLC
Name, location, type of property: Town & Country Shopping Center
Sacramento, California
Retail Shopping Center
Gross leasable square footage 239,645
Date of purchase: June 30, 1999
Mortgage financing at date of purchase $25,775,000
Cash down payment $6,225,000
Contract purchase price plus acquisition fee $32,000,000
Other cash expenditures expensed --
Other cash expenditures capitalized $397,639
Total acquisition cost $32,397,639
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Santa Ana, State of California on October 13, 1999.
T REIT, INC., a Virginia corporation
(Registrant)
By /s/ Anthony W. Thompson
-------------------------------------
Anthony W. Thompson
Chairman of the Board of Directors
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony W. Thompson Chairman of the Board of Directors, October 13, 1999
- --------------------------- President and Chief Executive Officer
Anthony W. Thompson (Principal Executive Officer)
/s/ Jack R. Maurer Secretary and Treasurer October 13, 1999
- --------------------------- (Principal Financial Officer and
Jack R. Maurer Principal Accounting Officer).
</TABLE>
<PAGE>
Exhibit List
------------
Exhibit
- -------
Number Exhibit
- ------ -------
1.1 Dealer Manager Agreement between T REIT, Inc. and NNN Capital Corp.
1.2 Form of Participating Broker-Dealer Agreement
3.1** Articles of Incorporation of the Registrant
3.2* Form of Amended and Restated Articles of Incorporation of the Registrant
3.3 Form of By-Laws of the Registrant
4.1* Share Certificate
5.1* Opinion of Hunton & Williams
8.1* Opinion of Hunton & Williams as to Tax Matters
10.1 Form of Agreement of Limited Partnership of T REIT, L.P.
10.2 Dividend Reinvestment Program (included as Exhibit C to the Prospectus)
10.3* Independent Director Stock Option Plan
10.4* Employee and Officer Stock Option Plan
10.5 Advisory Agreement between T REIT, Inc. and Triple Net Properties, LLC
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 Consent of Haskell & White LLP
24.1 Powers of Attorney (Included on Signature Page)
99.1** Consent of Debra Meyer Kirby to be named as a director
99.2** Consent of Warren H. James to be named as a director
99.3** Consent of James R. Nance to be named as a director
99.4** Consent of Sterling McGregor to be named as a director
* To be filed by amendment.
** Filed previously.
<PAGE>
EXHIBIT 1.1
-----------
T REIT, INC.
1551 N. Tustin Avenue, Suite 650
Santa Ana, California 92705
________ __, 1999
NNN Capital Corp.
801 N. Parkcenter Drive, Suite 235
Santa Ana, California 92705
Attn:
Re: Managing Dealer Agreement
-------------------------
Gentlemen:
This letter confirms and comprises the agreement (the "Agreement") between
T REIT, Inc., a Virginia corporation (the "Company"), and NNN Capital Corp., a
California corporation (the "Agent"), regarding the offering and sale by the
Company (the "Offering") of up to 10,000,000 shares (the "Shares") of the
Company's common stock at an offering price of $10.00 per Share through the
Agent and other broker dealers for whom the Agent will serve as manager (the
"Soliciting Dealers").
1. Appointment of the Agent.
------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions set forth
herein, the Agent is hereby appointed and agrees to sell the Shares on a "best
efforts" basis. The Agent is authorized to enlist other members of the National
Association of Securities Dealers, Inc. ("NASD") acceptable to the Company to
sell the Shares as Soliciting Dealers.
(b) It is understood and agreed that no sale of the Shares shall be
regarded as effective unless and until accepted by the Company. The Company
reserves the right in its sole discretion to refuse to sell any of the Shares to
any person. The Offering will terminate on the first to occur of (i) the sale of
an aggregate of 10,000,000 Shares (excluding any Shares sold pursuant to the
Company's Dividend Reinvestment Program) or (ii) _________, 2001 (the "Offering
Termination Date"). If subscriptions for at least 100,000 Shares (the "Minimum
Offering") have not been received and accepted by the Company by
___________, 2000, none of the Shares will be sold and all funds tendered will
be refunded in full to each subscriber (plus
<PAGE>
October __, 1999
Page 2
interest and without deducting for escrow expenses) in accordance with the
Prospectus (as defined in Section 2(c)). No sales shall be made and no
subscriptions shall be accepted from residents of Pennsylvania until
subscriptions for at least 1,000,000 Shares have been received and accepted by
the Company from purchasers outside Pennsylvania.
(c) Subject to the performance by the Company of all the obligations
to be performed hereunder, and to the completeness and accuracy of all the
representations and warranties contained herein, the Agent hereby accepts such
agency and agrees on the terms and conditions herein set forth to use its best
efforts during the offering period to find qualified subscribers for the Shares
on the terms set forth in this Agreement and the Prospectus.
(d) The Agent further understands and agrees that the compensation to
the Agent for the sale of Shares described herein is conditional upon the sale
of at least the Minimum Offering and acceptance of said sales by the Company and
that the failure to sell at least the Minimum Offering by that date shall
relieve the Company or any other party of any obligation to pay the Agent for
any services rendered by the Agent in connection with the sale of the Shares
under this Agreement or otherwise. In connection with sales made to residents of
Pennsylvania, the Agent understands and agrees that the compensation to the
Agent for the sale of Shares described herein to residents of Pennsylvania is
conditional upon the sale of at least 1,000,000 Shares to purchasers outside
Pennsylvania prior to any sales to or subscriptions from residents of
Pennsylvania and that the failure to sell at least 1,000,000 Shares outside
Pennsylvania shall relieve the Company or any other party of any obligation to
pay the Agent for any services rendered by the Agent in connection with
subscriptions for or sale of the Shares under this Agreement or otherwise to
Pennsylvania residents.
2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to the Agent that:
(a) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia, has
all requisite authority to enter into this Agreement and has all requisite
authority to conduct its business as described in the Prospectus.
(b) No defaults exist in the due performance and observance of any
material obligation, term, covenant or condition of any agreement or instrument
to which the Company is a party or by which it is bound.
(c) A registration statement with respect to the Company has been
prepared by the Company in accordance with applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the applicable
rules and regulations of the Securities and
<PAGE>
October __, 1999
Page 3
Exchange Commission (the "SEC") promulgated thereunder, covering the Shares.
Said registration statement, which includes a preliminary prospectus, was
initially filed with the SEC on or about April 27, 1999. Copies of such
registration statement and each amendment thereto have been or will be delivered
to the Agent. (The registration statement and prospectus contained therein, as
finally amended and revised at the effective date of the registration statement,
are respectively hereinafter referred to as the Registration Statement and the
"Prospectus," except that if the Prospectus first filed by the Company pursuant
to Rule 424(b) under the Securities Act shall differ from the Prospectus, the
term "Prospectus" shall also include the Prospectus filed pursuant to Rule
424(b).)
(d) The Registration Statement and Prospectus comply with the
Securities Act and the rules and regulations promulgated thereunder and do not
contain any untrue statements of material facts or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading provided, however, that the foregoing provisions of this
Section 2(d) will not extend to such statements contained in or omitted from the
Registration Statement or Prospectus as are primarily within the knowledge of
the Agent or any of the Soliciting Dealers and are based upon information
furnished by the Agent in writing to the Company specifically for inclusion
therein.
(e) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution or delivery
by the Company of this Agreement or the issuance and sale by the Company of the
Shares, except such as may be required under the Securities Act or applicable
state securities laws.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against the Company at law or in equity or
before or by any federal or state commission, regulatory body or administrative
agency or other governmental body, domestic or foreign, which will have a
material adverse effect on the business or property of the Company.
(g) The execution and delivery of this Agreement, the consummation of
the transactions herein contemplated and compliance with the terms of this
Agreement by the Company will not conflict with or constitute a default under
any charter, bylaw, indenture, mortgage, deed of trust, lease, rule, regulation,
writ, injunction or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company, except to the
extent that the enforceability of the indemnity provisions contained in Section
10 of this Agreement may be limited under applicable securities laws.
(h) The Company has full legal right, power and authority to enter
into this Agreement and to perform the transactions contemplated hereby, except
to the extent that the
<PAGE>
October __, 1999
Page 4
enforceability of the indemnity provisions contained in Section 10 of this
Agreement may be limited under applicable securities laws.
(i) At the time of the issuance of the Shares, the Shares will have
been duly authorized and validly issued, and upon payment therefor, will be
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus.
3. Covenants of Issuer. The Company agrees that:
-------------------
(a) It will deliver to the Agent such numbers of copies of the
Prospectus and all amendments and supplements thereto, as the Agent may
reasonably request.
(b) It will comply with all requirements of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), other federal
securities laws, applicable state securities laws and the rules and regulations
promulgated thereunder to permit the continuance of offers and sales of the
Shares in accordance with the provisions hereof and as set forth in the
Prospectus and will amend or supplement the Prospectus as may be required in
order for the Prospectus to comply with the requirements of federal and state
securities laws and regulations, prior to the Offering Termination Date.
(c) If at any time when the Prospectus is required to be delivered,
any event occurs as a result of which the Prospectus would include an untrue
statement of material fact or, in view of the circumstances under which they
were made, omit to state any material fact necessary to make the statements
therein not misleading, it will promptly notify the Agent thereof, effect the
preparation of an amended or supplemental Prospectus, as the case may be, which
will correct such statement or omission and deliver to the Agent as many copies
of such amended or supplemental Prospectus as the Agent may reasonably request.
(d) The Company will furnish the holders of Shares ("Shareholders")
with certain reports described in the Prospectus under "Reports to
Shareholders," and will deliver to the Agent copies of each such report at the
time that such reports are furnished to the Shareholders, and such other
information concerning the Company, as the Agent may reasonably request from
time to time before and after the Offering Termination Date.
(e) The Company will apply the net proceeds from the Offering received
by it in the manner set forth in the "Estimated Use Of Proceeds" section of the
Prospectus.
<PAGE>
October __, 1999
Page 5
(f) Subject to the Agent's actions and the actions of others in
connection with the Offering, the Company will comply with all requirements
imposed upon it by federal and state securities laws.
4. Duties and Obligations of the Agent.
-----------------------------------
(a) The Agent will serve in a "best efforts" capacity in the offering,
sale and distribution of the Shares. The Agent may offer the Shares as an agent,
but all sales shall be made by the Company acting through the Agent as an agent,
and not by the Agent as a principal. The Agent shall have no authority to
appoint any person or other entity as an agent or sub-agent of the Agent or the
Company, except to appoint Soliciting Dealers acceptable to the Company.
(b) The Agent shall make no representations to any prospective
investor other than those expressly contained in the Prospectus.
(c) The Agent will limit the offering of the Shares to persons whom
the Agent has reasonable grounds to believe, and in fact believes, meet the
investor suitability standards set forth in the Prospectus and associated
Subscription Agreement.
(d) The Agent will provide each prospective investor with a copy of
the Prospectus and any supplements thereto during the course of the Offering and
prior to the sale, and advise each such prospective investor at the time of the
initial offering to him or her that the Company and/or its agents and
consultants will during the course of the Offering and prior to any sale, accord
said prospective investor and his or her purchaser representative, if any,
including the Agent, the opportunity to ask questions of and to receive answers
from the Company and/or its agents and consultants, concerning the terms and
conditions of the Offering and to obtain any additional information, which
information is possessed by the Company, or may be obtained by it without
unreasonable effort or expense, which is necessary to verify the accuracy of the
information contained in the Prospectus.
(e) Prior to making any sale of the Shares, the Agent will inform the
prospective investor and his or her purchaser representatives, if any, of all
pertinent facts relating to the liquidity and marketability of the Shares during
the term of the investment.
(f) In recommending the purchase or sale of the Shares, the Agent or
any person associated with the Agent shall:
<PAGE>
October 7, 1999
Page 6
(1) have reasonable grounds to believe, on the basis of information
obtained from the prospective investor concerning his or her investment
objectives, other investments, financial situation and needs, and any other
information known by the Agent or an associated person, that:
(i) the prospective investor meets the investor suitability
requirements set forth in the Prospectus;
(ii) the prospective investor has a fair market net worth
sufficient to sustain the risks inherent in an investment in the Company,
including, but not limited to, a total loss of his or her investment, lack of
liquidity, and other risks described in the Prospectus; and
(iii) an investment in the Company is otherwise suitable for the
prospective investor.
(2) maintain in the Agent's files, for a period of six (6) years
following the Offering Termination Date, documents disclosing the basis upon
which the above determination of suitability was reached as to each investor.
(g) The Agent shall not authorize any transaction in which an investor
invests in the Shares in a discretionary account without prior written approval
of the transaction by the investor.
(h) The Agent will comply in all respects with the subscription procedures
and plan of distribution set forth in the Prospectus.
(i) All funds received by the Agent for the sale of Shares shall be
deposited in an escrow account established by the Company at American
International Bank, N.A. (the "Escrow Agent") by the close of the first business
day following receipt of such funds by the Agent to be held in accordance with
the terms of the Escrow Agreement, dated ___________, 1999, between the Company
and the Escrow Agent (the "Escrow Agreement"). The Agent acknowledges receiving
a copy of the Escrow Agreement and agrees to be bound by the terms thereof. Such
escrow account shall be denominated "ESCROW ACCOUNT FOR THE BENEFIT OF
SUBSCRIBERS FOR COMMON STOCK OF T REIT, INC." Until such time (if any) as the
funds held in escrow are deliverable to the Company pursuant to the Escrow
Agreement between the Company and the Escrow Agent, the Agent shall, and shall
cause Soliciting Dealers to, instruct subscribers to make checks for
subscriptions payable to the order of "American International Bank, N.A., as
Escrow Agent for T. REIT, Inc." and shall return
<PAGE>
October __, 1999
Page 7
checks made payable to another party to the Soliciting Dealer or subscriber who
submitted the check. Thereafter, checks may be made payable to either the Escrow
Agent or the Company.
(j) The Agent will furnish to the Company upon request a complete list
of all persons who have been offered the Shares and such persons' places of
residence and such other information reasonably requested by the Company.
(k) The Agent will immediately bring to the attention of the Company
any circumstance or fact which causes the Agent to believe the Prospectus, any
supplements thereto, or any other literature distributed in accordance with to
the Prospectus, or any information supplied by prospective investors in their
subscription materials, may be inaccurate or misleading.
(l) The Agent shall thoroughly review all pertinent organizational
documents of the Company, receipt of which is hereby acknowledged by the Agent.
(m) When Soliciting Dealers are used in the Offering, the Agent agrees
to use its best efforts to cause such Soliciting Dealers to comply with all the
foregoing obligations.
(n) The Agent shall be solely responsible and liable for any
commissions or other payments due to any Soliciting Dealers.
(o) The Agent shall offer and sell Shares only in those jurisdictions
specified in writing by the Company as jurisdictions in which all necessary
approvals have been obtained. No offers or sales shall be made in any other
states or jurisdictions.
(p) The Agent and each Soliciting Dealer shall be duly registered or
licensed in each jurisdiction in which it offers or sells the Shares.
5. Representations and Warranties of the Agent: The Agent
-------------------------------------------
represents and warrants to the Company:
(a) The Agent has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of California, has all
requisite authority to enter into this Agreement and has all requisite authority
to conduct its business as described in the Prospectus.
<PAGE>
October __, 1999
Page 8
(b) This Agreement, when executed by the Agent, will have been duly
authorized and will be a valid and binding agreement of the Agent, enforceable
in accordance with its terms.
(c) The consummation of the transactions contemplated herein and those
contemplated by the Prospectus will not result in a breach or violation of any
order, rule or regulation directed to the Agent by any court or any federal or
state regulatory body or administrative agency having jurisdiction over the
Agent or its affiliates.
(d) The Agent is, and during the term of this Agreement will be, duly
registered as a broker/dealer pursuant to the provisions of the Exchange Act, a
broker or dealer duly registered as such in California, a member in good
standing, and a broker or dealer duly registered as such in any and all other
states or jurisdictions where offers are made by the Agent. The Agent is a
member of the NASD and will comply with all applicable laws, rules, regulations
and requirements of the Securities Act, the Exchange Act, other federal
securities laws, state securities laws and the NASD. Each Soliciting Dealer
will be registered with the NASD and duly licensed by each state regulatory
authority in each jurisdiction in which it will offer and sell shares.
(e) The Agent has reasonable grounds to believe, based on information
made available to it by the Company, that all material facts are adequately and
accurately disclosed in the Prospectus and provide an adequate basis for
evaluating an investment in the Shares.
(f) This Agreement, or any supplement or amendment hereto, may be
filed by the Company with the SEC and the NASD, if such should be required, and
may be filed with, and may be subject to the approval of, any federal or state
securities regulatory agencies if required.
(g) All engagements of the Soliciting Dealers will be evidenced by
written agreements in substantially the form of Exhibit A hereto.
---------
6. Compensation. As compensation for services rendered by the
------------
Agent under this Agreement, the Company agrees that it will pay to the Agent
selling commissions in an amount equal to 8% of the gross proceeds of the
Shares, as the case may be, sold by the Agent or the Soliciting Dealers. As
additional compensation, the Company will issue to the Agent, and the Soliciting
Dealers identified by the Agent, for every 40 Shares sold, one warrant to
purchase one Share at a purchase price of $12.00 per Share. The warrants shall
expire prior to _________, 2004, and shall be subject to the terms and
conditions of the form of Warrant Agreement attached hereto as Exhibit B. The
---------
Agent solely will be liable and responsible for all compensation payable to
Soliciting Dealers. Notwithstanding the foregoing, the Company
<PAGE>
October __, 1999
Page 9
reserves the right, in its sole discretion, to refuse to accept any or all
subscriptions for the Shares tendered by the Agent or its Soliciting Dealers,
and/or to terminate the Offering of the Shares at any time prior to the Offering
Termination Date. In the event that the Offering is terminated for any reason
prior to the Company's acceptance of subscription proceeds for the Minimum
Offering, the Agent will be entitled to no commission, payments or amounts
whatsoever in connection with its offering or sale of the Shares. No
compensation or warrants or other amount will be payable to the Agent unless or
until the Minimum Offering, or in connection with commissions payable with
respect to sales made to residents of Pennsylvania, unless or until 1,000,000
Shares, have been sold by the Agent and the Soliciting Dealers to purchasers
outside Pennsylvania. Until the Minimum Offering is obtained, investments will
be held in escrow and, if the Minimum Offering is not obtained, will be returned
to investors in accordance with the Prospectus. No subscriptions shall be
accepted from residents of Pennsylvania, until subscriptions for at least
1,000,000 Shares have been received from persons outside Pennsylvania. No
compensation or warrants shall be paid or issued with respect to shares issued
pursuant to the Distribution Reinvestment Program and the Independent Director
Stock Option Plan, as described in the Prospectus.
7. Completed Sale. A sale of a Share shall be deemed to be completed
--------------
under Paragraph 6 if and only if (i) the Company has received a properly
completed and executed subscription agreement, together with payment of the full
purchase price of each purchased Share, from or, on behalf of an investor who
satisfies the applicable suitability standards and minimum purchase requirements
set forth in the Registration Statement as determined by the Agent in accordance
with the provisions of this Agreement, (ii) the Company has accepted such
subscription, and (iii) such investor has been admitted as a shareholder of the
Company.
8. Expense Allowances. In addition to the compensation described in
------------------
Section 6 above, the Company will pay the Agent an amount equal to 1.5% of the
gross proceeds of the Shares sold by the Agent or the Agent's Soliciting Dealers
as a nonaccountable marketing support and due diligence expense reimbursement
fee to defray marketing expenses and due diligence costs to be incurred by the
Agent. No allowance shall be paid with respect to Shares issued pursuant to the
Dividend Reinvestment Program and the Director Stock Option Plan, as described
in the Prospectus.
9. Offering. The Offering of the Shares shall be at the offering
--------
price and upon all the terms and conditions set forth in the Prospectus and the
exhibits, appendices and any supplements thereto and proceeds received from
subscriptions to purchase the Shares will be subject to the Escrow Agreement.
The Agent and the Soliciting Dealers will suspend or terminate the offering of
the Shares upon notice from the Company at any time and will resume offering the
Shares upon subsequent request of the Company.
10. Indemnification.
---------------
<PAGE>
October __, 1999
Page 10
(a) The Company will indemnify and hold harmless the Agent, Soliciting
Dealers, their officers and directors and each person, if any, who controls the
Agent or the Soliciting Dealers ("Agent Indemnified Parties") within the meaning
of Section 15 of the Securities Act from and against any losses, claims, damages
or liabilities, joint or several, to which the Agent Indemnified Parties may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (a) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Registration Statement (including the
Prospectus as a part thereof) or any post-effective amendment thereto or in the
Prospectus or any amendment or supplement to the Prospectus or (ii) in any blue
sky application or other document executed by the Company or on its behalf
specifically for the purpose of qualifying any or all of the Shares for sale
under the securities laws of any jurisdiction or based upon written information
furnished by the Company under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Applications"), or (b) the omission or alleged omission to state in the
Registration Statement (including the Prospectus as a part thereof) or any post-
effective amendment thereof or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (c) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of the Registration Statement, or in the Prospectus or any
amendment or supplement to the Prospectus or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and will reimburse the Agent Indemnified Parties
for any legal or other expenses reasonably incurred by the Agent Indemnified
Parties in connection with investigating or defending such loss, claim, damage,
liability or action; provided that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of,
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company or Agent by or on behalf of the Agent or
any Soliciting Dealer specifically for use with reference to such Agent or such
Soliciting Dealer in the preparation of the Registration Statement or any such
post-effective amendment thereof, any such Blue Sky Application or any such
preliminary prospectus or the Prospectus or any such amendment thereof or
supplement thereto; and further provided that the Company will not be liable in
any such case if it is determined that the Agent or Soliciting Dealer was at
fault in connection with the loss, claim, damage, liability or action.
(b) The Dealer Manager will indemnify and hold harmless the Company
and each person or firm which has signed the Registration Statement and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act (the "Company Indemnified Parties"), from and against any losses,
claims, damages or liabilities to which any of the aforesaid parties may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (a) any untrue statement of a material fact contained (i) in the
Registration Statement (including the Prospectus as a part thereof) or any post-
effective amendment thereof or (ii) any Blue Sky
<PAGE>
October __, 1999
Page 11
Application, or (b) the omission to state in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereof or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (c) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus, or in any amendment or supplement to the
Prospectus or the omission to state therein 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 in each case to
the extent, but only to the extent, that such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Agent specifically for use with reference to
the Agent in the preparation of the Registration Statement or any such post-
effective amendments thereof or any such Blue Sky Application or any such
preliminary prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or (d) any unauthorized use of sales materials or use of
unauthorized verbal representations concerning the Shares by the Agent and will
reimburse the Company Indemnified Parties, in connection with investigation or
defending such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which the Agent may otherwise
have.
(c) Each Soliciting Dealer severally will indemnify and hold harmless
the Company, Agent and each of their directors (including any persons named in
any of the Registration Statements with his consent, as about to become a
director), each of their officers who has signed any of the Registration
Statements and each person, if any, who controls the Company and the Agent
within the meaning of Section 15 of the Securities Act from and against any
losses, claims, damages or liabilities to which the Company, the Agent, any such
director or officer, or controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (a)
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement (including the Prospectus as a part thereof)
or any post-effective amendment thereof or (ii) in any Blue Sky Application, or
(b) the omission or alleged omission to state in the Registration Statement
(including the Prospectus as a part thereof or any post-effective amendment
thereof or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (c) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus, or in any amendment or supplement to the
Prospectus or the omission or alleged omission to state therein 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 in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or the Agent by or on behalf of such Soliciting Dealer specifically for
use with reference to such Soliciting Dealer in the preparation of the
Registration Statement or any such post-effective amendments thereof or any such
Blue Sky Application or any such preliminary
<PAGE>
October __, 1999
Page 12
prospectus or the Prospectus or any such amendment thereof or supplement
thereto, or (d) any unauthorized use of sales materials or use of unauthorized
verbal representations concerning the Shares by such Soliciting Dealer and will
reimburse the Company and the Agent and any such directors or officers, or
controlling person, in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in addition
to any liability which such Soliciting Dealer may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 10, notify in writing the indemnifying party of the commencement
thereof and the omission so to notify the indemnifying party will relieve it
from any liability under this Section 10 as to the particular item for which
indemnification is then being sought, but not from any other liability which it
may have to any indemnified party. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled, to the extent it may wish,
jointly with any other indemnifying party similarly notified, to participate in
the defense thereof, with separate counsel. Such participation shall not relieve
such indemnifying party of the obligation to reimburse the indemnified party for
reasonable legal and other expenses (subject to Section 10(e)) incurred by such
indemnified party in defending itself, except for such expenses incurred after
the indemnifying party has deposited funds sufficient to effect the settlement,
with prejudice, of the claim in respect of which indemnity is sought. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
(e) The indemnifying party shall pay all legal fees and expenses of
the indemnified party in the defense of such claims or actions; provided,
however, that the indemnifying party shall not be obliged to pay legal expenses
and fees to more than one law firm in connection with the defense of similar
claims arising out of the same alleged acts or omissions giving rise to such
claims notwithstanding that such actions or claims are alleged or brought by one
or more parties against more than one indemnified party. If such claims or
actions are alleged or brought against more than one indemnified party, then the
indemnifying party shall only be obliged to reimburse the expenses and fees of
the one law firm that has been selected by a majority of the indemnified parties
against which such action is finally brought; and in the event a majority of
such indemnified parties is unable to agree on which law firm for which expenses
or fees will be reimbursable by the indemnifying party, then payment shall be
made to the first law firm of record representing an indemnified party against
the action or claim. Such law firm shall be paid only to the extent of services
performed by such law firm and no reimbursement shall be payable to such law
firm on account of legal services performed by another law firm.
(f) The indemnity agreements contained in this Section 10 shall remain
operative and in full force and effect regardless of (a) any investigation made
by or on behalf of any Soliciting Dealer, or any person controlling any
Soliciting Dealer or by or on behalf of the
<PAGE>
October __, 1999
Page 13
Company, the Agent or any officer or director thereof, or by or on behalf of the
Company or the Agent, (b) delivery of any Shares and payment therefor, and (c)
any termination of this Agreement. A successor of any Soliciting Dealer or of
any of the parties to this Agreement, as the case may be, shall be entitled to
the benefits of the indemnity agreements contained in this Section 10.
11. Compliance. All actions, direct or indirect, by the Agent, its agents,
-----------
employees, Soliciting Dealers and affiliates, shall conform to (i) requirements
applicable to broker/dealers under federal and applicable state securities laws,
rules and regulations, and (ii) applicable requirements and rules of the NASD.
12. Representations and Agreements to Survive Sale and Payment. Except as
----------------------------------------------------------
the context otherwise requires, all representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements at and as of the Offering Termination Date,
and such representations, warranties and agreements by the Agent or the Company,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Soliciting Dealer, or any person
controlling any Soliciting Dealer or by or on behalf of the Company, the Agent
or any officer or director thereof, or by or on behalf of the Company or the
Agent, and shall survive the sale of, and payment for, the Shares.
13. Costs of Offering. Except for the compensation payable to the Agent
-----------------
described in Section 6 and the allowances and reimbursements described in
Section 8, which are the sole obligations of the Company, the Agent will pay all
of its own costs and expenses, including but not limited to all expenses
necessary for the Agent to remain in compliance with any applicable federal,
state or NASD laws, rules or regulations in order to participate in the Offering
as a broker/dealer, and the fees and costs of the Agent's counsel. The Company
agrees to pay all other expenses incident to the performance of its obligations
hereunder, including all escrow fees, expenses incident to filings with federal
and state regulatory authorities and to the exemption of the Shares under
federal and state securities laws, including fees and disbursements of the
Company's counsel and accountants, and all costs of reproduction
and distribution of the Prospectus and any amendment or supplement thereto.
14. Termination. This Agreement is terminable by either party at any time
-----------
upon written notice to the other. Such termination shall not affect the
indemnification agreement set forth in Section 10.
15. Construction. This Agreement shall be governed by, subject to and
-------------
construed in accordance with, the laws of the State of California without regard
to conflict of law provisions.
<PAGE>
October __, 1999
Page 14
16. Severability. If any portion of this Agreement shall be held invalid
------------
or inoperative, then so far as is reasonable and possible the remainder of this
Agreement shall be considered valid and operative and effect shall be given the
intent manifested by the portion held invalid or inoperative.
17. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, and together shall constitute one and
the same instrument.
18. Modification or Amendment. This Agreement may not be modified or
-------------------------
amended except by written agreement executed by the parties hereto.
19. Notices. All communications hereunder, except as herein other wise
-------
specifically provided, shall be sufficiently give or made if sent by United
States mail, first-class, postage prepaid, addressed or sent by facsimile as
follows:
If to the Agent:
NNN Capital Corp.
801 N. Parkcenter Drive
Suite 235
Santa Ana, California 92705
Facsimile:
Attn: _________________
If to the Company:
T REIT, Inc.
1551 N. Tustin Avenue
Suite 650
Santa Ana, California 92705
Facsimile:
Attn: Anthony W. Thompson, President
The notice shall be deemed to be received on the date of its actual receipt by
the party entitled thereto.
20. Parties. This Agreement shall be binding upon and inure solely to
--- -------
the benefit of the parties hereto, the controlling persons referred to in
Section 10 hereof and their respective successors, legal representative, heirs
and assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under, in respect of, or by virtue of, this
Agreement or any provision herein contained.
<PAGE>
October __, 1999
Page 15
21. Delay. Neither the failure nor any delay on the part of any party to
-----
this Agreement to exercise any right, remedy, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall a 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 subsequent
occurrence.
22. Recovery of Costs. If any legal action or other proceeding is brought
-----------------
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the substantially prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
(and any additional proceeding for the enforcement of a judgment) in addition to
any other relief to which it or they may be entitled.
23. No Partnership. Nothing in this Agreement shall be construed or
--------------
interpreted to constitute the Agent as in association with or in partnership
with the Company, and instead, this Agreement only shall constitute the Agent as
a dealer authorized by the Company to sell and to manage the sale by others of
the Shares according to the terms set forth in the Registration Statement, the
Prospectus or this Agreement.
24. No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to be for the benefit of any person or entity not a party to this
Agreement, and no third party shall be deemed to be a beneficiary of any
provision of this Agreement. Further, no third party shall be virtue of any
provision of this Agreement have a right of action or an enforceable remedy
against either party to this Agreement.
25. Entire Agreement. This Agreement contains the entire understanding
----------------
between the parties hereto and supersedes any prior understandings or written or
oral agreements between them respecting the subject matter hereof.
<PAGE>
October __, 1999
Page16
If the foregoing correctly sets forth the understanding between the Agent
and the Company, as issuer, please so indicate in the space provided below for
that purpose, and return one of the signed copies of this Agreement to the
Company in the envelope provided for this purpose, whereupon this Agreement
shall constitute a binding agreement among us.
Very truly yours,
T REIT, INC., a Virginia corporation
By: ____________________________
Name: ___________________________
Title: _________________________
AGREED AND ACCEPTED:
NNN Capital Corp., a California corporation
By: __________________________________
Name: _________________________________
Title: _______________________________
<PAGE>
EXHIBIT 1.2
-----------
NNN CAPITAL CORP.
a California corporation,
Santa Ana, California
PARTICIPATING BROKER-DEALER AGREEMENT
For Shares of Common Stock Offered By
T REIT, INC.
______________, 1999
Ladies and Gentlemen:
The undersigned, NNN Capital Corp., a California corporation (the "Dealer
Manager"), has entered into an agreement of even date herewith (the "Selling
Agreement") with T REIT, Inc., a Virginia corporation (the "Company"), with
respect to the offering and sale of up to 10,000,000 shares of common stock of
the Company (the "Shares"). The terms of the offering (the "Offering") are set
forth in the Company's Prospectus dated __________, 1999 (with all exhibits,
appendices, addenda and supplements thereto, collectively the "Prospectus").
The Offering will terminate on the first to occur of (i) sale of an
aggregate of 10,000,000 Shares (excluding any Shares sold pursuant to the
Company's Dividend Reinvestment Plan) or (ii) __________, 2001 ("Offering
Termination Date"). If subscriptions for at least 100,000 Shares (the "Minimum
Offering") have not been received and accepted by the Company prior to
__________, 2000, none of the Shares will be sold and all funds tendered for the
purchase of Shares will be refunded in full to each subscriber (plus interest
and without deducting for escrow expenses) in accordance with the Prospectus. No
Shares shall be offered or sold to residents of Pennsylvania, until
subscriptions for at least 1,000,000 Shares have been received and accepted by
the Company. Terms used but not otherwise defined in this Agreement have the
same meanings as set forth in the Prospectus.
You are invited to become one of the broker dealers permitted to solicit
subscriptions for the Shares ("Soliciting Dealers"), by your confirmation
hereof, you agree to act in such capacity and to use your best efforts, in
accordance with the following terms and conditions, to sell the Shares.
1. You hereby confirm that you are (i) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"), (ii) qualified and
duly registered to act as a Soliciting Dealer within all states in which you
will sell the Shares, (iii) a broker-dealer duly registered with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (iv) hereby required and will maintain all
such registrations and qualifications in good standing for the duration of your
involvement in the Offering.
<PAGE>
2. (a) You hereby agree to solicit, as an independent contractor and not
as the agent of the Dealer Manager or of the Company (or their affiliates),
persons acceptable to the Company in its sole discretion to purchase the Shares
pursuant to the Subscription Agreement in the form attached to the Prospectus
and in accordance with the terms of the Prospectus. You hereby agree to
diligently make inquiries as required by this Agreement, as set forth in the
Prospectus, and as required by all applicable laws of all prospective investors
in order to ascertain whether a purchase of the securities is suitable for the
investor. Further, all funds received by you with respect to any Subscription
Agreement shall be transmitted to the Dealer Manager by the end of the next
business day following receipt thereof. The Dealer Manager will be responsible
for the prompt deposit of funds for purchase of Shares with American
International Bank, as escrow agent with such funds held in escrow (the "Escrow
Account ") pursuant to an escrow agreement between the Company and American
International Bank. No Subscription Agreement shall be effective unless and
until accepted by the Company in its sole discretion.
(b) You understand that the offering of Shares is made on a
"minimum-maximum" basis, as described in the Prospectus. You further understand
and agree that payment of compensation to you for the sale of Shares is
conditioned upon sale of at least the Minimum Offering, or in connection with
compensation payable with respect to sales made to residents of the State of
Pennsylvania, at least 1,000,000 shares have been sold in the Offering to
purchasers outside Pennsylvania, and acceptance of said sales by the Company in
its sole discretion, and that the failure to sell at least the Minimum Offering
by such date shall relieve the Dealer Manager or any other party of any
obligation to pay you for any services rendered by you in connection with the
sale of Shares under this Agreement or otherwise.
(c) You agree that prior to participating in the offering of the
Shares you will have reasonable grounds to believe, based on information made
available to you by the Dealer Manager and/or the Company through the
Prospectus, that all material facts are adequately and accurately disclosed in
the Prospectus and provide a basis for evaluating the Company and the Shares.
(d) You agree not to rely upon the efforts of the Dealer Manager,
which is affiliated with the Company, in determining whether the Company has
adequately and accurately disclosed all material facts upon which to provide a
basis for evaluating the Company to the extent required by federal or state laws
or the NASD. You further agree to conduct your own investigation to make that
determination independent of the efforts of the Dealer Manager.
(e) You agree not to execute any sale of the Shares into a
discretionary account without prior written approval of the transaction by the
investor.
(f) You agree to retain in your records and make available to the
Dealer Manager and to the Company for a period of at least six (6) years
following the Offering Termination Date, information establishing that each
person who purchases the Shares pursuant to a Subscription Agreement solicited
by you is within the permitted class of investors under the
2
<PAGE>
requirements of the jurisdiction in which such purchaser is a resident and the
suitability standards set forth in the Prospectus and the Subscription
Agreement.
(g) All subscriptions solicited by you will be strictly subject to
confirmation by the Dealer Manager and acceptance thereof by the Company in its
sole discretion. The Dealer Manager and the Company reserve the right in their
sole and absolute discretion to reject any such subscription and to accept or
reject subscriptions in the order of their receipt by the Company or otherwise.
Neither you nor any other person is authorized to give any information or make
any representation other than those contained in the Prospectus or in any
supplemental sales literature furnished by the Dealer Manager or the Company for
use in making solicitations in connection with the offer and sale of the Shares.
(h) Upon release by the Dealer Manager, you may offer the Shares at
the offering prices set forth in the Prospectus, subject to the terms and
conditions thereof.
(i) The Dealer Manager will provide you with such number of copies of
the Prospectus, and such number of copies of amendments and supplements thereto
as you may reasonably request. The Dealer Manager may provide you with certain
supplemental sales material to be used by you in connection with the
solicitation of purchasers of the Shares. In the event you elect to use such
supplemental sales material, you agree that such material shall not be used in
connection with the solicitation of purchasers of the Shares unless accompanied
or preceded by the Prospectus, as it may be amended or supplemented in the
future.
(j) The Dealer Manager shall have full authority to take such action
as it may deem advisable with respect to all matters pertaining to the offering
of the Shares. The Dealer Manager shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it in this
Agreement. Nothing contained in this Section is intended to operate as, and the
provisions of this Section shall not constitute a waiver by you, of compliance
with any provision of the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act, other applicable federal securities laws, applicable
state securities laws, the rules and regulations promulgated thereunder and the
Rules of Fair Practice of the NASD.
(k) You agree that you will not offer the Shares for sale to any
investor who has not confirmed to you in writing prior to the offer that such
investor meets the investor suitability standards set forth in the Prospectus.
(l) Except as provided in the "Plan of Distribution" section of the
Prospectus, and in consideration of your services hereunder, the Dealer Manager
will pay you compensation (collectively, "Compensation") as follows: (i) up to
8% of the gross proceeds of the Shares sold by you; (ii) up to 1.5% of the gross
proceeds of the Shares sold by you for expenses actually incurred by you for
wholesaling fees, expense reimbursements, bonuses and incentive compensation,
volume discounts and marketing and due diligence related activities; and, (iii)
if identified by the Dealer Manager, warrants (the "Soliciting Dealer Warrants")
on the basis of one warrant for every 40 Shares sold, each Soliciting Dealer
Warrant permitting the holder to purchase one share of common stock of the
Company at a purchase price of $12.00 prior to
3
<PAGE>
________, 2004, subject to the terms and conditions described in the Prospectus.
No Compensation of any kind shall be paid with respect to shares issued pursuant
to the Dividend Reinvestment Program and the Director Stock Option Plan, as
described in the Prospectus. Payment of the Compensation shall be subject to the
following conditions:
(i) No Compensation will be payable with respect to any
subscriptions for Shares which are rejected by the Company or the Dealer
Manager in their sole discretion, or in the event the Company terminates
the Offering for any reason whatsoever prior to the Offering Termination
Date.
(ii) No Compensation will be payable unless or until the Minimum
Offering, or in connection with Compensation payable with respect to sales
made to residents of the State of Pennsylvania, until at least 1,000,000
shares, have been sold by the Dealer Manager and the Soliciting Dealers.
(iii) No Compensation will be payable to you with respect to any
sale of the Shares by you unless and until such time as (A) the Company has
received the total proceeds of any such sale from the Escrow Account and
the Dealer Manager has received from the Company the aggregate amount of
Compensation to which it is entitled and (B) a completed and executed
subscription agreement from the investor who satisfies the suitability
standards and minimum purchase requirements set forth in the Prospectus.
All expenses incurred by you in the performance of your obligations
hereunder, including but not limited to expenses related to the offering of the
Shares and any attorneys' fees, shall be at your sole cost and expense, and the
foregoing shall apply notwithstanding the fact that the Offering is not
consummated for any reason.
Once Compensation becomes payable, it will be paid on the first and
fifteenth day of each month, except that the Soliciting Dealer Warrants will be
issued in the manner described in the Prospectus.
(m) For the sale of Shares, you will instruct all prospective
investors to make their checks payable to "American International Bank, N.A. as
Escrow Agent for T REIT, Inc." You agree to be bound by the terms of the Escrow
Agreement dated as of ____________, 1999 between the Company and American
International Bank, N.A.
(n) You agree that in recommending to a prospective investor the
purchase, sale or exchange of the Shares, you shall:
(i) Have reasonable grounds to believe, on the basis of
information obtained from the prospective investor concerning his/her investment
objectives, other investments, financial situation and needs, and any other
information known by you, that:
(A) The prospective investor meets the investor suitability
standards set forth in the Prospectus;
4
<PAGE>
(B) The prospective investor is or will be in a financial
position appropriate to enable him/her to realized to a significant extent the
benefits described in the Prospectus;
(C) The prospective investor has a fair market net worth
sufficient to sustain the risks inherent in the investment, including loss of
investment and lack of liquidity; and
(D) The investment is otherwise suitable for the prospective
investor; and
(ii) Maintain in your files for six (6) years following the
Offering Termination Date information describing the basis upon which the
determination of suitability was reached as to each investor.
(o) You agree that, prior to accepting a subscription for the Shares,
you will inform the prospective investor of all pertinent facts relating to the
illiquidity and lack of marketability of the Shares, as appropriate, during the
term of the investment.
(p) You hereby undertake and agree to comply with all obligations
applicable to you under all applicable laws, rules and regulations, including
those set forth in the Rules of Fair Practice of the NASD.
3. This Agreement may be terminated by the Dealer Manager at any time
upon written notice to you.
4. In soliciting persons to acquire the Shares, you agree to comply with
any applicable requirements of the Securities Act, the Exchange Act, other
applicable federal securities laws, applicable state securities laws, the rules
and regulations promulgated thereunder and the Rules of Fair Practice of the
NASD and, in particular, you agree that you will not give any information or
make any representations other than those contained in the Prospectus and in any
supplemental sales literature furnished to you by the Dealer Manager for use in
making such solicitations.
5. It is understood and agreed that under no circumstances will you
engage in any activities hereunder in any state other than those for which
permission has been granted by the Dealer Manager to you, as evidenced by
written acknowledgment by the Dealer Manager that such state has been cleared
for offer and sale activity.
6. Nothing contained herein shall constitute the Soliciting Dealers, or
any of them, as an association, partnership, unincorporated business, or other
separate entity. The Dealer Manager shall be under no liability to make any
payment to you except out of the funds received by it from the Company as
hereinabove provided, and the Dealer Manager shall not be under any liability
for, or in respect of, the value or validity of the Subscription Agreements, the
Shares, or
5
<PAGE>
the performance by any one of any agreement on its part, or for, or in respect
of any matter connected with, this Agreement, except for lack of good faith by
the Dealer Manager, and for obligations expressly assumed by the Dealer Manager
in this Agreement. You agree that the Company shall have no liability or
obligation to you for Compensation hereunder and you shall look solely to the
Dealer Manager for Compensation.
7. Under the Selling Agreement, a copy of which you acknowledge
receiving, the Company has agreed to indemnify the Dealer Manager, the
Soliciting Dealers, and each person, if any, who controls, the Dealer Manager or
Soliciting Dealers (within the meaning of the Securities Act and the Exchange
Act) against certain liabilities under the Securities Act, the Exchange Act,
other applicable federal securities laws, applicable state securities laws and
the rules and regulations promulgated thereunder. Each Soliciting Dealer agrees
to indemnify the Dealer Manager, the Company, its officers, directors and
certain other persons to the same extent and in the same manner as the Dealer
Manager has agreed to indemnify the Company, its officers, directors and certain
other persons as provided in Section 10 of the Selling Agreement and to
indemnify each other Soliciting Dealer to the same extent and in the same manner
as such Soliciting Dealer agrees to indemnify the Dealer Manager, the Company,
its officers, directors and certain other persons. In the execution of the
Selling Agreement, the Dealer Manager shall be deemed to have acted as a
representative for each of the Soliciting Dealers, and the Soliciting Dealers
shall be deemed to be in privity of contract with the Company for purposes of
this Section 7.
8. All representations, warranties, covenants and agreements of the
Dealer Manager and each Soliciting Dealer contained herein shall survive the
delivery, execution and closing thereof.
9. This Agreement shall be governed by, subject to and construed in
accordance with the laws of the State of California. This Agreement constitutes
the entire understanding between the parties hereto and supersedes any prior
understandings or written or oral agreements between them respecting the subject
matter hereof.
10. Any notice from the Dealer Manager to you as Soliciting Dealer shall
be deemed to have been fully given if mailed or sent to you by facsimile at your
address set forth below.
6
<PAGE>
Please confirm this Agreement to solicit persons to acquire the Shares on
the foregoing terms and conditions by signing and returning the form enclosed
herewith.
Very truly yours,
NNN CAPITAL CORP.
By: __________________________________
Name: _______________________________
Title: _______________________________
7
<PAGE>
NNN CAPITAL CORP.
8701 N. Parkcenter Drive, Suite 235
Santa Ana, California 92705
Re: T REIT, Inc. - Offering of Shares of Common Stock
-------------------------------------------------
Gentlemen:
The undersigned confirms its agreement to act as a Participating
Broker-Dealer as referred to in the foregoing Participating Broker-Dealer
Agreement subject to the terms and conditions of such Agreement. The undersigned
confirms that it is a member in good standing of the National Association of
Securities Dealers, Inc., and is qualified under federal law and the laws of the
states in which sales are to be made by the undersigned to act as a
Participating Broker-Dealer.
Dated: ___________ _____, 199__ __________________________________
(Print Name of Firm)
By:_______________________________
(Authorized Representative)
Address: ________________________
________________________
________________________
Phone: ________________________
Facsimile:________________________
8
<PAGE>
EXHIBIT 3.3
-----------
B Y L A W S
of
T REIT, I N C.
<PAGE>
T REIT, INC.
B Y L A W S
-----------
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office of the Company shall be
----------------
located at such place or places as the Board of Directors may designate. The
initial principal office of the Company shall be 1551 N. Tustin Avenue, Suite
650, Santa Ana, California 92705.
Section 2. ADDITIONAL OFFICES. The Company may have additional offices at
------------------
such places as the Board of Directors may from time to time determine or the
business of the Company may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE. All meetings of shareholders shall be held at the
-----
principal office of the Company 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 shareholders for the
--------------
election of Directors and the transaction of any business within the powers of
the Company shall be held on a date and at the time set by the Board of
Directors.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
----------------
called by the Chairman of the Board, Chief Executive Officer, the President or a
majority of the Board of Directors, and shall be called by the Secretary of the
Company upon the written request of the holders of shares entitled to cast not
less than ten percent (10%) 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. Within ten (10) days after receipt of
such a written request, the Secretary shall give written notice, either in
person or by mail, of such meeting and the purposes thereof to all shareholders,
with such meeting to be held not less than fifteen (15) days nor more than sixty
(60) days after distribution of such notice. Such meeting shall be at the time
and place specified in the request, and if none is specified, at a time and
place convenient to shareholders.
<PAGE>
Section 4. NOTICE. Except as provided otherwise in Section 3 of this
------
Article II above for special meetings, not less than ten (10) nor more than
sixty (60) days before each meeting of shareholders, the Secretary shall give to
each shareholder 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 called, either by mail or by
presenting it to such shareholder 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 shareholder at his
post office address as it appears on the records of the Company, with postage
thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Company may be transacted
---------------
at an annual meeting of shareholders without being specifically designated in
the notice, except as otherwise set forth in Section 13(a) of this Article II
and except for such business as is required by any statute to be stated in such
notice. No business shall be transacted at a special meeting of shareholders
except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of shareholders, 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 conduct the meeting in the order stated:
the Vice Chairman of the order of rank and seniority, or a Chairman chosen by
the shareholders entitled to cast a majority of the votes which all shareholders
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 shareholders, the presence in person
------
or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the Articles of
Incorporation of the Company for the vote necessary for the adoption of any
measure. If, however, such quorum shall not be present at any meeting of the
shareholders, the shareholders entitled to vote at such meeting, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time to a date not more than 120 days after the original record date without
notice other than announcement at the meeting. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 8. VOTING. A majority of all the votes cast at a meeting of
------
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Director. A majority of the votes cast at a meeting of shareholders
duly called and at which a quorum is present shall be sufficient to approve any
other matter which may properly come before the meeting, unless more than a
majority of the votes cast is required by statute or by the Articles of
Incorporation of the Company. Unless otherwise provided in the Articles of
Incorporation, each outstanding share, regardless of class, shall be entitled to
one (1) vote on each matter submitted to a vote at a meeting of shareholders.
-2-
<PAGE>
Section 9. PROXIES. A shareholder may vote the stock owned of record by
-------
him, either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the Company before or at the time of the meeting.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Company
----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by an officer thereof, 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 Company 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
shareholder may certify in writing to the Company that any shares of stock
registered in the name of the shareholder are held for the account of a
specified person other than the shareholder. The resolution shall set forth the
class of shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books and any other provisions with respect to the
procedure which the Board of Directors considers necessary or desirable. On
receipt of such certification, the person specified in the certification shall
be regarded as, for the purposes set forth in the certification, the shareholder
who makes the certification.
Section 11. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE.
------------------------------------------------
Notwithstanding any other provision of the Articles of Incorporation of the
Company or these Bylaws, Article 14.1 of the Virginia Stock Corporation Act (the
"VSCA"), as amended from time to time, or any successor statute thereto, shall
not apply to any acquisition by any person of shares of stock of the Company.
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 12. INSPECTORS. At any meeting of shareholders, 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
-3-
<PAGE>
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be
prima facie evidence thereof.
- ----- -----
Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.
------------------------------------
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
-------------------------------
election to the Board of Directors and the proposal of business to be considered
by the shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Company's notice of meeting, (ii) by or at the direction of the
Board of Directors or (iii) by any shareholder of the Company who was a
shareholder of record both at the time of giving of notice provided for in this
Section 13(a) and at the time of the annual meeting of shareholders, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 13(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 13, the shareholder must give timely notice thereof in writing
to the Secretary of the Company. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Company not
less than 120 days prior to the first anniversary of the Company's proxy
statement released to shareholders in connection with the previous year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is changed by more than thirty (30) days from such anniversary date,
notice by the shareholder to be timely must be so delivered within a reasonable
time before the Company begins to print and mail its proxy materials. Such
shareholder's notice shall set forth (i) as to each person whom the shareholder
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, 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 shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
shareholder, as they appear on the Company's books, and of such beneficial owner
and (y) the number of shares of each class of stock of the Company which are
owned beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 13 to the contrary, in the event that the number of
Directors to be elected to the
-4-
<PAGE>
Board of Directors is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased Board of
Directors made by the Company at least seventy (70) days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this Section 13(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 Company
no later than the close of business on the tenth day following the day on which
such public announcement is first may be the Company.
(b) Special Meetings of Shareholders. Only such business shall be
--------------------------------
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
shareholders at which Directors are to be elected (i) pursuant to the Company'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 shareholder of the Company who is a
shareholder of record both at the time of giving of notice provided for in this
Section 13(b) 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
13(b). In the event the Company calls a special meeting of shareholders for the
purpose of electing one or more Directors to the Board of Directors, any such
shareholder may nominate a person or persons (as the case may be) for election
to such position as specified in the Company's notice of meeting, if the
shareholder's notice containing the information required by paragraph (a)(2) of
this Section 13 shall be delivered to the Secretary at the principal executive
offices of the Company within a reasonable time before the Company begins to
print and mail its proxy materials.
(c) General. (1) Only such persons who are nominated in accordance with
-------
the procedures set forth in this Section 13 shall be eligible to serve as
Directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 13. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 13 and, if any Section 13, to declare that such defective
nomination or proposal be disregarded.
(2) For purposes of this Section 13, "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 Company
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 13, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 13. Nothing in this Section 13 shall be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
-5-
<PAGE>
Section 14. VOTING BY BALLOT. Voting on any question or in any election
----------------
may be viva voce unless the presiding officer shall order or any shareholder
---- ----
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
---------
Section 1. GENERAL POWERS. The business and affairs of the Company shall
--------------
be managed under the direction of its Board of Directors.
Section 2. NUMBER. The number of Directors initially shall be five (5),
------
which number may be increased or decreased from time to time by resolution of
the Directors then in office or by a majority vote of the Shareholders entitled
to vote; provided, however, that the total number of Directors shall not be
fewer than five (5) nor more than nine (9). A majority of the Board of
Directors will be Independent Directors (as defined in the Company's Articles of
Incorporation) except for a period of 60 days after the death, removal or
resignation of an Independent Director. Any vacancies will be filled by the
affirmative vote of a majority of the remaining Directors, though less than a
quorum. Independent Directors shall nominate replacements for vacancies in the
Independent Director positions. No reduction in the number of Directors shall
cause the removal of any Director from office prior to the expiration of his
term.
Section 3. EXPERIENCE. A Director shall have had at least three (3) years
----------
of relevant experience demonstrating the knowledge and experience required to
successfully acquire and manage the type of assets being acquired by the
Company. At least one of the Independent Directors shall have three (3) years of
relevant real estate experience.
Section 4. 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 shareholders, 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 Commonwealth of Virginia, for the holding of regular meetings of
the Board of Directors without other notice than such resolution.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman of the Board, Chief Executive
Officer, 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 Commonwealth of Virginia, as the place
for holding any special meeting of the Board of Directors called by them.
Section 6. 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 (2) days prior to the meeting. Notice by mail
-6-
<PAGE>
shall be given at least five (5) 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 Company 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 7. 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 Articles of
Incorporation of the Company 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 8. VOTING. (a) 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, the Articles of Incorporation or these
Bylaws.
(b) Any action pertaining to any transaction in which the Company is
purchasing, selling, leasing or mortgaging any real estate asset, making a joint
venture investment or engaging in any other transaction in which an advisor,
Director or officer of the Company, or any affiliate of the foregoing, has any
direct or indirect interest other than as a result of their status as a
Director, officer or shareholder of the Company, shall be approved by the
affirmative vote of a majority of the Directors not having any such interest,
even if such Directors constitute less than a quorum.
Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting by
------------------
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 10. 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 11. VACANCIES. If for any reason any or all the Directors cease
---------
to be Directors, such event shall not terminate the Company or affect these
Bylaws or the powers of
-7-
<PAGE>
the remaining Directors hereunder (even if fewer than five (5) Directors
remain). A vacancy on the Board of Directors caused by death, resignation or
incapacity of a Director may be filled by the majority vote of the remaining
Directors although such majority is less than a quorum. With respect to a
vacancy created by the death, resignation or incapacity of an Independent
Director, the remaining Independent Directors shall nominate a replacement. A
Director may be removed with or without cause and without the necessity for
concurrence by the Board of Directors by a majority of the votes cast at a
meeting of shareholders duly called and at which a quorum is present. Vacancies
occurring as the result of the removal of a Director by the shareholders shall
be filled by a majority of the votes cast at a meeting of shareholders duly
called at which a quorum is present. 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. The newly-created or eliminated
directorships resulting from any increase or decrease shall be apportioned by
the Board of Directors among the three classes of directorships as provided in
the Company's Articles of Incorporation so as to keep the number of Directors in
each class as nearly equal as possible. Any individual so elected as Director
shall hold office until the next annual meeting of shareholders and until his
successor is elected and qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated salary
------------
for their services as Directors but, by resolution of the Board of Directors,
may receive fixed sums per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Company 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 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 Company
in any other capacity and receiving compensation therefor.
Section 13. 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 monies or stock have been
deposited.
Section 14. 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 15. RELIANCE. Each Director, officer, employee and agent of the
--------
Company shall, in the performance of his duties with respect to the Company, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Board of Directors or officers of the
Company, regardless of whether such counsel or expert may also be a Director.
Section 16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
-----------------------------------------------------------
The Directors shall have no responsibility to devote their full time to the
affairs of the Company. Any Director or officer, employee or agent of the
Company, in his personal capacity
-8-
<PAGE>
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 Company.
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, an
Acquisition Committee and other committees, composed of two (2) or more
directors, to serve at the pleasure of the Board of Directors. The members of
the committees shall at all times consist of a majority of Independent
Directors.
Section 2. EXECUTIVE COMMITTEE. When the Board of Directors is not in
-------------------
session, the Executive Committee shall have all power vested in the Board of
Directors by law, by the Articles of Incorporation, or by these Bylaws, provided
that the Executive Committee shall not have power to (a) approve or recommend to
shareholders action that the Company's Articles of Incorporation or the VSCA
requires to be approved by shareholders; (b) fill vacancies on the Board or on
any of its committees; (c) amend the Articles of Incorporation pursuant to (S)
13.1-706 of the VSCA; (d) adopt, amend, or repeal the Bylaws; (e) approve a plan
of merger not requiring shareholder approval; (f) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors; or (g) authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, other than within
limits specifically prescribed by the Board of Directors. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action which the Executive Committee may have taken on behalf of
the Board since the last regular or special meeting of the Board of Directors.
Section 3. 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 4. 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 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.
-9-
<PAGE>
Section 5. TELEPHONE MEETINGS. Members of a committee of the Board of
------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 6. 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 7. 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 Company shall be
------------------
appointed by the Board of Directors, and shall include a President, a Treasurer
and a Secretary, and any other officers as determined by the Board of Directors.
Such officers may include a Chairman of the Board, a Vice Chairman of the Board,
a President, a Chief Executive Officer, a Chief Operating Officer, a Chief
Financial Officer, one or more Vice Presidents, one or more Assistant
Treasurers, a Secretary, and/or one or more Assistant Secretaries. 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 Company shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
shareholders, 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 (2) or more offices 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 itself create contract rights between the Company and such
officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Company
-----------------------
may be removed by the Board of Directors if in its judgment the best interests
of the Company would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any officer
of the Company 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, immediately upon its receipt. The acceptance of a
resignation shall not be
-10-
<PAGE>
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
Company.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board
---------
of Directors for the balance of the term.
Section 4. CHAIRMAN OF THE BOARD. The Board of Directors shall designate
---------------------
a Chairman of the Board. The Chairman of the Board shall preside over the
meetings of the Board of Directors and of the shareholders at which he shall be
present. The Chairman of the Board shall perform such other duties as may be
assigned to him by the Board of Directors.
Section 5. 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 Company. He shall be a Director, and except as otherwise provided
in these Bylaws or in the resolutions establishing such committees, he shall be
ex officio a member of all committees of the Board of Directors. 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 Company or shall be required
by law to be otherwise executed; and in general shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
Section 6. 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. Any Vice
President may sign and execute in the name of the Company deeds, mortgages,
bonds, contracts or other instruments authorized by the Board of Directors,
except where the signing and execution of such documents shall be expressly
delegated by the Board of Directors or the President to some other officer or
agent of the Company or shall be required by law or otherwise to be signed or
executed. 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 7. SECRETARY. The Secretary shall (a) keep the minutes of the
---------
proceedings of the shareholders, 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 Company; (d) keep a register of the post office address of each shareholder
which shall be furnished to the Secretary by such shareholder; (e) have general
charge of the share transfer books of the Company; and (f) in general perform
such other duties
-11-
<PAGE>
as from time to time may be assigned to him by the Chief Executive Officer, the
President or by the Board of Directors.
Section 8. TREASURER. The Treasurer shall have the custody of the funds
---------
and securities of the Company and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company 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 Company.
The Treasurer shall disburse the funds of the Company 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 Company.
The Treasurer shall be responsible (a) for maintaining adequate financial
accounts and records in accordance with generally accepted accounting practices;
(b) for the preparation of appropriate operating budgets and financial
statements; (c) for the preparation and filing of all tax returns required by
law; and (d) for the performance of all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors or the President. The Treasurer may sign and execute in
the name of the Company share certificates, deeds, mortgages, bonds, contracts
or other instruments, except in cases where the signing and the execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Company or shall be required by law
or otherwise to be signed or executed.
If required by the Board of Directors, the Treasurer shall give the Company
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 Company, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, monies and
other property of whatever kind in his possession or under his control belonging
to the Company.
Section 4. 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 5. 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.
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<PAGE>
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 Company and such authority may be general or
confined to specific instances.
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 Company shall be signed by such officer or agent of the Company in such
manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Company not otherwise employed
--------
shall be deposited from time to time to the credit of the Company in such banks,
trust companies or other depositories as the Board of Directors may designate.
ARTICLE VII
SHARES OF STOCK
---------------
Section 1. CERTIFICATES OF STOCK. If the Board of Directors of the
---------------------
Company determines to issue certificates to evidence ownership of shares of the
stock of the Company, each shareholder shall be entitled to a certificate or
certificates which shall represent and certify the number of shares of each
class of stock held by him in the Company. 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 Company. The
signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Company shall, from time to time, issue
several classes of stock, each class may have its own number series. Each
certificate representing shares which are preferred or limited as to their
dividends 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 Company, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. If the Company 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 Company 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 Company will furnish a full statement of such
information to any shareholder upon request and without charge. If any class of
stock is restricted by the Company as to transferability, the certificate shall
contain a statement of the restriction or state that the
-13-
<PAGE>
Company will furnish information about the restrictions to the shareholder on
request and without charge.
Section 2. TRANSFERS. Upon surrender to the Company or the transfer agent
---------
of the Company of a stock certificate duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Company shall
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
The Company shall recognize the exclusive right of the person registered on
its books as the holder of record of shares of stock to receive dividends and to
vote as such holder of record.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the Articles of Incorporation of the Company
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 Company 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 Company to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. FIXING RECORD DATE. For the purpose of determining
------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notices of the meeting are mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
Section 5. STOCK LEDGER. The Company shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
-14-
<PAGE>
Section 6. ISSUANCE OF UNITS. Notwithstanding any other provision of the
-----------------
Articles of Incorporation or these Bylaws, the Board of Directors may issue
units consisting of different securities of the Company. Any security issued in
a unit shall have the same characteristics as any identical securities issued by
the Company, except that the Board of Directors may provide that for a specified
period securities of the Company issued in such unit may be transferred on the
books of the Company only in such unit.
Section 7. TRANSFER AGENTS AND REGISTRARS. At all such times that the
------------------------------
Company's securities are listed on a national securities exchange, the Board of
Directors shall appoint one or more banks or trust companies in such city or
cities as the Board of Directors may deem advisable, from time to time, to act
as transfer agents and/or registrars of the shares of stock of the Company; and,
upon such appointments being made, no certificate representing shares shall be
valid until countersigned by one of such transfer agents and registered by one
of such registrars.
ARTICLE VIII
ACCOUNTING YEAR
---------------
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Company by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
-------------
Section 1. DECLARATION. Dividends and other distributions upon the stock
-----------
of the Company may be authorized and declared by the Board of Directors, subject
to the provisions of law and the Articles of Incorporation of the Company.
Dividends and other distributions may be paid in cash, property or stock of the
Company, subject to the provisions of law and the Articles of Incorporation.
Section 2. CONTINGENCIES. Before payment of any dividends or other
-------------
distributions, there may be set aside out of any assets of the Company 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 any property of the Company or for such
other purpose as the Board of Directors shall determine to be in the best
interest of the Company, 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 Articles of Incorporation of the Company,
the Board of Directors may from time to time adopt, amend, revise or terminate
any policy or policies with
-15-
<PAGE>
respect to investments by the Company as it shall deem appropriate in its sole
discretion. The initial policies on investments and borrowing shall be as set
forth in the Company's Registration Statement on Form S-11 filed with the
Securities and Exchange Commission on ____________, 1999, as subsequently
amended at the time the registration statement is declared effective.
ARTICLE XI
SEAL
----
Section 1. SEAL. The Company may have a corporate seal, which may be
----
altered by the Board of Directors at will.
Section 2. AFFIXING SEAL. Whenever the Company 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 Company.
ARTICLE XII
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given pursuant to the Articles of
Incorporation of the Company 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.
ARTICLE XIII
AMENDMENT OF BYLAWS
-------------------
Unless proscribed by the Articles of Incorporation, these Bylaws may be
amended or altered at any meeting of the Board of Directors by affirmative vote
of a majority of the number of Directors fixed by these Bylaws. The shareholders
entitled to vote in respect of the election of Directors, however, shall have
the power to rescind, amend, alter or repeal any Bylaws and to enact Bylaws
which, if expressly so provided, may not be amended, altered or repealed by the
Board of Directors; provided that any amendment to Sections 2, 7 or 11 of
Article III must be approved by holders of two-thirds of the outstanding shares
entitled to vote on the election of Directors.
-16-
<PAGE>
The foregoing are certified as the Bylaws of the Company adopted by the
Board of Directors and Shareholders of the Company effective on __________,
1999.
__________________________
Jack R. Mauer
Secretary
-17-
<PAGE>
EXHIBIT 10.1
AGREEMENT
OF LIMITED PARTNERSHIP
OF
T REIT L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINED TERMS....................................................................................... 1
ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION........................................................ 10
Section 2.01. Organization.......................................................................... 10
Section 2.02. Name.................................................................................. 10
Section 2.03. Registered Office and Agent; Principal Office......................................... 10
Section 2.04. Partners.............................................................................. 10
Section 2.05. Term and Dissolution.................................................................. 11
Section 2.06. Filing of Certificate and Perfection of Limited Partnership........................... 11
Section 2.07. Certificates Describing Partnership Units............................................. 12
ARTICLE III BUSINESS OF THE PARTNERSHIP....................................................................... 12
Section 3.01. Purpose and Nature.................................................................... 12
Section 3.02. Powers................................................................................ 12
ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS................................................................. 13
Section 4.01. Capital Contributions................................................................. 13
Section 4.02. Additional Capital Contributions and Issuances of Additional Partnership Interests.... 13
Section 4.03. Additional Funding.................................................................... 15
Section 4.04. Capital Accounts...................................................................... 15
Section 4.05. Percentage Interests.................................................................. 16
Section 4.06. No Interest on Contributions.......................................................... 16
Section 4.07. Return of Capital Contributions....................................................... 16
Section 4.08. No Third Party Beneficiary............................................................ 16
ARTICLE V ALLOCATIONS; DISTRIBUTIONS.......................................................................... 17
Section 5.01. Allocations........................................................................... 17
Section 5.02. Distribution of Cash.................................................................. 22
Section 5.03. REIT Distribution Requirements........................................................ 24
Section 5.04. No Right to Distributions in Kind..................................................... 24
Section 5.05. Limitations on Return of Capital Contributions........................................ 25
Section 5.06. Distributions Upon Liquidation........................................................ 25
Section 5.07. Substantial Economic Effect........................................................... 26
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER.............................................. 26
Section 6.01. Management of the Partnership......................................................... 26
Section 6.02. Delegation of Authority............................................................... 28
Section 6.03. Indemnification and Exculpation of Indemnitees........................................ 29
Section 6.04. Liability of the General Partner...................................................... 30
Section 6.05. Reimbursement Obligations of Partnership.............................................. 31
Section 6.06. Outside Activities.................................................................... 31
Section 6.07. Employment or Retention of Affiliates................................................. 32
Section 6.08. Title of Partnership Assets........................................................... 32
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 6.09. Miscellaneous......................................................................... 33
ARTICLE VII CHANGES IN GENERAL PARTNER........................................................................ 33
Section 7.01. Transfer of the General Partner's Partnership Interest................................ 33
Section 7.02. Admission of a Substitute or Additional General Partner............................... 35
Section 7.03. Effect of Bankruptcy, Withdraw, Death or Dissolution of a General Partner............. 35
Section 7.04. Removal of a General Partner.......................................................... 36
Section 7.05. Option to Acquire Special Limited Partnership Interest................................
ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................................................... 37
Section 8.01. Management of the Partnership......................................................... 37
Section 8.02. Power of Attorney..................................................................... 38
Section 8.03. Limitation of Liability of Limited Partners........................................... 38
Section 8.04. [Reserved]............................................................................ 38
Section 8.05. Redemption Right...................................................................... 38
Section 8.06. Registration.......................................................................... 40
ARTICLE IX TRANSFERS OF LIMITED PARTNERSHIP INTERESTS......................................................... 41
Section 9.01. Purchase for Investment............................................................... 41
Section 9.02. Restrictions on Transfer of Limited Partnership Interests............................. 42
Section 9.03. Admission of Substitute Limited Partner............................................... 43
Section 9.04. Rights of Assignees of Partnership Interests.......................................... 44
Section 9.05. Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner......... 45
Section 9.06. Joint Ownership of Interests.......................................................... 45
ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS.......................................................... 45
Section 10.01. Books and Records.................................................................... 45
Section 10.02. Custody of Partnership Funds; Bank Accounts.......................................... 46
Section 10.03. Fiscal and Taxable Year.............................................................. 46
Section 10.04. Annual Tax Information and Report.................................................... 46
Section 10.05. Tax Matters Partner; Tax Elections; Special Basis Adjustments........................ 46
Section 10.06. Reports to Limited Partners.......................................................... 47
ARTICLE XI AMENDMENT OF AGREEMENT............................................................................. 47
ARTICLE XII GENERAL PROVISIONS................................................................................ 48
Section 12.01. Notices.............................................................................. 48
Section 12.02. Survival of Rights................................................................... 48
Section 12.03. Additional Documents................................................................. 48
Section 12.04. Severability......................................................................... 49
Section 12.05. Entire Agreement..................................................................... 49
Section 12.06. Pronouns and Plurals................................................................. 49
Section 12.07. Headings............................................................................. 49
Section 12.08. Counterparts......................................................................... 49
Section 12.09. Governing Law........................................................................ 49
</TABLE>
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<PAGE>
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
EXHIBIT C - Certification of Non-Foreign Status
-iii-
<PAGE>
AGREEMENT
OF LIMITED PARTNERSHIP
OF
T REIT, L.P.
This Agreement of Limited Partnership (the "Agreement") of T REIT L.P. (the
"Partnership"), dated __________, 1999, is entered into by and among T REIT,
Inc., a Virginia corporation (the "Company" or the "General Partner"), Triple
Net Properties LLC, a Virginia limited liability company (the "Special Limited
Partner"), and the other Limited Partners (as defined herein).
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINED TERMS
-------------
The following defined terms used in this Agreement shall have the meanings
specified below:
"Act" means the Virginia Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"Additional Funds" has the meaning set forth in Section 4.03 hereof.
"Additional Limited Partner" means a Person admitted to this Partnership as
a Limited Partner pursuant to Section 4.02 hereof.
"Additional Securities" means any additional REIT Shares (other than REIT
Shares issued in connection with a redemption pursuant to Section 8.05 hereof)
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
"Adjusted Invested Capital" means Invested Capital, minus, upon the sale of
a Property, the lesser of (i) the Sale Proceeds from that Property that are
available for distribution or (ii) the sum of (A) the Allocable Invested Capital
for that Property and (B) any Cumulative Allocable Invested Capital Shortfall.
"Administrative Expenses" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the
<PAGE>
Company, including any salaries or other payments to directors, officers or
employees of the Company, and any accounting and legal expenses of the Company,
which expenses, the Partners have agreed, are expenses of the Partnership and
not the Company, and (iii) to the extent not included in clause (ii) above, REIT
Expenses; provided, however, that Administrative Expenses shall not include any
-------- -------
administrative costs and expenses incurred by the Company that are attributable
to Properties or Subsidiaries that are owned by the Company directly, rather
than through the Partnership.
"Affiliate" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash Capital
Contribution as of the date of contribution as agreed to by the Partners. The
names and addresses of the Partners, number of Partnership Units issued to each
Partner, and the Agreed Value of non-cash Capital Contributions as of the date
of contribution is set forth on Exhibit A.
---------
"Agreement" means this Agreement of Limited Partnership.
"Allocable Invested Capital" means, for each Property, the product of (i)
the Invested Capital and (ii) a fraction equal to the Partnership's original
investment in that Property divided by the Partnership's total original
investment in all of its Properties.
"Allocable Invested Capital Shortfall" means, for each Property that is
sold, the amount, if any, by which the Allocable Invested Capital exceeds the
Sale Proceeds available for distribution.
"Amended and Restated Articles of Incorporation" means the Amended and
Restated Articles of Incorporation of the Company dated _____ __, 1999.
"Capital Account" has the meaning provided in Section 4.04 hereof.
"Capital Contribution" means the total amount of cash, cash equivalents,
and the Agreed Value of any Property or other asset contributed or agreed to be
contributed, as the context requires, to the Partnership by each Partner
pursuant to the terms of the Agreement.
-2-
<PAGE>
Any reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner.
"Capital Transaction" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
interest therein), except for any Terminating Capital Transaction.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption. The value of the REIT Shares Amount shall be based on
the average of the daily market price of REIT Shares for the ten (10)
consecutive Trading Days immediately preceding the date of such valuation. The
market price for each such Trading Day shall be: (i) if the REIT Shares are
listed or admitted to trading on any securities exchange, the sale price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, on such day, (ii) if
the REIT Shares are not listed or admitted to trading on any securities
exchange, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the REIT Shares are not listed or admitted to trading on any securities
exchange and no such last reported sale price or closing bid and asked prices
are available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the General
Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than ten days prior to the date in question) for which prices have
been so reported; provided that if there are no bid and asked prices reported
during the ten days prior to the date in question, the value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event the REIT Shares Amount includes rights that
a holder of REIT Shares would be entitled to receive, then the value of such
rights shall be determined by the General Partner acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
"Cash Available for Distribution" means, for a taxable year of the
Partnership, a positive amount, if any, equal to the cash revenues and receipts
of the Partnership (other than those arising from a Capital Transaction or a
Terminating Capital Transaction) available for distribution to the partners
after payment of the Partnership's expenses and other expenditures and the
creation of any reasonably required reserves, as determined by the General
Partner.
"Certificate" means any instrument or document that is required under the
laws of the Commonwealth of Virginia, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and
-3-
<PAGE>
filed for recording in the appropriate public offices within the Commonwealth of
Virginia or such other jurisdiction to perfect or maintain the Partnership as a
limited partnership, to effect the admission, withdrawal, or substitution of any
Partner of the Partnership, or to protect the limited liability of the Limited
Partners as limited partners under the laws of the Commonwealth of Virginia or
such other jurisdiction.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means T REIT, Inc., a Virginia corporation.
"Conversion Factor" means 1.0, provided that in the event that the Company
--------
(i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on such date and, provided further, that in the event
--------
that an entity other than an Affiliate of the Company shall become General
Partner pursuant to any merger, consolidation or combination of the Company with
or into another entity (the "Successor Entity"), the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by the number of shares of the
Successor Entity into which one REIT Share is converted pursuant to such merger,
consolidation or combination, determined as of the date of such merger,
consolidation or combination. Any adjustment to the Conversion Factor shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event; provided, however, that, if the
-------- -------
Redeeming Partner is to receive the Cash Amount and the record date for such
event falls during the valuation period for determining the Cash Amount, the
Conversion Factor shall be appropriately adjusted by the General Partner to
produce a fair and equitable calculation of the Cash Amount.
"Cumulative Allocable Invested Capital Shortfall" means the cumulative
Allocable Invested Capital Shortfall from prior sales of Properties that has not
previously been distributed to the General Partner and the Limited Partners.
"Event of Bankruptcy" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a
-4-
<PAGE>
court proceeding; filing by such Person of a petition or application to
accomplish the same or for the appointment of a receiver or a trustee for such
Person or a substantial part of his assets; commencement of any proceedings
relating to such Person as a debtor under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction, whether
now in existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
90 days.
"General Partner" means T REIT, Inc., a Virginia corporation, and any
Person who becomes a substitute or additional General Partner as provided
herein, and any of their successors as General Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Incentive Limited Partnership Interest" means the ownership interest of
the Special Limited Partner in the Partnership at any particular time, including
the right of such Special Limited Partner to any and all benefits to which such
Special Limited Partner may be entitled as provided in this Agreement and in the
Act, together with the obligations of such Special Limited Partner to comply
with all the provisions of this Agreement and of such Act.
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as the Company, the General Partner, or a director, officer or
employee of the Partnership, the Company, or the General Partner, and (ii) such
other Persons (including Affiliates of the Company, the General Partner, or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Independent Director" means a director of the Company who is not, and has
not been in the last two years, (i) an officer or employee of the Company, the
General Partner, the Special Limited Partner, or any Affiliate of those entities
or (ii) an owner of greater than 10% of the outstanding equity interests in the
Company, the General Partner, the Special Limited Partner, or any Affiliate of
those entities.
"Invested Capital" means (i) the sum of (A) the number of REIT Shares
issued by the Company (including any REIT Shares actually issued through the
Company's dividend reinvestment program, the Independent Director options, or
the broker-dealer warrants) and (B) the number of Partnership Units issued by
the Partnership to Limited Partners, multiplied by (ii) an amount initially
equal to $10.00, which amount shall be adjusted appropriately to reflect (A)
stock dividends, stock splits, or other changes in the capital structure of the
Company or the Partnership and (B) at the discretion of the General Partner, any
changes in the average price per share paid for REIT Shares and Partnership
Units after the Offering.
"Limited Partner" means any Person (other than the Special Limited Partner)
named as a Limited Partner on Exhibit A attached hereto, as Exhibit A may be
--------- ---------
amended from time to
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<PAGE>
time, and any Person who becomes a Substitute or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" shall have the meaning set forth in Section 5.01(k) hereof.
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
---------
"Offer" has the meaning set forth in Section 7.01(c) hereof.
"Offering" means the initial offer and sale by the Company and the purchase
by the Underwriters (as defined in the Prospectus) of REIT Shares for sale to
the public.
"Operating Income or Loss" means, for a taxable year of the Partnership,
the Profits and Losses of the Partnership (other than the Profits and Losses
arising from a Capital Transaction or a Terminating Capital Transaction), but
subject to the following adjustments:
(i) There shall be no reduction for depreciation or amortization
expenses; and
(ii) Operating Income or Loss shall not include any items of income,
loss, gain, or expense that are specially allocated pursuant to Section 5.01(g),
(h), or (i).
"Partner" means any General Partner, Limited Partner, or Special Limited
Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership held
by the General Partner, the Special Limited Partner, or any Limited Partner and
includes any and all benefits to which the holder of such a Partnership Interest
may be entitled as provided in this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for
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<PAGE>
no consideration other than full satisfaction of the liability, and then
aggregating the separately computed gains. A Partner's share of Partnership
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(g)(1).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the Company for
a distribution to its shareholders of some or all of its portion of such
distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners (other than the Special Limited Partner) issued
hereunder. The allocation of Partnership Units among the Partners shall be as
set forth on Exhibit A, as may be amended from time to time.
---------
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
---------
may be amended from time to time.
"Person" means any individual, partnership, limited liability company,
corporation, joint venture, trust or other entity.
"Profit" shall have the meaning set forth in Section 5.01(k) hereof.
"Property" means any office or industrial property or other investment in
which the Partnership holds an ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"Redemption Amount" means either the Cash Amount or the REIT Shares Amount,
as selected by the General Partner in its sole discretion pursuant to Section
8.05(b) hereof.
"Redemption Right" has the meaning provided in Section 8.05(a) hereof.
"Redemption Shares" has the meaning provided in Section 8.06(a) hereof.
"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
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<PAGE>
"REIT Expenses" means (i) costs and expenses relating to the formation and
continuity of existence and operation of the Company and any Subsidiaries
thereof (which Subsidiaries shall, for purposes hereof, be included within the
definition of Company), including taxes, fees and assessments associated
therewith, any and all costs, expenses or fees payable to any director, officer
or employee of the Company, (ii) costs and expenses relating to any public
offering and registration of securities by the Company and all statements,
reports, fees and expenses incidental thereto, including, without limitation,
underwriting discounts and selling commissions applicable to any such offering
of securities, and any costs and expenses associated with any claims made by any
holders of such securities or any underwriters or placement agents thereof,
(iii) costs and expenses associated with any repurchase of any securities by the
Company, (iv) costs and expenses associated with the preparation and filing of
any periodic or other reports and communications by the Company under federal,
state or local laws or regulations, including filings with the Commission, (v)
costs and expenses associated with compliance by the Company with laws, rules
and regulations promulgated by any regulatory body, including the Commission and
any securities exchange, (vi) costs and expenses associated with any 401(k)
plan, incentive plan, bonus plan or other plan providing for compensation for
the employees of the Company or the Partnership, (vii) costs and expenses
incurred by the Company relating to any issuance or redemption of Partnership
Interests and (viii) all other operating or administrative costs of the Company
incurred in the ordinary course of its business on behalf of or in connection
with the Partnership.
"REIT Shares" means the shares of common stock, $.01 par value per share,
of the Company (or Successor Entity, as the case may be).
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor as adjusted to and including the
day immediately preceding the Specified Redemption Date; provided that in the
event the Company issues to all holders of REIT Shares rights, options, warrants
or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights"), and the rights have not expired at the Specified
Redemption Date, then the REIT Shares Amount shall also include the rights
issuable to a holder of the REIT Shares Amount of REIT Shares on the record date
fixed for purposes of determining the holders of REIT Shares entitled to rights.
"Return" means an 8% per annum cumulative, non-compounded return on
Adjusted Invested Capital. If Adjusted Invested Capital is adjusted during a
period for which the Return is calculated, the Return will be computed based on
the weighted average Adjusted Invested Capital for the period. The Return shall
be prorated with respect to any Partner that is admitted as a Partner during a
period or that withdraws as a Partner during a period.
"Sale Proceeds" means the cash proceeds from a Capital Transaction after
payment of, or adequate provision for, transaction expenses, debts of the
Partnership, and any
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<PAGE>
reasonably necessary reserves; provided, however, that Sale Proceeds shall not
-------- -------
include proceeds from any Terminating Capital Transaction.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Special Limited Partner" means Triple Net Properties LLC, a Virginia
limited liability company, and any Person who becomes a substitute or additional
Special Limited Partner as provided herein.
"Specified Redemption Date" means the first business day that is at least
60 days after the receipt by the General Partner of the Notice of Redemption, or
such earlier date as shall be designated in writing to the Redeeming Partner by
the General Partner.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Subsidiary Partnership" means any partnership in which the Company, a
Subsidiary of the Company, or the Partnership owns a partnership interest.
"Substitute Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"Successor Entity" has the meaning provided in the definition of
"Conversion Factor" contained herein.
"Surviving General Partner" has the meaning set forth in Section 7.01(d)
hereof.
"Terminating Capital Transaction" means the sale, exchange or other
disposition of all or substantially all of the assets of the Partnership, after
which transaction the Partnership is dissolved and terminated.
"Trading Day" means a day on which the principal national securities
exchange on which a security is listed or admitted to trading is open for the
transaction of business or, if a security is not listed or admitted to trading
on any national securities exchange, shall mean any day other than a Saturday, a
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.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
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<PAGE>
"Transfer Restriction Date" means _______ __, 2000 [one year from closing
of the Offering], or such later date as shall be established by agreement
between the Partnership and any Limited Partner.
"Withheld Amount" means an amount required to be withheld by the
Partnership under the Code or any other federal, state or local law, including,
without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
-------------------------------------------
Section 2.01. Organization.
------------
The Partnership is a limited partnership organized pursuant to the
provisions of the Act. 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 2.02. Name.
----
The name of the Partnership shall be T REIT L.P. The Partnership's
business may be conducted under any other name or named 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 to time to time shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
Section 2.03. Registered Office and Agent; Principal Office.
---------------------------------------------
The name and address of the Partnership's registered agent in the
Commonwealth of Virginia is Louis J. Rogers, Esq., 701 East Byrd Street,
Richmond, Virginia 23219. The principal office of the Partnership shall be
located at 1551 N. Tustin Avenue, Suite 650, Santa Ana, CA 92705, or such other
place as the General Partner may from time to time designate, in its sole and
absolute discretion, by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the
Commonwealth of Virginia as the General Partner deems advisable.
Section 2.04. Partners.
--------
(a) The General Partner of the Partnership is T REIT, Inc., a Virginia
corporation. Its principal place of business shall be the same as that of the
Partnership.
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<PAGE>
(b) The General Partner hereby consents to admit those persons identified
on Exhibit A as Limited Partners or Special Limited Partners as of the date
---------
hereof. The Limited Partners shall be those Persons identified as Limited
Partners on Exhibit A hereto, as amended from time to time.
---------
Section 2.05. Term and Dissolution.
--------------------
(a) The term of the Partnership commenced on _________, 1999, the date the
Certificate was filed in the Clerk's Office of the Commission in accordance with
the Act, and shall continue in full force and effect until December 31, 2050,
except that the Partnership shall be dissolved upon the first to occur of any of
the following events:
(i) The occurrence of an Event of Bankruptcy as to a General Partner
or the dissolution, death, removal or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to Section
7.03(b) hereof; provided that if a General Partner is on the date of such
occurrence a partnership, the dissolution of such General Partner as a
result of the dissolution, death, withdrawal, removal or Event of
Bankruptcy of a partner in such partnership shall not be an event of
dissolution of the Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone or with
additional partners, and such General Partner and such partners comply with
any other applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition of
all or substantially all of the assets of the Partnership (provided that if
the Partnership receives an installment obligation as consideration for
such sale or other disposition, the Partnership shall continue, unless
sooner dissolved under the provisions of this Agreement, until such time as
such note or notes are paid in full);
(iii) The election by the General Partner that the Partnership should
be dissolved; or
(iv) As otherwise provided in the Act.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets of the
Partnership to the Partners in kind.
Section 2.06. Filing of Certificate and Perfection of Limited Partnership.
-----------------------------------------------------------
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<PAGE>
The General Partner shall execute, acknowledge, record and file at the
expense of the Partnership, the Certificate and any and all amendments thereto
and all requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
Section 2.07. Certificates Describing Partnership Units.
-----------------------------------------
At the request of a Limited Partner, the General Partner, at its option,
may issue a certificate summarizing the terms of such Limited Partner's interest
in the Partnership, including the number of Partnership Units owned and the
Percentage Interest represented by such Partnership Units as of the date of such
certificate. Any such certificate (i) shall be in form and substance as
approved by the General Partner, (ii) shall not be negotiable and (iii) shall
bear a legend to the following effect:
This certificate is not negotiable. The Partnership Units represented
by this certificate are governed by and transferable only in
accordance with the provisions of the Agreement of Limited Partnership
of T REIT L.P.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
Section 3.01. Purpose and Nature.
------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
-------- -------
shall be limited to and conducted in such a manner as to permit the Company at
all times to qualify as a REIT, unless the Company otherwise ceases to qualify
as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing, and (iii) to do anything necessary
or incidental to the foregoing. In connection with the foregoing, and without
limiting the Company's right in its sole discretion to cease qualifying as a
REIT, the Partners acknowledge that the Company's current status as a REIT
inures to the benefit of all the Partners and not solely to the Company. The
General Partner shall also be empowered to do any and all acts and things
necessary or prudent to ensure that the Partnership will not be classified as a
"publicly traded partnership" that is treated as a corporation under Section
7704 of the Code.
Section 3.02. Powers.
------
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the
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<PAGE>
purposes and business described herein and for the protection and benefit of the
Partnership, provided that the Partnership shall not take, or refrain from
taking, any actions which, in the judgment of the General Partner, in its sole
and absolute discretion, could: (i) adversely affect the ability of the Company
to initially qualify, or continue to qualify, as a REIT; (ii) subject the
Company to any taxes under Section 857 or Section 4981 of the Code (other than
any tax imposed under Code Section 857 on capital gains that the Company elects
to retain); or (iii) violate any law or regulation of any governmental body or
agency having jurisdiction over the Company or its securities, unless such
action (or inaction) shall have been specifically consented to in writing by the
Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
Section 4.01. Capital Contributions.
---------------------
The General Partner, the Special Limited Partner, and the Limited Partners
have made capital contributions to the Partnership in exchange for the
Partnership Interests set forth opposite their names on Exhibit A, as amended
---------
from time to time.
Section 4.02. Additional Capital Contributions and Issuances of Additional
------------------------------------------------------------
Partnership Interests.
- ---------------------
Except as provided in this Section 4.02 or in Section 4.03, the Partners
shall have no right or obligation to make any additional Capital Contributions
or loans to the Partnership. The General Partner may contribute additional
capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.02.
(a) Issuances of Additional Partnership Interests.
---------------------------------------------
(i) General. The General Partner is hereby authorized to cause the
-------
Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to
time, to the Partners (including the General Partner and the Special
Limited Partner) or to other Persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its
sole and absolute discretion, all without the approval of the Special
Limited Partner or any Limited Partners. Any additional Partnership
Interests issued thereby may be issued in one or more classes, or one or
more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and
duties, including rights, powers and duties senior to Limited Partnership
Interests, all as shall be determined by the General Partner in its sole
and absolute discretion and without the approval of the Special Limited
Partner or any Limited Partner, subject to Virginia law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each
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<PAGE>
such class or series of Partnership Interests; (ii) the right of each such
class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided, however, that no additional Partnership Interests shall be issued
-------- -------
to the Company or any wholly-owned Subsidiary of the Company unless either:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests
in the Company, which shares or interests have designations,
preferences and other rights, all such that the economic
interests are substantially similar to the designations,
preferences and other rights of the additional Partnership
Interests issued to the Company by the Partnership in accordance
with this Section 4.02 and (B) the Company shall make a Capital
Contribution (directly or through the General Partner) to the
Partnership in an amount equal to the proceeds raised in
connection with the issuance of such REIT Shares of or other
interests in the Company, or
(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, 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.
(b) Upon Issuance of Additional Securities. After the Offering, the
---------------------------------------
Company shall not issue any additional REIT Shares (other than REIT Shares
issued in connection with a redemption pursuant to Section 8.05 hereof) or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase REIT Shares (collectively, "Additional
Securities") other than to all holders of REIT Shares, unless (A) the General
Partner shall cause the Partnership to issue to the Company Partnership
Interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership having designations, preferences and other rights, all such
that the economic interests are substantially similar to those of the Additional
Securities, and (B) the Company contributes (directly or through the General
Partner) the proceeds from the issuance of such Additional Securities and from
any exercise of rights contained in such Additional Securities to the
Partnership; provided, however, that the Company is allowed to issue Additional
-------- -------
Securities without complying with the provisions of (A) and (B) above if such
issuance of Additional Securities has been approved and determined to be in the
best interests of the Company and the Partnership by a majority of the
Independent Directors. Without limiting the foregoing, the Company is expressly
authorized to issue Additional Securities for less than fair market value, and
the General Partner is expressly authorized to cause the Partnership to issue to
the Company corresponding Partnership Interests, so long as (x) the General
Partner concludes in good faith that such issuance is in the best interests of
the Partnership, and (y) the Company
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<PAGE>
contributes (directly or through the General Partner) all proceeds from such
issuance to the Partnership. In the event the Company issues REIT Shares for a
cash purchase price and contributes (directly or through the General Partner)
all of the proceeds of such issuance to the Partnership, the General Partner
shall be issued a number of additional Partnership Units equal to the product of
(A) the number of such REIT Shares issued by the Company, the proceeds of which
were so contributed, multiplied by (B) a fraction, the numerator of which is
100%, and the denominator of which is the Conversion Factor in effect on the
date of such contribution.
(c) Certain Deemed Contributions of Proceeds of Offering of REIT Shares.
-------------------------------------------------------------------
In connection with any and all offerings of REIT Shares, the Company shall make
(directly or through the General Partner) Capital Contributions to the
Partnership of the net proceeds therefrom, provided that if the proceeds
--------
actually received and contributed are less than the gross proceeds of such
offering as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the Company shall make (directly
or through the General Partner) a Capital Contribution of such net proceeds to
the Partnership but the General Partner shall receive additional Partnership
Units with a value equal to the aggregate amount of the gross proceeds of such
issuance pursuant to Section 4.02(a) hereof. Upon any such Capital Contribution
by the Company or the General Partner, its Capital Account shall be increased by
the actual amount of its Capital Contribution pursuant to Section 4.01 hereof.
Section 4.03. Additional Funding.
------------------
If the General Partner determines that it is in the best interests of the
Partnership to provide for additional Partnership funds ("Additional Funds") for
any Partnership purpose, the General Partner may (i) cause the Partnership to
obtain such funds from outside borrowings, or (ii) elect to have the General
Partner provide such Additional Funds to the Partnership through loans or
otherwise.
Section 4.04. Capital Accounts.
----------------
A separate capital account (a "Capital Account") shall be established and
maintained for each Partner in accordance with Regulations Section 1.704-
1(b)(2)(iv). If (i) a new or existing Partner acquires an additional
Partnership Interest in exchange for more than a de minimis Capital
Contribution, (ii) the Partnership distributes to a Partner more than a de
minimis amount of Partnership property as consideration for a Partnership
Interest, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner, in its sole discretion, and taking into account Section 7701(g)
of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When
the Partnership's property is revalued by the General Partner, the Capital
Accounts of the Partners shall be adjusted in accordance with Regulations
Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital
Accounts to be adjusted to reflect the manner in which the unrealized gain or
loss inherent in such property (that has not been reflected in the Capital
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<PAGE>
Accounts previously) would be allocated among the Partners pursuant to Section
5.01 if there were a taxable disposition of such property for its fair market
value (as determined by the General Partner, in its sole discretion, and taking
into account Section 7701(g) of the Code) on the date of the revaluation.
Section 4.05. Percentage Interests.
--------------------
If the number of outstanding Partnership Units increases or decreases
during a taxable year, each Partner's Percentage Interest shall be adjusted by
the General Partner effective as of the effective date of each such increase or
decrease to a percentage equal to the number of Partnership Units held by such
Partner divided by the aggregate number of Partnership Units outstanding after
giving effect to such increase or decrease. If the Partners' Percentage
Interests are adjusted pursuant to this Section 4.05, Operating Income for the
taxable year in which the adjustment occurs shall be allocated between the part
of the year ending on the day preceding the effective date of such adjustment
and the part of the year beginning on the effective date of such adjustment
either (i) as if the taxable year had ended on the date of the adjustment or
(ii) based on the number of days in each part. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate Operating
Income for the taxable year in which the adjustment occurs. The allocation of
Operating Income for the earlier part of the year shall be based on the
Percentage Interests before adjustment, and the allocation of Operating Income
for the later part shall be based on the adjusted Percentage Interests.
Section 4.06. No Interest on Contributions.
----------------------------
No Partner shall be entitled to interest on its Capital Contribution.
Section 4.07. Return of Capital Contributions.
-------------------------------
No Partner shall be entitled to withdraw any part of its Capital
Contribution or its Capital Account or to receive any distribution from the
Partnership, except as specifically provided in this Agreement. Except as
otherwise provided herein, there shall be no obligation to return to any Partner
or withdrawn Partner any part of such Partner's Capital Contribution for so long
as the Partnership continues in existence.
Section 4.08. No Third Party Beneficiary.
--------------------------
No creditor or other third party having dealings with the Partnership shall
have the right to enforce the right or obligation of any Partner to make Capital
Contributions or loans or to pursue any other right or remedy hereunder or at
law or in equity, it being understood and agreed that the provisions of this
Agreement shall be solely for the benefit of, and may be enforced solely by, the
parties hereto and their respective successors and assigns. None of the rights
or obligations of the Partners herein set forth to make Capital Contributions or
loans to the Partnership shall be deemed an asset of the Partnership for any
purpose by any creditor or other third party, nor may such rights or obligations
be sold, transferred or assigned by the
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Partnership or pledged or encumbered by the Partnership to secure any debt or
other obligation of the Partnership or of any of the Partners. In addition, it
is the intent of the parties hereto that no distribution to any Limited Partner
shall be deemed a return of money or other property in violation of the Act.
However, if any court of competent jurisdiction holds that, notwithstanding the
provisions of this Agreement, any Limited Partner is obligated to return such
money or property, such obligation shall be the obligation of such Limited
Partner and not of the General Partner. Without limiting the generality of the
foregoing, a deficit Capital Account of a Partner shall not be deemed to be a
liability of such Partner nor an asset or property of the Partnership.
ARTICLE V
ALLOCATIONS; DISTRIBUTIONS
--------------------------
Section 5.01. Allocations.
-----------
(a) Operating Income. Operating Income of the Partnership for each taxable
----------------
year of the Partnership shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the cumulative
amount of Operating Income and gain allocated pursuant to this Section
5.01(a)(i) and Section 5.01(c)(i)(A) for the current and all prior years
equals the cumulative amount of Operating Losses and losses allocated
pursuant to Section 5.01(b)(iii) and Section 5.01(c)(ii)(B) for the current
and all prior years;
(ii) Second, 85% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests and 15% to the
Special Limited Partner until the cumulative amount of Operating Income and
gain allocated pursuant to this Section 5.01(a)(ii) and Section
5.01(c)(i)(B) for the current and all prior years equals the cumulative
amount of Operating Losses and losses allocated pursuant to Section
5.01(b)(ii) and Section 5.01(c)(ii)(A) for the current and all prior years;
(iii) Third, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the cumulative
amount of Operating Income allocated pursuant to this Section 5.01(a)(iii)
for the current and all prior years equals the cumulative amount of
Operating Losses allocated pursuant to Section 5.01(b)(i) for the current
and all prior years;
(iv) Fourth, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the cumulative
amount of Operating Income and gain allocated to the General Partner and
each of the Limited Partners under this Section 5.01(a)(iv) and Section
5.01(c)(i)(C)(4) for the current and all prior years and under Section
5.01(a)(vi) for all prior years equals the cumulative
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amount distributed to the General Partner and each of the Limited Partners
pursuant to Section 5.02(a)(i) and Section 5.02(b)(i)(C) for the current
and all prior years;
(v) Fifth, 85% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests and 15% to the
Special Limited Partner until the cumulative amount of Operating Income and
gain allocated to the Special Limited Partner under this Section 5.01(a)(v)
and Section 5.01(c)(i)(D) for the current and all prior years equals the
cumulative amount distributed to the Special Limited Partner pursuant to
Section 5.02(a)(ii) and Section 5.02(b)(ii) for the current and all prior
years; and
(vi) Thereafter, 100% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests.
(b) Operating Losses. Operating Losses of the Partnership for each taxable
----------------
year of the Partnership shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the cumulative
amount of Operating Losses allocated pursuant to this Section 5.01(b)(i)
for the current and all prior years equals the cumulative amount of
Operating Income allocated pursuant to Section 5.01(a)(vi) for the current
and all prior years;
(ii) Second, 85% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests and 15% to the
Special Limited Partner until the cumulative amount of Operating Losses and
losses allocated pursuant to this Section 5.01(b)(ii) and Section
5.01(c)(ii)(A) for the current and all prior years equals the cumulative
amount of Operating Income and gain allocated pursuant to Section
5.01(a)(v) and Section 5.01(c)(i)(D) for the current and all prior years;
and
(iii) Thereafter, 100% to the General Partner and the Limited
Partners in accordance with their respective Percentage Interests.
(c) Gains and Losses from Capital Transactions. (i) Gains from Capital
------------------------------------------
Transactions shall be allocated among the Partners as follows:
(A) First, 100% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests until the
cumulative amount of Operating Income and gain allocated pursuant to
Section 5.01(a)(i) and this Section 5.01(c)(i)(A) for the current and
all prior years equals the cumulative amount of Operating Losses and
Losses allocated pursuant to Section 5.01(b)(iii) and Section
5.01(c)(ii)(B) for the current and all prior years;
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(B) Second, 85% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests and 15% to
the Special Limited Partner until the cumulative amount of Operating
Income and gain allocated pursuant to Section 5.01(a)(ii) and this
Section 5.01(c)(i)(B) for the current and all prior years equals the
cumulative amount of Operating Losses and losses allocated pursuant to
Section 5.01(b)(ii) and Section 5.01(c)(ii)(A) for the current and all
prior years;
(C) Third, 100% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests until the
General Partner and the Limited Partners have been allocated an
aggregate amount equal to the sum of (1) any depreciation or
amortization recapture associated with the Partnership's investment in
the Property, (2) the amount by which the Allocable Invested Capital
exceeds the Partnership's investment in the Property, (3) any amounts
distributed to the General Partner and the Limited Partners pursuant
to Section 5.02(b)(i)(B) (except to the extent that the related
Cumulative Allocable Invested Capital Shortfall was attributable to a
loss previously allocated pursuant to Section 5.01(c)(ii)(B) that has
been previously recaptured pursuant to Section 5.01(a)(i) or Section
5.01(c)(i)(A)), and (4) any amounts distributed to the General Partner
and the Limited Partners pursuant to Section 5.02(b)(i)(C); and
(D) Thereafter, 85% to the General Partner and the Limited
Partners in accordance with their respective Percentage Interests, and
15% to the Special Limited Partner.
(ii) Losses from Capital Transactions shall be allocated among the Partners
as follows:
(A) First, 85% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests and 15% to
the Special Limited Partner until the cumulative amount of Operating
Losses and losses allocated pursuant to Section 5.01(b)(ii) and this
Section 5.01(c)(ii)(A) for the current and all prior years equals the
cumulative amount of Operating Income and gain allocated pursuant to
Section 5.01(a)(v) and Section 5.01(c)(i)(D) for the current and all
prior years; and
(B) Thereafter, 100% to the General Partner and the Limited
Partners in accordance with their respective Percentage Interests.
(d) Gains and Losses from Terminating Capital Transactions. (i) Gains
------------------------------------------------------
from a Terminating Capital Transaction shall be allocated among the Partners as
follows:
(A) First, 100% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests until the
aggregate
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Capital Account balance of the General Partner and the Limited
Partners equals the sum of (1) the Adjusted Invested Capital (after
reduction by any amounts previously distributed pursuant to Section
5.02(a)(i)(B) and Section 5.02(b)(i)(A) and (B)) and (2) the
cumulative Return for the current year and all prior years that has
not previously been distributed pursuant to Section 5.02(a)(i)(A) and
Section 5.02(b)(i)(C); and
(B) Thereafter, 85% to the General Partner and the Limited
Partners in accordance with their respective Percentage Interests, and
15% to the Special Limited Partner.
(ii) Losses from a Terminating Capital Transaction shall be allocated
among the Partners as follows:
(A) First, 85% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests and 15% to
the Special Limited Partner until the cumulative amount of Operating
Losses and losses allocated pursuant to Section 5.01(b)(ii), Section
5.01(c)(ii)(A), and this Section 5.01(d)(ii)(A) (but not offset by
allocations under Section 5.01(a)(ii) or Section 5.01(c)(i)(B)) for
the current and all prior years equals the cumulative amount of
Operating Income and gain allocated pursuant to Section 5.01(a)(v),
and Section 5.01(c)(i)(D) (but not offset by allocations under Section
5.01(b)(ii) or Section 5.01(c)(ii)(A)) for the current and all prior
years; and
(B) Thereafter, 100% to the General Partner and the Limited
Partners in accordance with their respective Percentage Interests.
(e) Clawback. Notwithstanding Sections 5.01(a), (b), (c), and (d) hereof,
--------
to the extent that the Special Limited Partner is required to repay
distributions to the Partnership pursuant to Section 5.02(c) hereof, the
allocations under Sections 5.01(a), (b), (c), and (d) hereof shall be adjusted
to reflect such repayment.
(f) Depreciation and Amortization Deductions. Depreciation and
----------------------------------------
amortization deductions for each taxable year of the Partnership shall be
allocated to the General Partner and the Limited Partners in accordance with
their respective Percentage Interests.
(g) Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that
bears the "economic risk of loss" of such deduction in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable
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<PAGE>
year, then, subject to the exceptions set forth in Regulations Section 1.704-
2(f)(2),(3), (4) and (5), items of gain and income shall be allocated among the
Partners in accordance with Regulations Section 1.704-2(f) and the ordering
rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then,
subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
(h) Qualified Income Offset. If a Partner receives in any taxable year an
-----------------------
adjustment, allocation, or distribution described in subparagraph (4), (5), or
(6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a
deficit balance in such Partner's Capital Account that exceeds the sum of such
Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g)
and 1.704-2(i), such Partner shall be allocated specially for such taxable year
(and, if necessary, later taxable years) items of income and gain in an amount
and manner sufficient to eliminate such deficit Capital Account balance as
quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d).
After the occurrence of an allocation of income or gain to a Partner in
accordance with this Section 5.01(h), to the extent permitted by Regulations
Section 1.704-1(b), items of expense or loss shall be allocated to such Partner
in an amount necessary to offset the income or gain previously allocated to such
Partner under this Section 5.01(h).
(i) Capital Account Deficits. Loss shall not be allocated to a Partner to
------------------------
the extent that such allocation would cause a deficit in such Partner's Capital
Account (after reduction to reflect the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner's shares
of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any loss
in excess of that limitation shall be allocated to other Partners who have
positive Capital Account balances in accordance with their respective Percentage
Interests. After the occurrence of an allocation of loss to a Partner in
accordance with this Section 5.01(i), to the extent permitted by Regulations
Section 1.704-1(b), profit, income, or gain shall be allocated to such Partner
in an amount necessary to offset the loss previously allocated to such Partner
under this Section 5.01(i).
(j) Allocations Between Transferor and Transferee. If a Partner transfers
---------------------------------------------
any part or all of its Partnership Interest, the distributive shares of the
various items of income, gain, loss, and expense allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's fiscal
year had ended on the date of the transfer, or (ii) based on the number of days
of such fiscal year that each was a Partner without regard to the results of
Partnership activities in the respective portions of such fiscal year in which
the transferor and the transferee were Partners.
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<PAGE>
The General Partner, in its sole discretion, shall determine which method shall
be used to allocate the distributive shares of the various items of income,
gain, loss, and expense between the transferor and the transferee Partner.
(k) Definition of Profit and Loss. "Profit" and "Loss" and any items of
-----------------------------
income, gain, expense, or loss referred to in this Agreement shall be determined
in accordance with federal income tax accounting principles, as modified by
Regulations Section 1.704-1(b)(2)(iv). All allocations of income, Profit, gain,
Loss, and expense (and all items contained therein) for federal income tax
purposes shall be identical to all allocations of such items set forth in this
Section 5.01, except as otherwise required by Section 704(c) of the Code and
Regulations Section 1.704-1(b)(4). The General Partner shall have the authority
to elect the method to be used by the Partnership for allocating items of
income, gain, expense, and loss as required by Section 704(c) of the Code and
such election shall be binding on all Partners.
Section 5.02. Distributions.
-------------
(a) Cash Available for Distribution. The Partnership shall distribute Cash
-------------------------------
Available for Distribution on a quarterly (or, at the election of the General
Partner, more frequent) basis, in an amount determined by the General Partner in
its sole discretion, to the Partners who are Partners on the Partnership Record
Date with respect to such quarter (or other distribution period) as follows:
(i) First, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the General
Partner and the Limited Partners have received an amount equal to the sum
of (A) the excess, if any, of (I) the cumulative Return for the current and
all prior years over (II) the sum of all prior distributions to the General
Partner and the Limited Partners pursuant to this Section 5.02(a)(i)(A) and
Section 5.02(b)(i)(C) and (B) any Cumulative Allocable Invested Capital
Shortfall; and
(ii) Thereafter, 85% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests, and 15% to the
Special Limited Partner.
Notwithstanding the foregoing, however, if a new or existing Partner acquires an
additional Partnership Interest in exchange for a Capital Contribution on any
date other than a Partnership Record Date, the cash distribution attributable to
such additional Partnership Interest relating to the Partnership Record Date
next following the issuance of such additional Partnership Interest shall be
reduced in the proportion to (i) the number of days that such additional
Partnership Interest is held by such Partner bears to (ii) the number of days
between such Partnership Record Date and the immediately preceding Partnership
Record Date.
(b) Sale Proceeds. The Partnership shall distribute Sale Proceeds on a
-------------
quarterly (or, at the election of the General Partner, more frequent) basis, in
an amount determined by
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<PAGE>
the General Partner in its sole discretion, to the Partners who are
Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) as follows:
(i) First, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests until the General
Partner and the Limited Partners have received an amount equal to the sum
of (A) the Allocable Invested Capital with respect to the Properties sold
during such quarter (or other distribution period), (B) any Cumulative
Allocable Invested Capital Shortfall that is not being distributed pursuant
to Section 5.02(a)(i)(B) hereof, and (C) any cumulative shortfall in the
General Partner's and the Limited Partners' receipt of the Return pursuant
to Section 5.02(a)(i)(A) hereof; and
(ii) Thereafter, 85% to the General Partner and the Limited Partners
in accordance with their respective Percentage Interests, and 15% to the
Special Limited Partner.
(c) Clawback. Notwithstanding Sections 5.02(a) and (b) hereof, if there is
--------
a shortfall in the distribution of the Return to the General Partner and the
Limited Partners at the end of any calendar year and the Special Limited Partner
previously has received distributions pursuant to Section 5.02(a)(ii) or
5.02(b)(ii) (other than distributions that have previously been repaid pursuant
to this Section 5.02(c)), the Special Limited Partner will be required to repay
to the Partnership whatever portion of those prior distributions is necessary to
cause the Return to be met. The Partnership will distribute any repaid amounts
to the General Partner and the Limited Partners in accordance with their
respective Percentage Interests. For purposes of this Section 5.02(c), in
determining whether there is a shortfall in the Return, only amounts distributed
pursuant to Section 5.02(a)(i)(A) or Section 5.02(b)(i)(C) generally will be
taken into account. However, to the extent that the Special Limited Partner has
returned a distribution under this Section 5.02(c), the returned distribution
plus the original accompanying 85% distribution to the General Partner and the
Limited Partners will be treated as having been distributed 100% to the General
Partner and the Limited Partners pursuant to Section 5.02(a)(i)(A) or Section
5.02(b)(i)(C). In no event will the cumulative amount repaid by the Special
Limited Partner to the Partnership pursuant to this Section 5.02(c) exceed the
cumulative amount of distributions that the Special Limited Partner previously
has received pursuant to Sections 5.02(a)(ii) and 5.02(b)(ii).
(d) Withholding. Notwithstanding any other provision of this Agreement,
-----------
the General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local
law, including, without limitation, pursuant to Sections 1441, 1442, 1445 and
1446 of the Code. To the extent that the Partnership is required to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to the Partner or assignee (including by reason of
Section 1446 of the Code), either (i) if the actual amount to be distributed to
the Partner (the "Distributable Amount") equals or exceeds the amount required
to be withheld by the
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<PAGE>
Partnership (the "Withheld Amount"), the entire Distributable Amount shall be
treated as a distribution of cash to such Partner, or (ii) if the Amount is less
than the Withheld Amount, the excess of the Withheld Amount over the
Distributable Amount shall be treated as a loan (a "Partnership Loan") from the
Partnership to the Partner on the day the Partnership pays over such amount to a
taxing authority. A Partnership Loan shall be repaid through withholding by the
Partnership with respect to subsequent distributions to the applicable Partner
or assignee. In the event that a Limited Partner (a "Defaulting Limited
Partner") fails to pay any amount owed to the Partnership with respect to the
Partnership Loan within 15 days after demand for payment thereof is made by the
Partnership on the Limited Partner, the General Partner, in its sole discretion,
may elect to make the payment to the Partnership on behalf of such Defaulting
Limited Partner. In such event, on the date of payment, the General Partner
shall be deemed to have extended a loan (a "General Partner Loan") to the
Defaulting Limited Partner in the amount of the payment made by the General
Partner and shall succeed to all rights and remedies of the Partnership against
the Defaulting Limited Partner as to that amount. Without limitation, the
General Partner shall have the right to receive any distributions that otherwise
would be made by the Partnership to the Defaulting Limited Partner until such
time as the General Partner Loan has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
received by the Defaulting Limited Partner and immediately paid to the General
Partner.
Any amounts treated as a Partnership Loan or a General Partner Loan
pursuant to this Section 5.02(d) shall bear interest at the lesser of (i) the
base rate on corporate loans at large United States money center commercial
banks, as published from time to time in The Wall Street Journal, or (ii) the
maximum lawful rate of interest on such obligation, such interest to accrue from
the date the Partnership or the General Partner, as applicable, is deemed to
extend the loan until such loan is repaid in full.
(e) Redeemed Partnership Units. In no event may a Partner receive a
--------------------------
distribution of cash with respect to a Partnership Unit if such Partner is
entitled to receive an equivalent cash dividend as the holder of record of a
REIT Share for which all or part of such Partnership Unit has been or will be
redeemed.
Section 5.03. REIT Distribution Requirements.
------------------------------
The General Partner shall use its reasonable efforts to cause the
Partnership to distribute amounts sufficient to enable the Company to pay
shareholder dividends that will allow the Company to (i) meet its distribution
requirement for qualification as a REIT as set forth in Section 857 of the Code
and (ii) avoid any federal income or excise tax liability imposed by the Code
(other than federal income tax liability associated with capital gains that the
Company elects to retain).
Section 5.04. No Right to Distributions in Kind.
---------------------------------
No Partner shall be entitled to demand property other than cash in
connection with any distributions by the Partnership.
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<PAGE>
Section 5.05. Limitations on Return of Capital Contributions.
----------------------------------------------
Notwithstanding any of the provisions of this Article V, no Partner shall
have the right to receive and the General Partner shall not have the right to
make, a distribution that includes a return of all or part of a Partner's
Capital Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all Partnership liabilities, other than the liabilities
to a Partner for the return of his Capital Contribution, does not exceed the
fair market value of the Partnership's assets.
Section 5.06. Distributions Upon Liquidation.
------------------------------
(a) Upon liquidation of the Partnership, after payment of, or adequate
provision for, debts and obligations of the Partnership, including any Partner
loans, any remaining assets of the Partnership shall be distributed to all
Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of this Section 5.06(a), the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. To the extent deemed advisable by the General Partner, appropriate
arrangements (including the use of a liquidating trust) may be made to assure
that adequate funds are available to pay any contingent debts or obligations.
(b) If less than all of the Adjusted Invested Capital has been returned to
the General Partner and the Limited Partners or there is a shortfall in the
distribution of the Return to the General Partner and the Limited Partners when
the Partnership's last Property has been sold and the Special Limited Partner
previously has received distributions pursuant to Section 5.02(a)(ii) or
5.02(b)(ii) (other than distributions that have previously been repaid pursuant
to Section 5.02(c)), the Special Limited Partner will be required to repay to
the Partnership whatever portion of those prior distributions is necessary to
cause a full return of Adjusted Invested Capital and a full distribution of the
Return to the General Partner and the Limited Partners. The Partnership will
distribute any repaid amounts to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests. For purposes of this
Section 5.06(b), in determining whether Adjusted Invested Capital has been
returned and a full distribution of the Return has been made to the General
Partner and the Limited Partners, generally only amounts distributed pursuant to
Section 5.02(a)(i), Section 5.02(b)(i), and Section 5.06(a) will be taken into
account. However, to the extent that the Special Limited Partner returns a
distribution under Section 5.02(c) or this Section 5.06(b), the returned
distribution plus the original accompanying 85% distributions to the General
Partner and the Limited Partners will be treated as having been distributed 100%
to the General Partner and the Limited Partners in accordance with their
respective Percentage Interests pursuant to Section 5.02(a)(i) or Section
5.02(b)(i). In no event will the cumulative amount repaid by the Special
Limited Partner to the Partnership pursuant to Section 5.02(c) and this Section
5.06(b) exceed the cumulative amount of distributions that the Special Limited
Partner previously has received pursuant to Sections 5.02(a)(ii) and
5.02(b)(ii).
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<PAGE>
Section 5.07. Substantial Economic Effect.
---------------------------
It is the intent of the Partners that the allocations of Operating Income,
Operating Loss, income, gain, loss, and expense under the Agreement have
substantial economic effect (or be consistent with the Partners' interests in
the Partnership in the case of the allocation of losses or expenses attributable
to nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the Regulations promulgated pursuant thereto. Article V and
other relevant provisions of this Agreement shall be interpreted in a manner
consistent with such intent. Furthermore, the General Partner shall have the
right, without the consent of the Limited Partners or the Special Limited
Partner, to modify the provisions of Section 5.01 to the extent necessary to
comply with Section 704(b) of the Code or otherwise to achieve the intended
distribution of Cash Available for Distribution, Sale Proceeds, or liquidation
proceeds among the Partners.
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
-----------------------------------------------------
Section 6.01. Management of the Partnership.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement, the General
Partner shall have full, complete and exclusive discretion to manage and control
the business of the Partnership for the purposes herein stated, and shall make
all decisions affecting the business and assets of the Partnership. Subject to
the restrictions specifically contained in this Agreement, the powers of the
General Partner shall include, without limitation, the authority to take the
following actions on behalf of the Partnership:
(i) to acquire, purchase, own, operate, lease and dispose of any
real property and any other property or assets including, but not limited
to notes and mortgages, that the General Partner determines are necessary
or appropriate or in the best interests of the business of the Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to authorize, issue, sell, redeem or otherwise purchase any
Partnership Interests or any securities (including secured and unsecured
debt obligations of the Partnership, debt obligations of the Partnership
convertible into any class or series of Partnership Interests, or options,
rights, warrants or appreciation rights relating to any Partnership
Interests) of the Partnership;
(iv) to borrow or lend money for the Partnership, issue or receive
evidences of indebtedness in connection therewith, refinance, increase the
amount of, modify, amend or change the terms of, or extend the time for the
payment of, any such
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<PAGE>
indebtedness, and secure such indebtedness by mortgage, deed of trust,
pledge or other lien on the Partnership's assets;
(v) to guarantee or become a comaker of indebtedness of the
Company, the General Partner, or any Subsidiary thereof, refinance,
increase the amount of, modify, amend or change the terms of, or extend the
time for the payment of, any such guarantee or indebtedness, and secure
such guarantee or indebtedness by mortgage, deed of trust, pledge or other
lien on the Partnership's assets;
(vi) to use assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with this Agreement,
including, without limitation, payment, either directly or by
reimbursement, of all operating costs and general administrative expenses
of the General Partner, the Partnership or any Subsidiary of either, to
third parties or to the General Partner as set forth in this Agreement;
(vii) to lease all or any portion of any of the Partnership's assets,
whether or not the terms of such leases extend beyond the termination date
of the Partnership and whether or not any portion of the Partnership's
assets so leased are to be occupied by the lessee, or, in turn, subleased
in whole or in part to others, for such consideration and on such terms as
the General Partner may determine;
(viii) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such terms
and in such manner as the General Partner may reasonably determine, and
similarly to prosecute, settle or defend litigation with respect to the
Partners, the Partnership, or the Partnership's assets;
(ix) to file applications, communicate, and otherwise deal with any
and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the Partnership
business;
(x) to make or revoke any election permitted or required of the
Partnership by any taxing authority;
(xi) to maintain such insurance coverage for public liability, fire
and casualty, and any and all other insurance for the protection of the
Partnership, for the conservation of Partnership assets, or for any other
purpose convenient or beneficial to the Partnership, in such amounts and
such types, as it shall determine from time to time;
(xii) to determine whether or not to apply any insurance proceeds for
any property to the restoration of such property or to distribute the same;
(xiii) to establish one or more divisions of the Partnership, to hire
and dismiss employees of the Partnership or any division of the
Partnership, and to retain
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<PAGE>
legal counsel, accountants, consultants, real estate brokers, and such
other persons, as the General Partner may deem necessary or appropriate in
connection with the Partnership business and to pay therefor such
reasonable remuneration as the General Partner may deem reasonable and
proper;
(xiv) to retain other services of any kind or nature in connection
with the Partnership business, and to pay therefor such remuneration as the
General Partner may deem reasonable and proper;
(xv) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xvi) to maintain accurate accounting records and to file promptly
all federal, state and local income tax returns on behalf of the
Partnership;
(xvii) to distribute Partnership cash or other Partnership assets in
accordance with this Agreement;
(xviii) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from
time to time);
(xix) to establish Partnership reserves for working capital, capital
expenditures, contingent liabilities, or any other valid Partnership
purpose; and
(xx) to take such other action, execute, acknowledge, swear to or
deliver such other documents and instruments, and perform any and all other
acts that the General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and affairs of the
Partnership (including, without limitation, all actions consistent with
allowing the Company at all times to qualify as a REIT unless the Company
voluntarily terminates its REIT status) and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of the
General Partner require expenditures of funds to be paid to third parties, the
General Partner shall not have any obligations hereunder except to the extent
that partnership funds are reasonably available to it for the performance of
such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.
Section 6.02. Delegation of Authority.
-----------------------
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The General Partner may delegate any or all of its powers, rights and
obligations hereunder, and may appoint, employ, contract or otherwise deal with
any Person for the transaction of the business of the Partnership, which Person
may, under supervision of the General Partner, perform any acts or services for
the Partnership as the General Partner may approve.
Section 6.03. Indemnification and Exculpation of Indemnitees.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable expenses
incurred by an Indemnitee who is a party to a proceeding in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of the
Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have
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the power to indemnify such Person against such liability under the provisions
of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of this Section 6.03; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
Section 6.04. Liability of the General Partner.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner shall not be liable for monetary damages to the Partnership
or any Partners for losses sustained or liabilities incurred as a result of
errors in judgment or of any act or omission if the General Partner acted in
good faith. The General Partner shall not be in breach of any duty that the
General Partner may owe to the Limited Partners or the Partnership or any other
Persons under this Agreement or of any duty stated or implied by law or equity
provided the General Partner, acting in good faith, abides by the terms of this
Agreement.
(b) The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership, the Company, and the Company's shareholders
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (including, without limitation, the
tax consequences to Limited Partners or the tax consequences of same, but not
all, of the Limited Partners) in deciding whether to cause the Partnership to
take (or decline to take) any actions. In the event of a conflict between the
interests of the shareholders of the Company on one hand and the Limited
Partners on the other, the General Partner shall endeavor in good faith to
resolve the conflict in a manner not adverse to either Company's shareholders or
the Limited Partners; provided, however, that for
-------- -------
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so long as the Company owns a controlling interest in the Partnership, any such
conflict that cannot be resolved in a manner not adverse to either the Company's
shareholders or the Limited Partners shall be resolved in favor of the
shareholders. The General Partner shall not be liable for monetary damages for
losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
(c) Subject to its obligations and duties as General Partner set forth in
Section 6.01 hereof, the General Partner may exercise any of the powers granted
to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Company to continue to
qualify as a REIT or (ii) to prevent the Company from incurring any taxes under
Section 857, Section 4981, or any other provision of the Code, is expressly
authorized under this Agreement and is deemed approved by all of the Limited
Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
Section 6.05. Reimbursement Obligations of Partnership.
----------------------------------------
The General Partner is hereby authorized to pay compensation for
accounting, administrative, legal, technical, management and other services
rendered to the Partnership. All of the aforesaid expenditures (including
Administrative Expenses and REIT Expenses) shall be obligations of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses and REIT
Expenses) incurred by it on behalf of the Partnership which shall be made other
than out of the funds of the Partnership.
Section 6.06. Outside Activities.
------------------
Subject to Section 6.08 hereof, the Amended and Restated Articles of
Incorporation, and any agreements entered into by the Company, the General
Partner, or its Affiliates with the Partnership or a Subsidiary, any officer,
director, employee, agent, trustee, Affiliate or shareholder of the Company or
the General Partner, the General Partner shall be entitled to and may have
business interests and engage in business activities in addition to those
relating
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to the Partnership, including business interests and activities substantially
similar or identical to those of the Partnership. Neither the Partnership nor
any of the Limited Partners shall have any rights by virtue of this Agreement in
any such business ventures, interest or activities. None of the Limited Partners
nor any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any such business ventures,
interests or activities, and the General Partner shall have no obligation
pursuant to this Agreement to offer any interest in any such business ventures,
interests and activities to the Partnership or any Limited Partner, even if such
opportunity is of a character which, if presented to the Partnership or any
Limited Partner, could be taken by such Person.
Section 6.07. Employment or Retention of Affiliates.
-------------------------------------
(a) Any Affiliate of the Company or the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to 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.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are on terms that are fair and reasonable
to the Partnership.
Section 6.08. Title of Partnership Assets.
---------------------------
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby
declares and warrants that any Partnership assets for which legal title is held
in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement;
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provided, however, that the General Partner shall use its best efforts to cause
- -------- -------
beneficial and record title to such assets to be vested in the Partnership as
soon as reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
Section 6.09. Miscellaneous.
-------------
In the event the Company redeems any REIT Shares, then the General Partner
shall cause the Partnership to purchase from the General Partner a number of
Partnership Units as determined based on the application of the Conversion
Factor on the same terms that the Company redeemed such REIT Shares. Moreover,
if the Company makes a cash tender offer or other offer to acquire REIT Shares,
then the General Partner shall cause the Partnership to make a corresponding
offer to the General Partner to acquire an equal number of Partnership Units
held by the General Partner. In the event any REIT Shares are acquired by the
Company pursuant to such offer, the Partnership shall redeem an equivalent
number of the General Partner's Partnership Units for an equivalent purchase
price based on the application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
Section 7.01. Transfer of the General Partner's Partnership Interest.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in Section 7.01(c) or in connection with a transaction described in Section
7.01(d) or (e).
(b) The General Partner agrees that its Percentage Interest will at all
times be in the aggregate at least 1%.
(c) Except as otherwise provided herein in Section 7.01(d) or (e) hereof,
the Company shall not engage in any merger, consolidation or other combination
with or into another Person or sale of all or substantially all of its assets,
or any reclassification, or any recapitalization or change of outstanding REIT
Shares (other than a change in par value, or from par value to no par value, or
as a result of a subdivision or combination of REIT Shares), in each case which
results in a change of control of the Company (a "Transaction"), unless:
(i) as a result of such Transaction all Limited Partners will receive
for each Partnership Unit an amount of cash, securities, or other property
equal to the product of the Conversion Factor and the greatest amount of
cash, securities or other property paid in the Transaction to a holder of
one REIT Share in consideration of one REIT Share, provided that if, in
connection with the Transaction, a purchase, tender or exchange offer
("Offer") shall have been made to and accepted by the holders of more than
50% of the outstanding REIT Shares, each holder of Partnership Units shall
be
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given the option to exchange its Partnership Units for the greatest amount
of cash, securities, or other property which a Limited Partner would have
received had it (A) exercised its Redemption Right and (B) sold, tendered
or exchanged pursuant to the Offer the REIT Shares received upon exercise
of the Redemption Right immediately prior to the expiration of the Offer;
or
(ii) the Company is the surviving entity in the Transaction and either
(A) the holders of REIT Shares do not receive cash, securities or other
property in the Transaction or (B) all Limited Partners (other than the
General Partner or any Affiliate of the General Partner) receive an amount
of cash, securities or other property (expressed as an amount per REIT
Share) that is no less than the product of the Conversion Factor and the
greatest amount of cash, securities or other property (expressed as an
amount per REIT Share) received in the Transaction by any holder of REIT
Shares.
(d) Notwithstanding Section 7.01(c), the Company may merge with or into or
consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity, including any wholly-owned Subsidiary of such entity (collectively, the
"Survivor"), other than Partnership Units or the stock of any wholly-owned
Subsidiary, are contributed, directly or indirectly, to the Partnership as a
Capital Contribution in exchange for Partnership Units with a fair market value
equal to the value of the assets so contributed as determined by the Survivor in
good faith and (ii) the Survivor expressly agrees to assume all obligations of
the Company, as appropriate, hereunder. Upon such contribution and assumption,
the Survivor shall have the right and duty to amend this Agreement as set forth
in this Section 7.01(d). The Survivor shall in good faith arrive at a new
method for the calculation of the Cash Amount, the REIT Shares Amount and
Conversion Factor for a Partnership Unit after any such merger or consolidation
so as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been redeemed
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Survivor also shall in good
faith modify the definition of REIT Shares and make such amendments to Section
8.05 hereof so as to approximate the existing rights and obligations set forth
in Section 8.05 as closely as reasonably possible. The above provisions of this
Section 7.01(d) shall similarly apply to successive mergers or consolidations
permitted hereunder.
(e) Notwithstanding Section 7.01(c),
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(i) a General Partner (including the Company) may transfer all or any
portion of its General Partnership Interest to (A) a wholly-owned
Subsidiary of such General Partner or (B) the owner of all of the ownership
interests of such General Partner, and following a transfer of all of its
General Partnership Interest, may withdraw as General Partner; and
(ii) the Company may engage in any transaction not required by law or
by the rules of any national securities exchange on which the REIT Shares
are listed to be submitted to the vote of the holders of the REIT Shares.
Section 7.02. Admission of a Substitute or Additional General Partner.
-------------------------------------------------------
A Person shall be admitted as a substitute or additional General Partner of
the Partnership only if the following terms and conditions are satisfied:
(a) Except where the admission of a substitute or additional General
Partner is expressly authorized in Section 7.01, a majority in interest of the
Limited Partners (other than the General Partner) must consent in writing to the
admission of the substitute or additional General Partner, which consent may be
withheld in the sole discretion of such Limited Partners;
(b) The Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(c) If the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of such Person's
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) Counsel for the Partnership shall have rendered an opinion (relying on
such opinions from other counsel and the state or any other jurisdiction as may
be necessary) that the admission of the person to be admitted as a substitute or
additional General Partner is in conformity with the Act, that none of the
actions taken in connection with the admission of such Person as a substitute or
additional General Partner will cause (i) the Partnership to be classified other
than as a partnership for federal income tax purposes, or (ii) the loss of any
Limited Partner's limited liability.
Section 7.03. Effect of Bankruptcy, Withdraw, Death or Dissolution of a
---------------------------------------------------------
General Partner.
- ---------------
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<PAGE>
(a) Upon the occurrence of an Event of Bankruptcy as to a General Partner
(and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal,
removal or dissolution of a General Partner (except that, if a General Partner
is on the date of such occurrence a partnership, the withdrawal, death,
dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to reconstitute the Partnership and continue the business of the Partnership for
the balance of the term specified in Section 2.04 hereof by selecting, subject
to Section 7.02 hereof and any other provisions of this Agreement, a substitute
General Partner by unanimous consent of the Limited Partners. If the Limited
Partners elect to reconstitute the Partnership and admit a substitute General
Partner, the relationship with the Partners and of any Person who has acquired
an interest of a Partner in the Partnership shall be governed by this Agreement.
Section 7.04. Removal of a General Partner.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
may not otherwise remove the General Partner, with or without cause.
(b) If a General Partner has been removed pursuant to this Section 7.04
and the Partnership is continued pursuant to Section 7.03(b) hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof. At the time of assignment, the removed General Partner shall be entitled
to receive from the substitute General Partner the fair market value of the
General Partnership Interest of such removed General Partner as reduced by any
damages caused to the Partnership by such General Partner. Such fair market
value shall be determined by an appraiser mutually agreed upon by the General
Partner and a majority in interest of the Limited Partners within 10 days
following the removal of the General Partner. In the event
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that the parties are unable to agree upon an appraiser, the removed General
Partner and a majority in interest of the Limited Partners each shall select an
appraiser. Each such appraiser shall complete an appraisal of the fair market
value of the removed General Partner's General Partnership Interest within 30
days of the General Partner's removal, and the fair market value of the removed
General Partner's General Partnership Interest shall be the average of the two
appraisals; provided, however, that if the higher appraisal exceeds the lower
-------- -------
appraisal by more than 20% of the amount of the lower appraisal, the two
appraisers, no later than 40 days after the removal of the General Partner,
shall select a third appraiser who shall complete an appraisal of the fair
market value of the removed General Partner's General Partnership Interest no
later than 60 days after the removal of the General Partner. In such case, the
fair market value of the removed General Partner's General Partnership Interest
shall be the average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner, during
the time after default until transfer under Section 7.04(b), shall be converted
to that of a special Limited Partner; provided, however, such removed General
-------- -------
Partner shall not have any rights to participate in the management and affairs
of the Partnership, and shall not be entitled to any portion of the income,
expense, profit, gain, or loss allocations or cash distributions allocable or
payable, as the case may be, to the Limited Partners. Instead, such removed
General Partner shall receive and be entitled only to retain distributions or
allocations of such items that it would have been entitled to receive in its
capacity as General Partner, until the transfer is effective pursuant to Section
7.04(b).
(d) All Partners shall have given and hereby do give such consents, shall
take such actions and shall execute such documents as shall be legally necessary
and sufficient to effect all the foregoing provisions of this Section.
Section 7.05. Option to Acquire Incentive Limited Partnership Interest.
--------------------------------------------------------
The General Partner shall have the option to acquire the Incentive Limited
Partnership Interest upon the listing of the REIT Shares on a stock exchange.
The purchase price for the Incentive Limited Partnership Interest shall be
payable in REIT Shares or Limited Partnership Interests, at the election of the
Special Limited Partner, except that the Special Limited Partner shall not be
permitted to elect to receive REIT Shares to the extent that doing so would
cause the Company to fail to qualify as a REIT. The purchase price for the
Incentive Limited Partnership Interest shall equal the amount of the
distribution that the Special Limited Partner would receive pursuant to Section
5.02(a)(ii) and Section 5.02(b)(ii) hereof if the Partnership were immediately
to sell all of its Properties for their market value.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
----------------------------------------------
Section 8.01. Management of the Partnership.
-----------------------------
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The Limited Partners shall not participate in the management or control of
Partnership business nor shall they transact any business for the Partnership,
nor shall they have the power to sign for or bind the Partnership, such powers
being vested solely and exclusively in the General Partner.
Section 8.02. Power of Attorney.
-----------------
Each Limited Partner hereby irrevocably appoints the General Partner its
true and lawful attorney-in-fact, who may act for each Limited Partner and in
its name, place and stead, and for its use and benefit, to sign, acknowledge,
swear to, deliver, file and record, at the appropriate public offices, any and
all documents, certificates, and instruments as may be deemed necessary or
desirable by the General Partner to carry out fully the provisions of this
Agreement and the Act in accordance with their terms, which power of attorney is
coupled with an interest and shall survive the death, dissolution or legal
incapacity of the Limited Partner, or the transfer by the Limited Partner of any
part or all of its Partnership Interest.
Section 8.03. Limitation of Liability of Limited Partners.
-------------------------------------------
No Limited Partner shall be liable for any debts, liabilities, contracts or
obligations of the Partnership. A Limited Partner shall be liable to the
Partnership only to make payments of its Capital Contribution, if any, as and
when due hereunder. After its Capital Contribution is fully paid, no Limited
Partner shall, except as otherwise required by the Act, be required to make any
further Capital Contributions or other payments or lend any funds to the
Partnership.
Section 8.04. [Reserved].
Section 8.05. Redemption Right.
----------------
(a) Subject to the provisions of this Section 8.05 and the terms of any
agreements between the Partnership and one or more Limited Partners, each
Limited Partner (other than the Special Limited Partner, the Company, the
General Partner, or any wholly-owned Subsidiaries of the Company or the General
Partner) shall have the right (the "Redemption Right") to require the
Partnership to redeem on the Specified Redemption Date all or a portion of the
Partnership Units held by such Limited Partner at a redemption price equal to
and in the form of the Cash Amount to be paid by the Partnership. The
Redemption Right shall be exercised pursuant to a Notice of Redemption delivered
to the Partnership (with a copy to the General Partner) by the Limited Partner
who is exercising the Redemption Right (the "Redeeming Partner"); provided,
--------
however, that the Partnership shall not be obligated to satisfy such Redemption
- -------
Right if the General Partner elects to purchase the Partnership Units subject to
the Notice of Redemption pursuant to Section 8.05(b); and provided, further,
-------- -------
that no Limited Partner may deliver more than two Notices of Redemption during
each calendar year. A Limited Partner may not exercise the Redemption Right for
less than 1,000 Partnership Units or, if such Limited Partner holds less than
1,000 Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with
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respect to any Partnership Units so redeemed, to receive any distribution paid
with respect to Partnership Units if the Partnership Record Date for such
distribution is on or after the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the General Partner,
and the General Partner may, in its sole and absolute discretion, elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.05(b) with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within ten Business Days after the receipt by the
General Partner of such Notice of Redemption. Unless the General Partner (in
its sole and absolute discretion) shall exercise its right to purchase
Partnership Units from the Redeeming Partner pursuant to this Section 8.05(b),
the General Partner shall have no obligation to the Redeeming Partner or the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the General Partner shall exercise its right to purchase
Partnership Units with respect to the exercise of a Redemption Right in the
manner described in the first sentence of this Section 8.05(b), the Partnership
shall have no obligation to pay any amount to the Redeeming Partner with respect
to such Redeeming Partner's exercise of such Redemption Right, and each of the
Redeeming Partner, the Partnership, and the General Partner, as the case may be,
shall treat the transaction between the General Partner and the Redeeming
Partner for federal income tax purposes as a sale of the Redeeming Partner's
Partnership Units to the General Partner. Each Redeeming Partner agrees to
execute such documents as the General Partner may reasonably require in
connection with the issuance of REIT Shares upon exercise of the Redemption
Right. If the Redeeming Partner receives REIT Shares, the Redeeming Partner
shall have the right to receive any dividend or other distribution paid with
respect to REIT Shares if the record date for such dividend or distribution is
on or after the Specified Redemption Date.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Limited Partner shall not be entitled to exercise the Redemption Right if the
delivery of REIT Shares to such Partner on the Specified Redemption Date by the
General Partner pursuant to Section 8.05(b) (regardless of whether or not the
General Partner would in fact exercise its rights under Section 8.05(b)) would
(i) result in such Partner or any other person owning, directly or indirectly,
REIT Shares in excess of the Ownership Limitation (as defined in the Amended and
Restated Articles of Incorporation) and calculated in accordance therewith,
except as provided in the Amended and Restated Articles of Incorporation, (ii)
result in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (iii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, (iv) otherwise
jeopardize the Company's status as a REIT, or (v) cause the
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<PAGE>
acquisition of REIT Shares by such Partner to be "integrated" with any other
distribution of REIT Shares for purposes of complying with the registration
provisions of the Securities Act. The General Partner, in its sole discretion,
may waive the restriction on redemption set forth in this Section 8.05(c);
provided, however, that in the event such restriction is waived, the Redeeming
- -------- -------
Partner shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to this
Section 8.05 shall be paid on the Specified Redemption Date; provided, however,
-------- -------
that the General Partner may elect to cause the Specified Redemption Date to be
delayed for up to an additional 180 days to the extent required for the Company
to cause additional REIT Shares to be issued to provide financing to be used to
make such payment of the Cash Amount. Notwithstanding the foregoing, the
General Partner agrees to use its best efforts to cause the closing of the
acquisition of redeemed Partnership Units hereunder to occur as quickly as
reasonably possible.
(e) Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines to be necessary or
appropriate to cause the Partnership to comply with any withholding requirements
established under the Code or any other federal, state or local law that apply
upon a Redeeming Partner's exercise of the Redemption Right. If a Redeeming
Partner believes that it is exempt from such withholding upon the exercise of
the Redemption Right, such Partner must furnish the General Partner with a
FIRPTA Certificate in the form attached hereto as Exhibit C. If the Partnership
---------
or the General Partner is required to withhold and pay over to any taxing
authority any amount upon a Redeeming Partner's exercise of the Redemption Right
and if the Redemption Amount equals or exceeds the Withheld Amount, the Withheld
Amount shall be treated as an amount received by such Partner in redemption of
its Partnership Units. If, however, the Redemption Amount is less than the
Withheld Amount, the Redeeming Partner shall not receive any portion of the
Redemption Amount, the Redemption Amount shall be treated as an amount received
by such Partner in redemption of its Partnership Units, and the Partner shall
contribute the excess of the Withheld Amount over the Redemption Amount to the
Partnership before the Partnership is required to pay over such excess to a
taxing authority.
(f) Notwithstanding any other provision of this Agreement, the General
Partner shall place appropriate restrictions on the ability of the Limited
Partners to exercise their Redemption Rights as and if deemed necessary to
ensure that the Partnership does not constitute a "publicly traded partnership"
that is taxed as a corporation under Section 7704 of the Code. If and when the
General Partner determines that imposing such restrictions is necessary, the
General Partner shall give prompt written notice thereof (a "Restriction
Notice") to each of the Limited Partners, which notice shall be accompanied by a
copy of an opinion of counsel to the Partnership which states that, in the
opinion of such counsel, restrictions are necessary in order to avoid the
Partnership being treated as a "publicly traded partnership" that is taxed as a
corporation under Section 7704 of the Code.
Section 8.06. Registration.
------------
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<PAGE>
(a) Shelf Registration of the Common Stock. Prior to or on the first date
--------------------------------------
upon which the Partnership Units owned by any Limited Partner may be redeemed
(or such other date as may be permitted under applicable provisions of the
Securities Act), the Company agrees to file with the Securities and Exchange
Commission (the "Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Securities Act (a "Registration Statement"), or any similar rule
that may be adopted by the Commission, with respect to all of the REIT Shares
that may be issued upon redemption of such Partnership Units pursuant to Section
8.05 hereof ("Redemption Shares"). The Company will use its best efforts to
have the Registration Statement declared effective under the Securities Act.
The Company need not file a separate Registration Statement, but may file one
Registration Statement covering Redemption Shares issuable to more than one
Limited Partner. The Company further agrees to supplement or make amendments to
each Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for such Registration
Statement.
(b) If a Registration Statement under subsection (a) above is not
available under the securities laws or the rules of the Commission, or if
required to permit the resale of Redemption Shares by "Affiliates" (as defined
in the Securities Act), the Company agrees to file with the Commission a
Registration Statement covering the resale of Redemption Shares by Affiliates or
others whose Redemption Shares are not covered by a Registration Statement filed
pursuant to subsection (a) above, provided that the Company is furnished all
information with respect to holders of Redemption Shares required to complete
such Registration Statement and have it declared effective by the Commission.
The Company will use its best efforts to have the Registration Statement
declared effective under the Securities Act. The Company need not file a
separate Registration Statement, but may file one Registration Statement
covering Redemption Shares issuable to more than one Limited Partner. The
Company further agrees to supplement or make amendments to each Registration
Statement, if required by the rules, regulations or instructions applicable to
the registration form utilized by the Company or by the Securities Act or rules
and regulations thereunder for such Registration Statement.
(c) Listing on Securities Exchange. If the Company shall list or maintain
------------------------------
the listing of REIT Shares of on any securities exchange or national market
system, it will at its expense and as necessary to permit the registration and
sale of the Redemption Shares hereunder, list thereon, maintain and, when
necessary, increase such listing to include such Redemption Shares.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
Section 9.01. Purchase for Investment.
-----------------------
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<PAGE>
(a) Each Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of his Partnership Interests
is made as a principal for his account for investment purposes only and not with
a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or otherwise
transfer his Partnership Interest or any fraction thereof, whether voluntarily
or by operation of law or at judicial sale or otherwise, to any Person who does
not make the representations and warranties to the General Partner set forth in
Section 9.01(a) above and similarly agree not to sell, assign or transfer such
Partnership Interest or fraction thereof to any Person who does not similarly
represent, warrant and agree.
Section 9.02. Restrictions on Transfer of Limited Partnership Interests.
---------------------------------------------------------
(a) Subject to the provisions of this Article IX, no Limited Partner may
offer, sell, assign, hypothecate, pledge or otherwise transfer all or any
portion of his Limited Partnership Interest, or any of such Limited Partner's
economic rights as a Limited Partner, whether voluntarily or by operation of law
or at judicial sale or otherwise (collectively, a "Transfer") without the
consent of the General Partner, which consent may be granted or withheld in its
sole and absolute discretion. Any such purported transfer undertaken without
such consent shall be considered to be null and void ab initio and shall not be
---------
given effect. Each Limited Partner acknowledges that the General Partner has
agreed not to grant any such consent prior to the Transfer Restriction Date.
The General Partner may require, as a condition of any Transfer to which it
consents, that the transferor assume all costs incurred by the Partnership in
connection therewith.
(b) No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer (i.e., a Transfer consented to as contemplated by
clause (a) above or clause (c) below or a Transfer pursuant to Section 9.05
below) of all of his Partnership Units pursuant to this Article IX or pursuant
to a redemption of all of his Partnership Units pursuant to Section 8.05. Upon
the permitted Transfer or redemption of all of a Limited Partner's Partnership
Units, such Limited Partner shall cease to be a Limited Partner.
(c) Subject to the provisions of this Article IX, a Limited Partner may
Transfer, with the consent of the General Partner, all or a portion of his
Partnership Units to (i) a parent or parent's spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, or a
trust created by such Limited Partner for the benefit of such Limited Partner
and/or any such person(s), of which trust such Limited Partner or any such
person(s) is a trustee, (ii) a corporation controlled by a Person or Persons
named in clause (i) above, or (ii) if the Limited Partner is an entity, its
beneficial owners or one or more of its Affiliates.
(d) No Limited Partner may effect a Transfer of its Limited Partnership
Interest, in whole or in part, if, in the opinion of legal counsel for the
Partnership, such proposed Transfer would require the registration of the
Limited Partnership Interest under the Securities Act, or
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<PAGE>
would otherwise violate any applicable federal or state securities or blue sky
law (including investment suitability standards).
(e) No Transfer by a Limited Partner of its Partnership Units, in whole or
in part, may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, the transfer would result in the Partnership's being treated as
an association taxable as a corporation (other than a qualified REIT subsidiary
within the meaning of Section 856(i) of the Code), (ii) in the opinion of legal
counsel for the Partnership, it would adversely affect the ability of the
Company to continue to qualify as a REIT or subject the Company to any taxes
under Section 857 or Section 4981 of the Code, or (iii) such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
(f) No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)),
without the consent of the General Partner, which may be withheld in its sole
and absolute discretion, provided, however, that as a condition to such consent
-------- -------
the lender may be required to enter into an arrangement with the Partnership and
the General Partner to exchange or redeem for the Cash Amount any Partnership
Units in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
(g) Any Transfer in contravention of any of the provisions of this Article
IX shall be void and ineffectual and shall not be binding upon, or recognized
by, the Partnership.
(h) Prior to the consummation of any Transfer under this Article IX, the
transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.
Section 9.03. Admission of Substitute Limited Partner.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an assignee of the
Limited Partnership Interest of a Limited Partner (which shall be understood to
include any purchaser, transferee, donee, or other recipient of any disposition
of such Limited Partnership Interest) shall be deemed admitted as a Limited
Partner of the Partnership only with the consent of the General Partner and upon
the satisfactory completion of the following:
(i) The assignee shall have accepted and agreed to be bound by the
terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised Exhibit A, and such other documents
---------
or instruments as the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
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<PAGE>
(ii) To the extent required, an amended Certificate evidencing the
admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement set
forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence satisfactory
to counsel for the Partnership of the assignee's authority to become a
Limited Partner under the terms and provisions of this Agreement.
(v) The assignee shall have executed a power of attorney containing
the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees of the
Partnership and the General Partner and filing and publication costs in
connection with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of the General Partner's
sole and absolute discretion.
(b) For the purpose of allocating Operating Income and distributing cash
received by the Partnership, a Substitute Limited Partner shall be treated as
having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or,
if no such filing is required, the later of the date specified in the transfer
documents or the date on which the General Partner has received all necessary
instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to become
a Substitute Limited Partner by preparing the documentation required by this
Section and making all official filings and publications. The Partnership shall
take all such action as promptly as practicable after the satisfaction of the
conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
Section 9.04. Rights of Assignees of Partnership Interests.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except as
required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner of its
Partnership Interest until the Partnership has received notice thereof.
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<PAGE>
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of its Limited Partnership Interest.
Section 9.05. Effect of Bankruptcy, Death, Incompetence, or Termination of
------------------------------------------------------------
a Limited Partner.
- -----------------
The occurrence of an Event of Bankruptcy as to a Limited Partner, the death
of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
Section 9.06. Joint Ownership of Interests.
----------------------------
A Partnership Interest may be acquired by two individuals as joint tenants
with right of survivorship, provided that such individuals either are married or
are related and share the same home as tenants in common. The written consent
or vote of both owners of any such jointly held Partnership Interest shall be
required to constitute the action of the owners of such Partnership Interest;
provided, however, that the written consent of only one joint owner will be
- -------- -------
required if the Partnership has been provided with evidence satisfactory to the
counsel for the Partnership that the actions of a single joint owner can bind
both owners under the applicable laws of the state of residence of such joint
owners. Upon the death of one owner of a Partnership Interest held in a joint
tenancy with a right of survivorship, the Partnership Interest shall become
owned solely by the survivor as a Limited Partner and not as an assignee. The
Partnership need not recognize the death of one of the owners of a jointly held
Partnership Interest until it shall have received notice of such death. Upon
notice to the General Partner from either owner, the General Partner shall cause
the Partnership Interest to be divided into two equal Partnership Interests,
which shall thereafter be owned separately by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
Section 10.01. Books and Records.
-----------------
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<PAGE>
At all times during the continuance of the Partnership, the Partners shall
keep or cause to be kept at the Partnership's specified office true and complete
books of account in accordance with generally accepted accounting principles,
including: (a) a current list of the full name and last known business address
of each Partner, (b) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, (c) copies of the Partnership's federal,
state and local income tax returns and reports, (d) copies of the Agreement and
any financial statements of the Partnership for the three most recent years and
(e) all documents and information required under the Act. Any Partner or its
duly authorized representative, upon paying the costs of collection, duplication
and mailing, shall be entitled to inspect or copy such records during ordinary
business hours.
Section 10.02. Custody of Partnership Funds; Bank Accounts.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be deposited
in one or more accounts maintained in such banking or brokerage institutions as
the General Partner shall determine, and withdrawals shall be made only on such
signature or signatures as the General Partner may, from time to time,
determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds. The funds of the Partnership shall not be
commingled with the funds of any other Person except for such commingling as may
necessarily result from an investment in those investment companies permitted by
this Section 10.02(b).
Section 10.03. Fiscal and Taxable Year.
-----------------------
The fiscal and taxable year of the Partnership shall be the calendar year.
Section 10.04. Annual Tax Information and Report.
---------------------------------
Within 75 days after the end of each fiscal year of the Partnership, the
General Partner shall furnish to each person who was a Limited Partner at any
time during such year a properly completed Schedule K-1.
Section 10.05. Tax Matters Partner; Tax Elections; Special Basis
-------------------------------------------------
Adjustments.
- -----------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General Partner
on behalf of the Partnership as Tax Matters Partner shall constitute Partnership
expenses. In the event the General Partner
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<PAGE>
receives notice of a final Partnership adjustment under Section 6223(a)(2) of
the Code, the General Partner shall either (i) file a court petition for
judicial review of such final adjustment within the period provided under
Section 6226(a) of the Code, a copy of which petition shall be mailed to all
Limited Partners on the date such petition is filed, or (ii) mail a written
notice to all Limited Partners, within such period, that describes the General
Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code or any applicable state or local tax law shall be made by the
General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
Section 10.06. Reports to Limited Partners.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter (other
than the last quarter of the fiscal year), the General Partner shall cause to be
mailed to each Limited Partner a quarterly report containing financial
statements of the Partnership, or of the General Partner if such statements are
prepared solely on a consolidated basis with the General Partner, for such
fiscal quarter, presented in accordance with generally accepted accounting
principles. As soon as practicable after the close of each fiscal year, the
General Partner shall cause to be mailed to each Limited Partner an annual
report containing financial statements of the Partnership, or of the General
Partner if such statements are prepared solely on a consolidated basis with the
General Partner, for such fiscal year, presented in accordance with generally
accepted accounting principles. The annual financial statements shall be
audited by accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT
----------------------
The General Partner's consent shall be required for any amendment to this
Agreement. The General Partner, without the consent of the Limited Partners,
may amend this Agreement
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in any respect; provided, however, that the following amendments shall require
-------- -------
the consent of Limited Partners holding more than 50% of the Percentage
Interests of the Limited Partners:
(a) any amendment affecting the operation of the Conversion Factor or the
Redemption Right (except as provided in Section 7.01 or 8.05 hereof) in a manner
adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the Limited
Partners to receive the distributions payable to them hereunder, other than
pursuant to the issuance of additional Partnership Units pursuant to Section
4.02 hereof;
(c) any amendment that would alter the Partnership's allocations of
income, gain, loss, and expense to the Limited Partners, other than pursuant to
the issuance of additional Partnership Units pursuant to Section 4.02 hereof or
an amendment effected pursuant to Section 5.07 hereof; or
(d) any amendment that would impose on the Limited Partners any obligation
to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
------------------
Section 12.01. Notices.
-------
All communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or upon
deposit in the United States mail, registered, postage prepaid return receipt
requested, to the Partners at the addresses set forth in Exhibit A attached
---------
hereto; provided, however, that any Partner may specify a different address by
-------- -------
notifying the General Partner in writing of such different address. Notices to
the Partnership shall be delivered at or mailed to its specified office.
Section 12.02. Survival of Rights.
------------------
Subject to the provisions hereof limiting transfers, this Agreement shall
be binding upon and inure to the benefit of the Partners and the Partnership and
their respective legal representatives, successors, transferees and assigns.
Section 12.03. Additional Documents.
--------------------
Each Partner agrees to perform all further acts and execute, swear to,
acknowledge and deliver all further documents which may be reasonable,
necessary, appropriate or desirable to carry out the provisions of this
Agreement or the Act.
Section 12.04. Severability.
------------
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<PAGE>
If any provision of this Agreement shall be declared illegal, invalid, or
unenforceable in any jurisdiction, then such provision shall be deemed to be
severable from this Agreement (to the extent permitted by law) and in any event
such illegality, invalidity or unenforceability shall not affect the remainder
hereof.
Section 12.05. Entire Agreement.
----------------
This Agreement and exhibits attached hereto constitute the entire Agreement
of the Partners and supersede all prior written agreements and prior and
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
Section 12.06. Pronouns and Plurals.
--------------------
When the context in which words are used in the Agreement indicates that
such is the intent, words in the singular number shall include the plural and
the masculine gender shall include the neuter or female gender as the context
may require.
Section 12.07. Headings.
--------
The Article headings or sections in this Agreement are for convenience only
and shall not be used in construing the scope of this Agreement or any
particular Article.
Section 12.08. Counterparts.
------------
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original copy and all of which together shall constitute one
and the same instrument binding on all parties hereto, notwithstanding that all
parties shall not have signed the same counterpart.
Section 12.09. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of the ____ day of
____, 1999.
GENERAL PARTNER:
T REIT, INC., a Virginia corporation
By: ___________________________________________
Name:
Title:
SPECIAL LIMITED PARTNER:
TRIPLE NET PROPERTIES LLC, a Virginia limited
liability company
By: ___________________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ ------------ ------ --------
<S> <C> <C> <C> <C>
General Partner: 100%
T REIT, Inc.
Special Limited Partner:
Triple Net Properties LLC $100 $100 0 0%*
</TABLE>
* The Special Limited Partner will be entitled to the distributions provided
for in Article V of this Agreement.
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<PAGE>
EXHIBIT B
---------
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Agreement of Limited Partnership
(the "Agreement") of T REIT L.P., the undersigned hereby irrevocably (i)
presents for redemption ________ Partnership Units in T REIT L.P. in accordance
with the terms of the Agreement and the Redemption Right referred to in Section
8.05 thereof, (ii) surrenders such Partnership Units and all right, title and
interest therein, and (iii) directs that the Cash Amount or REIT Shares Amount
(as defined in the Agreement) as determined by the General Partner deliverable
upon exercise of the Redemption Right be delivered to the address specified
below, and if REIT Shares (as defined in the Agreement) are to be delivered,
such REIT Shares be registered or placed in the name(s) and at the address(es)
specified below.
Dated:________ __, _____
Name of Limited Partner:
______________________________
(Signature of Limited Partner)
______________________________
(Mailing Address)
______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
______________________________
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
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<PAGE>
EXHIBIT C
---------
For Redeeming Partners that are entities:
CERTIFICATION OF NON-FOREIGN STATUS
-----------------------------------
Under section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), in the event of a disposition by a non-U.S. person of a partnership
interest in a partnership in which (i) 50% or more of the value of the gross
assets consists of United States real property interests ("USRPIs"), as defined
in section 897(c) of the Code, and (ii) 90% or more of the value of the gross
assets consists of USRPIs, cash, and cash equivalents, the transferee will be
required to withhold 10% of the amount realized by the non-U.S. person upon the
disposition. To inform T REIT, Inc. (the "General Partner") and T REIT L.P.
(the "Partnership") that no withholding is required with respect to the
redemption by ____________ ("Limited Partner") of its units of limited
partnership interest in the Partnership, the undersigned hereby certifies the
following on behalf of Limited Partner:
1. Limited Partner is not a foreign corporation, foreign partnership, foreign
trust, or foreign estate, as those terms are defined in the Code and the
Treasury regulations thereunder.
2. The U.S. employer identification number of Limited Partner is _____________.
3. The principal business address of Limited Partner is:
______________________________________________________________ and Limited
Partner's place of incorporation is _____________.
4. Limited Partner agrees to inform the General Partner if it becomes a foreign
person at any time during the three-year period immediately following the
date of this notice.
5. Limited Partner understands that this certification may be disclosed to the
Internal Revenue Service by the General Partner and that any false statement
contained herein could be punished by fine, imprisonment, or both.
LIMITED PARTNER
By: ____________________________
Name: __________________________
Its: ___________________________
Under penalties of perjury, I declare that I have examined this certification
and, to the best of my knowledge and belief, it is true, correct, and complete,
and I further declare that I have authority to sign this document on behalf of
Limited Partner.
Date: _________________ [NAME]
______________________________
Title
-53-
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For Redeeming Partners that are individuals:
CERTIFICATION OF NON-FOREIGN STATUS
-----------------------------------
Under section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), in the event of a disposition by a non-U.S. person of a partnership
interest in a partnership in which (i) 50% or more of the value of the gross
assets consists of United States real property interests ("USRPIs"), as defined
in section 897(c) of the Code, and (ii) 90% or more of the value of the gross
assets consists of USRPIs, cash, and cash equivalents, the transferee will be
required to withhold 10% of the amount realized by the non-U.S. person upon the
disposition. To inform T REIT, Inc. (the "General Partner") and T REIT L.P.
(the "Partnership") that no withholding is required with respect to my
redemption of my units of limited partnership interest in the Partnership, I,
___________, hereby certify the following:
6. I am not a nonresident alien for purposes of U.S. income taxation.
7. My U.S. taxpayer identification number (social security number) is
_____________.
8. My home address is: ______________________________________________________.
9. I agree to inform the General Partner promptly if I become a nonresident
alien at any time during the three-year period immediately following the
date of this notice.
10. I understand that this certification may be disclosed to the Internal
Revenue Service by the General Partner and that any false statement
contained herein could be punished by fine, imprisonment, or both.
________________________________
Name:
Under penalties of perjury, I declare that I have examined this certification
and, to the best of my knowledge and belief, it is true, correct, and complete.
Date: _________________ ________________________________
Name:
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EXHIBIT 10.5
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of ______, 1999 between T REIT, Inc., a Virginia
corporation (the "Company"), and Triple Net Properties, LLC, a Virginia limited
liability company (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Company intends to qualify as a real estate investment trust
(a "REIT") as defined in Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to make investments of the type permitted
to qualified REITs under the Code and not inconsistent with the Articles of
Incorporation of the Company, as amended (the "Articles of Incorporation"), and
the Bylaws of the Company; and
WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice and assistance of the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
and subject to the supervision of the Board of Directors of the Company (the
"Board of Directors"), as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the parties hereto agree as follows:
1. Definitions.
As used herein, the following terms shall have the meanings set forth
below:
(a) "Acquisition Expenses" shall mean expenses related to selecting,
evaluating and acquiring properties, whether or not acquired, including,
but not limited to, legal fees and expenses, travel and communications
expenses, cost of appraisals and surveys, nonrefundable option payments on
property not acquired, accounting fees and expenses, computer use related
expenses, architectural and engineering reports, environmental and asbestos
audits, title insurance and escrow fees, and personnel and miscellaneous
expenses related to the selection and acquisition of properties.
(b) "Affiliate" shall mean: (i) any Person directly or indirectly
owning, controlling or holding, with the power to vote 10% or more of the
outstanding voting securities of such other Person; (ii) any Person 10% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled or held, with the 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.
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(c) "Asset Management Fee" means an amount up to 1.5% of the Average
Invested Assets as described in Section 9(b).
(d) "Average Invested Assets" shall mean, for any period, the average
of the aggregate Book Value of the assets of the Company invested, directly
or indirectly, in equity interests and in loans secured by real estate,
before reserves for depreciation or bad debts or other similar non-cash
reserves, computed by taking the average of such values at the end of each
month during such period.
(e) "Book Value" of an asset shall mean the value of such asset on
the books of the Company, before allowance for depreciation or
amortization.
(f) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(g) "Competitive Real Estate Commission" means the real estate or
brokerage commission paid for the purchase or sale of a property which is
reasonable, customary and competitive in light of the size, type and
location of such property.
(h) "Cumulative Return" shall mean a cumulative, non-compounded
return equal to 8% per annum on Invested Capital commencing upon acceptance
by the Company of an investor's subscription.
(i) "Fiscal Year" shall mean any period for which any income tax
return is submitted by the Company to the Internal Revenue Service and
which is treated by the Internal Revenue Service as a reporting period.
(j) "Gross Offering Proceeds" shall mean the total proceeds from the
sale of Shares before deductions for Organizational and Offering Expenses.
For purposes of calculating Gross Offering Proceeds, the purchase price for
all Shares issued in the Company's initial public offering, including those
for which volume discounts apply, shall be deemed to be $10.00 per Share.
(k) "Gross Income From Properties" shall mean all cash receipts
derived from the operation of the Company's property, excluding (i) tenant
security deposits unless and until such deposits are forfeited upon a
tenant default, and (ii) proceeds from insurance claims, condemnation
proceedings, sales or refinancings.
(l) "Independent Directors" shall mean a Director who is not, and
within the last two (2) years has not been, directly or indirectly
associated with a Sponsor or the Advisor by virtue of (i) ownership of an
interest in a Sponsor, Advisor or their Affiliates, (ii) employment by a
Sponsor, the Advisor or their Affiliates, (iii) service as an officer or
director of a Sponsor, the Advisor or their Affiliates, (iv) performance of
services, other than as a Director, for the Company, (v) service as a
director or trustee of more than three (3) real estate investment trusts
organized by a Sponsor or advised by the Advisor, or (vi) maintenance of a
material business or professional relationship with a Sponsor, the Advisor
or any of their Affiliates. An indirect relationship shall include
circumstances in
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which a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law, sons- or daughters-in-law or brothers- or sisters-in-law is
or has been associated with a Sponsor, the Advisor, any of their Affiliates
or the Company. A business or professional relationship is considered
material if the gross revenue derived by the Director from a Sponsor, the
Advisor and Affiliates exceeds five percent (5%) of either the Director's
annual gross revenue during either of the last two (2) years or the
Director's net worth on a fair market value basis.
(m) "Invested Capital" shall mean the total proceeds from the sale of
Shares. When a property is sold, Invested Capital will be reduced by the
lesser of (1) the net sale proceeds available for distribution from such
sale or (2) the sum of (A) the portion of Invested Capital that initially
was allocated to that property and (B) any remaining shortfall in the
recovery of Invested Capital with respect to prior sales of properties.
(n) "Net Income" shall mean, for any period, total revenues
applicable to such period, less the operating expenses applicable to such
period other than additions to or allowances for reserves for depreciation,
amortization or bad debts or other similar non-cash reserves; provided,
however, that Net Income shall not include any gain from the sale of the
Company's assets.
(o) "Organizational and Offering Expenses" shall mean those expenses
incurred by and to be paid from the assets of the Company in connection
with and in preparing the Company for registration and subsequently
offering and distributing Shares to the public, including, but not limited
to, total underwriting and brokerage discounts and commissions (including
fees of the underwriters' attorneys), expenses for printing, engraving,
mailing, salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositaries,
experts, expenses of qualification of the sale of the securities under
federal and state laws, including taxes and fees, and accountants' and
attorneys' fees.
(p) "Partnership" shall mean T REIT, L.P., a Virginia limited
partnership.
(q) "Property Disposition Fee" means a real estate disposition fee,
payable (under certain conditions) to the Advisor and its Affiliates upon
the sale of the Company's property as described in Section 9(d).
(r) "Property Management Fee" shall mean any fee paid to an Affiliate
or third party as compensation for management of the Company's properties
as described in Section 9(e).
(s) "Person" shall mean any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
(t) "Prospectus" shall mean the final prospectus of the Company in
connection with the initial registration of Shares filed with the
Securities and Exchange Commission on Form S-11, as supplemented and
amended from time to time.
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(u) "Shares" shall mean the shares of capital stock of the Company
stock.
(v) "Shareholders" shall mean holders of the Shares.
(w) "Sponsor" shall mean any Person directly or indirectly
instrumental in organizing, wholly or in part, the Company or any Person
who will control, manage or participate in the management of the Company,
and any Affiliate of such Person. Not included is any Person whose only
relationship with the Company is that of an independent property manager of
Company assets, and whose only compensation is as such. Sponsor does not
include wholly independent third parties such as attorneys, accountants,
and underwriters whose only compensation is for professional services. A
Person may also be deemed a Sponsor of the Company by:
(i) taking the initiative, directly or indirectly, in founding
or organizing the business or enterprise of the Company, either alone
or in conjunction with one or more other Persons;
(ii) receiving a material participation in the Company in
connection with the founding or organizing of the business of the
Company, in consideration of services or property, or both services
and property;
(iii) having a substantial number of relationships and contacts
with the Company;
(iv) possessing significant rights to control Company
properties;
(v) receiving fees for providing services to the Company which
are paid on a basis that is not customary in the industry; or
(vi) providing goods or services to the Company on a basis
which was not negotiated at arms length with the Company.
(x) "Total Operating Expenses" shall mean the aggregate expenses of
every character paid or incurred by the Company as determined under
generally accepted accounting principles, including fees paid to the
Advisor, but excluding:
(i) the expenses of raising capital such as Organization and
Offering Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration and other fees, printing and other such
expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the
Shares;
(ii) interest payments;
(iii) taxes;
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(iv) non-cash expenditures such as depreciation, amortization
and bad debt reserves;
(v) incentive fees payable to the Advisor; and
(vi) Acquisition Expenses, real estate commissions on resale of
property and other expenses connected with the acquisition,
disposition (whether by sale, exchange or condemnation) and ownership
of real estate interests, mortgage loans or other property (such as
the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of property).
2. Duties of Advisor.
The Advisor shall consult with the Company and shall, at the request of the
Board of Directors or the officers of the Company, furnish advice and
recommendations with respect to all aspects of the business and affairs of the
Company. In general, the Advisor shall inform the Board of Directors of factors
that come to its attention which could influence the policies of the Company.
Subject to the supervision of the Board of Directors and consistent with the
provisions of the Articles of Incorporation, the Advisor shall use its best
efforts to:
(a) Present to the Company a continuing and suitable investment
program and opportunities to make investments consistent with the
investment policies of the Company and the investment program adopted by
the Board of Directors and in effect at the time and furnish the Company
with advice with respect to the making, acquisition, holding and
disposition of investments and commitments therefor. The Advisor is also
obligated to provide the Company with the first opportunity to purchase any
income-producing properties located in the Focus States (as such term is
defined in the Prospectus) placed under contract by the Advisor or its
Affiliates, provided that: (1) the Company has funds available to make the
purchase; (2) the Board of Directors votes to make the purchase within 7
days of being offered such property by the Advisor; and (3) the property
meets the Company's acquisition criteria as disclosed to the Advisor from
time to time;
(b) Manage the Company's day-to-day operations to effect the
investment program adopted by the Board of Directors and perform or
supervise the performance of such other administrative functions necessary
in connection with the management of the Company as may be agreed upon by
the Advisor and the Company;
(c) Serve as the Company's investment advisor in connection with
policy decisions to be made by the Board of Directors and, as requested,
furnish reports to the Board of Directors and provide research, economic
and statistical data in connection with the Company's investments and
investment policies;
(d) On behalf of the Company, investigate, select and conduct
relations with lenders, consultants, accountants, brokers, property
managers, attorneys, underwriters, appraisers, insurers, corporate
fiduciaries, banks, builders and developers, sellers and
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buyers of investments and persons acting in any other capacity specified by
the Company from time to time, and enter into contracts with, retain and
supervise services performed by such parties in connection with investments
which have been or may be acquired or disposed of by the Company;
(e) Perform such property management services and other activities
relating to the Company's assets as the Advisor shall deem appropriate in
the particular circumstances, subject to the requirement that the Advisor
qualify as an "independent contractor" as that phrase is used in connection
with applicable laws, rules and regulations affecting REITs that own real
property;
(f) Upon request of the Company, act, or obtain the services of
others to act, as attorney-in-fact or agent of the Company in making,
acquiring and disposing of investments, disbursing and collecting the
funds, paying the debts and fulfilling the obligations of the Company and
handling, prosecuting and settling any claims of the Company, including
foreclosing and otherwise enforcing mortgage and other liens and security
interests securing investments;
(g) Assist in negotiations on behalf of the Company with investment
banking firms and other institutions or investors for public or private
sales of securities of the Company or for other financing on behalf of the
Company, but in no event in such a way that the Advisor shall be acting as
a broker, dealer or underwriter of securities of the Company;
(h) On behalf of the Company, maintain, with respect to any real
property and to the extent available, title insurance or other assurance of
title and customary fire, casualty and public liability insurance with
respect to the Company's assets;
(i) At the direction of the Board of Directors, invest and reinvest
any money of the Company;
(j) Supervise the preparation and filing and distribution of returns
and reports to governmental agencies and to investors and act on behalf of
the Company in connection with investor relations;
(k) Provide office space, equipment and personnel as required for the
performance of the foregoing services as Advisor;
(l) Advise the Company of the operating results of the Company
properties, prepare on a timely basis, and review, for such properties,
operating budgets, maintenance and improvement schedules, projections of
operating results and such other reports as may be requested by the Board
of Directors;
(m) As requested by the Company, make reports to the Company of its
performance of the foregoing services and furnish advice and
recommendations with respect to other aspects of the business of the
Company;
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(n) Prepare on behalf of the Company, or engage independent
professionals to prepare, all reports and returns required by the
Securities and Exchange Commission, Internal Revenue Service and other
state or federal governmental agencies, provided that the Company is
responsible for the fees of such independent professionals;
(o) Undertake and perform all services or other activities necessary
and proper to carry out the investment objectives of the Company; and
(p) Undertake communications with Shareholders in accordance with
applicable law and the Articles of Incorporation,
provided, however, that Affiliates of the Advisor have no obligations to the
Company other than as expressly stated herein, and the Advisor and its
Affiliates have no obligations to present to the Company any specific investment
opportunity except as described in the Prospectus.
3. No Partnership or Joint Venture.
The Company and the Advisor are not, and shall not be deemed to be,
partners or joint venturers with each other.
4. Records.
The Advisor shall maintain appropriate books of account and records
relating to services performed hereunder, which shall be accessible for
inspection by the Company at any time during ordinary business hours.
5. REIT Qualifications.
Notwithstanding any other provision of this Agreement to the contrary, the
Advisor shall refrain from any action which, in its reasonable judgment or in
any judgment of the Board of Directors of which the Advisor has written notice,
would adversely affect the qualification of the Company as a REIT under the Code
or which would violate any law, rule or regulation of any governmental body or
agency having jurisdiction over the Company or its securities, or which would
otherwise not be permitted by the Articles of Incorporation. If any such action
is ordered by the Board of Directors, the Advisor shall promptly notify the
Board of Directors of the Advisor's judgment that such action would adversely
affect such status or violate any such law, rule or regulation or the Articles
of Incorporation, and shall thereafter refrain from taking such action pending
further clarification or instruction from the Board of Directors.
6. Bank Accounts.
At the direction of the Board of Directors, the Advisor may establish and
maintain bank accounts in the name of the Company, and may collect and deposit
into and disburse from such accounts any money on behalf of the Company, under
such terms and conditions as the Board of Directors may approve, provided that
no funds in any such account shall be commingled with funds of the Advisor. The
Advisor shall from time to time, as the Company may require, render
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appropriate accounting of such collections, deposits and disbursements to the
Board of Directors and to the auditors of the Company.
7. Fidelity Bond.
The Advisor shall not be required to obtain or maintain a fidelity bond in
connection with the performance of its services hereunder.
8. Information Furnished Advisor.
The Board of Directors will keep the Advisor informed in writing concerning
the investment and financing policies of the Company. The Board of Directors
shall notify the Advisor promptly in writing of its intention to make any
investments or to sell or dispose of any existing investments. The Company shall
furnish the Advisor with a certified copy of all financial statements, a signed
copy of each report prepared by independent certified public accountants, and
such other information with regard to its affairs as the Advisor may reasonably
request.
9. Compensation.
The Advisor and its Affiliates shall be paid for services rendered by the
Advisor under this Agreement as follows:
(a) The Company will reimburse the Advisor for Acquisition Expenses.
The total of all Acquisition Expenses paid in connection with the purchase
of a property may not exceed an amount equal to 6% of the contract purchase
price for the property unless a majority of the Board of Directors,
including a majority of the Independent Directors, not otherwise interested
in the transaction approve the transaction as being commercially
competitive, fair and reasonable to the Company. Notwithstanding the
foregoing, the total of all Acquisition Expenses paid in connection with
the purchase of a property from an Affiliate may not exceed 6% of the
contract purchase price for the property;
(b) An Asset Management Fee of up to 1.5% of the Average Invested
Assets. This fee will be paid or accrue quarterly, but will not be paid
until the Shareholders have received distributions equal to a cumulative
non-compounded rate of 8% per annum on their investment in the Company. If
the fee is not paid in any quarter, it will accrue and be paid once the
Shareholders have received a cumulative 8% return;
(c) The Company will reimburse the Advisor and its Affiliates for:
(i) the cost to the Advisor or its Affiliates of goods and services used
for and by the Company and obtained from unaffiliated parties; and (ii)
administrative services related thereto. "Administrative Services" include
expenses associated with travel to properties owned by the Company,
ministerial services such as typing, recordkeeping, preparation and
dissemination of Company reports, preparation and maintenance of records
regarding Shareholders, recordkeeping and administration of the Dividend
Reinvestment Program, preparation and dissemination of responses to
Shareholder inquiries and other communications with Shareholders and any
other
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recordkeeping required for Company purposes. Such reimbursements are
subject to limitations imposed by Sections 10(b) and (c) hereof;
(d) A Property Disposition Fee, payable out of the proceeds of the
sale of a property, equal to the lesser of: (i) 3% of the contracted for
sales price of the property; or (ii) 50% of the Competitive Real Estate
Commission. The amount paid, when added to the sums paid to unaffiliated
parties, shall not exceed the lesser of the Competitive Real Estate
Commission or an amount equal to 6% of the contracted for sales price.
Payment of such fee shall be made only if the Advisor provides a
substantial amount of services in connection with the sale of the property;
(e) A Property Management Fee equal to 5% of the Gross Income from
Properties. This fee will be paid monthly; and
(f) Fees for property-level services including leasing fees,
construction management fees, loan origination and servicing fees and risk
management fees; provided that any such compensation to the Advisor will
not exceed the amount which would be paid to unaffiliated third parties
providing such services and all such compensation must be approved by a
majority of the Independent Directors.
10. Compensation for Additional Services, Certain Limitations.
(a) If the Company shall request the Advisor or its Affiliates to
render services for the Company other than those required to be rendered by
the Advisor hereunder, such additional services, if the Advisor elects to
perform them, will be compensated separately on terms to be agreed upon
between such party and the Company from time to time in accordance with
this Section. The rate of compensation for such services shall be approved
by a majority of the Board of Directors, including a majority of the
Independent Directors, and shall not exceed an amount that would be paid to
nonaffiliated third parties for similar services.
(b) In extraordinary circumstances fully justified to the official or
agency administering the state securities laws, the Advisor and its
Affiliates may provide other goods and services to the Company if all of
the following criteria are met: (i) the goods or services must be
necessary to the prudent operation of the Company; or (ii) the
compensation, price or fee must be equal to the lesser of 90% of the
compensation, price or fee the Company would be required to pay to
independent parties who are rendering comparable services or selling or
leasing comparable goods on competitive terms in the same geographic
location, or 90% of the compensation, price or fee charged by the Advisor
or its Affiliates for rendering comparable services or selling or leasing
comparable goods on competitive terms. In addition, any such payment will
be subject to the further limitation described in paragraph (c) below.
Extraordinary circumstances shall be presumed only when there is an
emergency situation requiring immediate action by the Advisor or its
Affiliates and the goods or services are not immediately available from
unaffiliated parties. Services which may be performed in such
extraordinary circumstances include emergency maintenance of Company
properties, janitorial and
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other related services due to strikes or lock-outs, emergency tenant
evictions and repair services which require immediate action, as well as
operating and re-leasing properties with respect to which the leases are in
default or have been terminated.
(c) No reimbursement will be permitted to the Advisor or its
Affiliates under Section 9(c)(ii) above for items such as rent,
depreciation, utilities, capital equipment and other administrative items
and the salaries, fringe benefits and other administrative items of any
controlling persons of the Advisor, its Affiliates or any other supervisory
personnel except in those instances in which the Company believes it to be
in the best interest of the Company that the Advisor or its Affiliates
operate or otherwise deal with, for an interim period, a property with
respect to which the lease is in default or terminated. Permitted
reimbursements, except as set forth above, include salaries and related
salary expenses for non-supervisory services which could be performed
directly for the Company by independent parties such as legal, accounting,
transfer agent, data processing and duplication. Controlling persons, for
purposes of this section, include, but are not limited to those entities or
individuals holding 5% or more of the stock of the Advisor or a person
having the power to direct or cause the direction of the Advisor, whether
through ownership of voting securities, by contract or otherwise, and any
person, irrespective of his or her title, who performs functions for the
Advisor similar to those of: (a) chairman or member of the board of
directors; or (b) president or executive vice-president.
Notwithstanding the foregoing, and subject to the approval of the Board of
Directors, the Company may reimburse the Advisor for expenses related to the
activities of controlling persons undertaken in capacities other than those
which cause them to be controlling persons. The Advisor believes that the
employees of the Advisor, its Affiliates and controlling persons who perform
services for the Company for which reimbursement is allowed pursuant to Section
10 () have the experience and educational background, in their respective fields
of expertise, appropriate for the performance of such services.
The Advisor and its Affiliates may not be reimbursed by the Company for
their overhead, nor can overhead costs or expenses of the Advisor or its
Affiliates be allocated to or paid by the Company. The foregoing reimbursements
of expenses, as limited by this Agreement, will be made regardless of whether
any cash distributions are made to the Shareholders.
11. Statements.
The Advisor shall furnish to the Company not later than the 10th day of
each calendar quarter, beginning with the second calendar quarter of the term of
this Agreement, a statement showing the computation of any Asset Management Fee
payable to it during such quarter under Section 9 hereof. The Advisor shall
furnish to the Company not later than the 30th day following the end of each
Fiscal Year, a statement showing a computation of the fees or other compensation
payable to the Advisor or an Affiliate of the Advisor with respect to such
Fiscal Year under Sections 9 and 10 hereof. The final settlement of compensation
payable under Sections 9 and 10 hereof for each Fiscal Year shall be subject to
adjustments in accordance with, and upon completion of, the annual audit of the
Company's financial statements.
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12. Listing of the Shares.
If this Agreement is terminated in connection with listing for trading of
the Shares on a national exchange or market or otherwise, the Advisor will
receive, in exchange for terminating this Agreement and the giving up or waiving
of its fees then earned but not paid and all future fees, such consideration to
be determined by the Independent Directors and the Advisor. In addition, at such
time, the Company will cause the Partnership to redeem the Advisor's Incentive
Units for cash, or if agreed by both parties, units of interest in the
Partnership or Shares, for the amount the Advisor would have received if the
Partnership immediately sold all of its assets at fair market value. In the
event of such a termination of this Agreement, the Company shall thereafter be
relieved of its obligation to pay the fees contemplated by this Agreement
13. Expenses of the Company.
The Company shall pay all of its expenses and shall reimburse the Advisor
for its expenses as provided in Sections 9 and 10 hereof and, without limiting
the generality of the foregoing, it is agreed that the following expenses of the
Company shall be paid by the Company:
(a) To the extent the Advisor is not expressly required to pay such
expenses pursuant to this Agreement, salaries and other employment expenses
of the personnel employed by the Company, directors' fees and expenses
incurred in attending directors' meetings, travel and other expenses
incurred by directors, officers and employees of the Company and the cost
of directors' liability insurance;
(b) The cost of borrowed money;
(c) All taxes applicable to the Company;
(d) Legal, accounting, auditing, underwriting, brokerage, listing,
registration and other expenses and taxes incurred in connection with the
organization or operations of the Company, the issuance, distribution,
transfer, registration and stock exchange or quotation system listing of
the Company's securities;
(e) Fees and expenses paid to advisors, independent contractors and
Affiliates of the Advisor (as described herein), consultants, managers and
other agents employed directly by the Company or by the Advisor at the
Company's request for the account of the Company;
(f) Expenses connected with the acquisition, disposition, leasing and
ownership of investments, including to the extent not paid by others, but
not limited to, legal fees and other expenses of professional services,
maintenance, repair and improvement of property and brokerage and sales
commissions, expenses of maintaining and managing property equity
interests;
(g) All insurance costs incurred in connection with the Company and
its properties;
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(h) Expenses connected with payments of dividends or interest or
distributions in cash or any form made or caused to be made by the Board of
Directors to shareholders;
(i) All expenses connected with communications to shareholders and
the other bookkeeping and clerical work necessary in maintaining relations
with shareholders and in complying with the continuous reporting and other
requirements of governmental bodies or agencies, including the cost of
printing and mailing certificates for securities and proxy solicitation
materials and reports to shareholders;
(j) Transfer agent and registrar's fees and charges; and
(k) Expenses relating to any office or office facilities maintained
by the Company separate from the office or offices of the Advisor.
14. Reimbursement by Advisor.
The parties acknowledge that pursuant to the "Statement of Policy Regarding
Real Estate Investment Trusts," as revised and adopted by the North American
Securities Administrators Association on September 29, 1993, Total Operating
Expenses of the Company shall be deemed to be excessive if in any Fiscal Year
they exceed the greater of: (a) 2% of the Company's Average Invested Assets for
such Fiscal Year; or (b) 25% of the Net Income for such Fiscal Year. The
Independent Directors shall have the fiduciary responsibility of limiting such
expenses to amounts that do not exceed such limitations. Within 60 days after
the end of any fiscal quarter of the Company for which Total Operating Expenses
(for the 12 months then ended) exceed 2% of Average Invested Assets or 25% of
Net Income, whichever is greater, the Advisor shall reimburse the Company the
amount by which the aggregate expenses incurred by the Company exceed the
limitations described above, provided, however, that the Company may instead
permit such reimbursements to be effected by a reduction in the amount of the
next payments of compensation under Section 9.
15. Other Activities of the Advisor.
Subject to the provisions specifically set forth herein, the Advisor and
its Affiliates currently engage, and may engage in the future, in other
businesses or activities including the rendering of services and investment
advice with respect to real estate investment opportunities to other persons or
entities and may manage other investments (including the investments of the
Advisor and its Affiliates), including those in competition with the Company.
Directors, officers, employees and agents of the Advisor or of Affiliates
of the Advisor may serve as directors, officers, employees or agents of the
Company.
16. Term; Termination of Agreement.
This Agreement will continue in force until _________ __, 2000, subject to
successive one-year renewals with the written mutual consent of the parties
including approval of a majority of the Independent Directors.
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Notwithstanding any other provision of the Agreement to the contrary,
either the Company or the Advisor may terminate this Agreement, or any extension
hereof, or the parties by mutual consent or a majority of the Independent
Directors may do so, in each case upon 60 days written notice without cause or
penalty. In the event of the termination of the Agreement, the Advisor will
cooperate with the Company and take all reasonable steps requested to assist the
Board of Directors in making an orderly transition of the advisory function.
If this Agreement is terminated pursuant to this Section, such termination
shall be without any further liability or obligation of either party to the
other, except as provided in Section 19.
If this Agreement is terminated for any reason other than the listing of
the Shares as contemplated in Section 12, all obligations of the Advisor and its
Affiliates to offer property to the Company for purchase, as described in
Section 2(a), shall also terminate.
17. Assignments.
The Company may terminate this Agreement in the event of its assignment by
the Advisor except an assignment to a successor organization which acquires
substantially all of the property and carries on the affairs of the Advisor,
provided that following such assignment the persons who controlled the
operations of the Advisor immediately prior thereto shall control the operations
of the successor organization, including the performance of its duties under
this Agreement; however, if at any time subsequent to such assignment such
persons shall cease to control the operations of the successor organization, the
Company may thereupon terminate this Agreement. This Agreement shall not be
assignable by the Company without the consent of the Advisor, except in the case
of assignment by the Company to a corporation, trust or other organization which
is a successor to the Company. Any assignment of this Agreement shall bind the
assignee hereunder in the same manner as the assignor is bound hereunder.
18. Default, Bankruptcy, etc.
At the option solely of the Company, this Agreement shall be terminated
immediately upon written notice of termination from the Board of Directors to
the Advisor if any of the following events occurs:
(a) The Advisor violates any material provisions of this Agreement
and, after receipt of written notice of violation, such violation is not
cured within 30 days; or
(b) A court of competent jurisdiction enters a decree or order for
relief in respect of the Advisor in any involuntary case under the
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appoints a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Advisor or for any substantial
part of its property or orders the winding up or liquidation of the
Advisor's affairs; or
(c) The Advisor commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, or consents to the
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appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Advisor or
for any substantial part of its property, or makes any general assignment
for the benefit of creditors, or fails generally to pay its debts as they
become due.
The Advisor agrees that if any of the events specified in
subsections (b) and (c) of this Section 18 occur, it will give written
notice thereof to the Company within 7 days after the occurrence of such
event.
19. Action Upon Termination.
The Advisor shall not be entitled to compensation after the date of
termination of this Agreement for further services hereunder, but shall be paid
all compensation accruing to the date of termination. Subject to the provisions
of Section 12, the Advisor shall forthwith upon a termination caused by factors
other than the listing for trading of the Shares on a national stock exchange or
market:
(a) Pay over to the Company all moneys collected and held for the
account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(b) Deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money
held by it, covering the period following the date of the last accounting
furnished to the Board of Directors;
(c) Deliver to the Board of Directors all property and documents of
the Company then in the custody of the Advisor; and
(d) Cooperate with the Company and take all reasonable steps
requested by the Company to assist the Board of Directors in making an
orderly transition of the advisory function.
20. Amendments.
This Agreement shall not be amended, changed, modified, terminated or
discharged in whole or in part except by an instrument in writing signed by both
parties hereto, or their respective successors or assigns.
21. Successors and Assigns.
This Agreement shall bind any successors or permitted assigns of the
parties hereto as herein provided.
22. Governing Law.
The provisions of this Agreement shall be governed, construed and
interpreted in accordance with the laws of the Commonwealth of Virginia as at
the time in effect.
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23. Liability and Indemnification.
(a) The Company shall, to the fullest extent permitted by Virginia
statutory or decisional law, as amended or interpreted, indemnify and pay
or reimburse reasonable expenses to the Advisor and its Affiliates,
provided, that: (i) the Advisor or other party seeking indemnification has
determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interest of the Company; (ii) the Advisor or
other person seeking indemnification was acting on behalf of or performing
services on the part of the Company; (iii) such liability or loss was not
the result of negligence, misconduct or a knowing violation of the criminal
law or any federal or state securities laws on the part of the indemnified
party; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the net assets of the Company and not from the
Shareholders.
(b) The Company shall not indemnify the Advisor or its Affiliates for
losses, liabilities or expenses arising from or out of an alleged violation
of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication
on the merits of each count involving alleged securities law violations as
to the particular indemnitee; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee; or (iii) a court of competent jurisdiction approves
a settlement of the claims and finds that indemnification of the settlement
and related costs should be made and the court considering the request has
been advised of the position of the Securities and Exchange Commission and
the published opinions of any state securities regulatory authority in
which securities of the Company were offered and sold as to indemnification
for securities law violations.
(c) The Company may advance amounts to persons entitled to
indemnification hereunder for legal and other expenses and costs incurred
as a result of any legal action for which indemnification is being sought
only if all of the following conditions are satisfied: (i) the legal
action relates to acts or omissions with respect to the performance of
duties or services by the indemnified party for or on behalf of the
Company; (ii) the legal action is initiated by a third party and a court of
competent jurisdiction specifically approves such advancement; and (iii)
the indemnified party receiving such advances undertakes to repay the
advanced funds to the Company, together with the applicable legal rate of
interest thereon, in which such party would not be entitled to
indemnification.
24. Notices.
Any notice, report or other communication required or permitted to be given
hereunder shall be in writing unless some other method of giving such notice,
report or other communication is accepted by the party to whom it is given and
shall be given by being delivered at the following addresses of the parties
hereto:
The Company and/or the Board of Directors:
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T REIT, Inc.
Suite 650
1551 N. Tustin Avenue
Santa Ana, CA 92705
The Advisor:
Triple Net Properties, LLC
Suite 650
1551 N. Tustin Avenue
Santa Ana, CA 92705
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 24.
25. Headings.
The section headings hereof have been inserted for convenience of reference
only and shall not be construed to affect the meaning, construction or effect of
this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
COMPANY:
T REIT, INC., a Virginia corporation
By: _________________________________
Title: ______________________________
ADVISOR:
TRIPLE NET PROPERTIES, LLC, a Virginia limited
liability company
By: _________________________________
Title: ______________________________
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement of T
REIT, Inc. on Form S-11 of our report dated July 1, 1999, appearing in the
Prospectus, which is part of this registration statement.
We also consent to the reference to use under the heading "Experts" in such
Prospectus.
/s/ HASKELL & WHITE LLP
Newport Beach, California
October 12, 1999
