<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHELBOURNE PROPERTIES I, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6798 04-3502384
- ------------------------------- -------------------------------- ----------------------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
SHELBOURNE PROPERTIES I, INC.
5 CAMBRIDGE CENTER
9th FLOOR
CAMBRIDGE, MA 02142
(617) 234-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
COPY TO:
MARK I. FISHER, ESQ.
TODD J. EMMERMAN, ESQ.
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 940-8800
-------------------
Approximate Date of Commencement of Proposed Sale to the Public: From
time to time after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If the 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(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS/CONSENT SOLICITATION STATEMENT
Shelbourne Properties I, Inc.
1,263,189 Shares of common stock
If you are a limited partner in Integrated Resources High Equity
Partners, Series 85, A California Limited Partnership, your vote is very
important.
Through this document, which we refer to as the "consent solicitation
statement", we, as the general partners of your partnership, are asking you, the
limited partners of your partnership, to approve the conversion of your
partnership into a publicly-traded real estate investment trust called
Shelbourne Properties I, Inc. If the conversion is approved, you will receive
three shares of Shelbourne common stock, on a tax-free basis, for each of your
partnership units. Shelbourne's common stock will be listed on the American
Stock Exchange.
We are making this proposal to satisfy the final requirement of a class
action settlement approved by the California Superior Court. Holders of a
majority of the limited partnership units must vote "YES" on the enclosed
consent form for the proposal to be approved. If you have any questions, you may
call (888) 448-5554.
While you may realize a number of potential benefits from the
conversion, there are material risks and potential disadvantages associated with
the conversion as described in "Risk Factors," starting on page 16. In
particular, you should consider:
o Unlike your partnership, Shelbourne will have perpetual existence with no
specific timing for liquidation of its assets.
o Shares of common stock may trade substantially below the net asset value
and book value of Shelbourne.
o Unlike your partnership, Shelbourne will be permitted to reinvest sale
and financing proceeds.
o Shelbourne may incur substantial debt which could create the risk of
default and hinder its ability to pay dividends.
o The amount of Shelbourne's dividends may be less than prior distributions
by your partnership.
o Our affiliate, Shelbourne Management LLC, will receive fees for managing
Shelbourne on the same basis that fees are currently paid by your
partnership.
o Shelbourne will be subject to entity-level taxes if it fails to qualify
or maintain qualification as a real estate investment trust.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this consent solicitation statement. Any representation
to the contrary is a criminal offense.
The date of this consent solicitation statement is ________ __, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE CONVERSION OF
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
INTO A PUBLICLY-TRADED REAL ESTATE INVESTMENT TRUST.............................................................................1
SUMMARY.........................................................................................................................4
Background Of The Proposal...................................................................................................4
Your Partnership..........................................................................................................4
The Class Action Settlement...............................................................................................4
Shelbourne...................................................................................................................5
Risk Factors.................................................................................................................5
Benefits of the Conversion...................................................................................................6
Comparison of Your Partnership and Shelbourne................................................................................7
General Partners' Statement.................................................................................................13
Voting......................................................................................................................13
Allocation of Common stock..................................................................................................14
Alternatives to the Conversion..............................................................................................14
Continuation of Your Partnership.........................................................................................14
Liquidation and Dissolution of Your Partnership..........................................................................15
Miscellaneous...............................................................................................................15
No Dissenters' or Appraisal Rights.......................................................................................15
Limited Partner Lists....................................................................................................15
RISK FACTORS...................................................................................................................16
The conversion will result in a fundamental change in the nature of your investment......................................16
Shelbourne's Common Stock may trade at prices substantially below the value of
Shelbourne's net assets..............................................................................................16
Shelbourne intends to reinvest rather than distribute property sales proceeds............................................16
Shelbourne's ability to incur debt could adversely affect Shelbourne's results of
operations and distributions to stockholders..........................................................................16
Dividends are not guaranteed and may fluctuate...........................................................................17
We have conflicts of interest in recommending the conversion.............................................................17
Stockholders will be diluted by any subsequent equity issuances..........................................................17
Shelbourne may enter into transactions with our affiliates...............................................................18
Provisions in the Certificate, Bylaws and Shareholder Rights Agreement could inhibit
changes in control....................................................................................................18
Shelbourne's performance and value are subject to risks associated with the real
estate industry.......................................................................................................19
If Shelbourne's borrowers default on mortgage loans, Shelbourne's income could be
adversely affected....................................................................................................19
Shelbourne will be managed by a third-party advisor and will therefore have less control
over its operations..................................................................................................20
Shelbourne's ability to grow could be adversely affected if Shelbourne is not successful
in raising capital...................................................................................................20
Illiquidity of real estate investments could adversely affect Shelbourne's financial condition...........................20
Liability for environmental matters could adversely affect Shelbourne's financial condition..............................20
Uninsured losses could adversely affect Shelbourne's financial condition.................................................21
Federal Income Tax Risks....................................................................................................21
Failure to qualify or remain qualified as a real estate investment trust would cause
Shelbourne to be taxed as a corporation...............................................................................21
To qualify as a real estate investment trust Shelbourne will need to maintain a certain
level of distributions................................................................................................22
There are potential tax disadvantages to conducting business as a real estate investment trust...........................22
</TABLE>
(i)
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
Other Tax Risks.............................................................................................................23
Possible non-conformity between federal and state tax laws could adversely affect
Shelbourne's qualification as a real estate investment trust under state laws.........................................23
BENEFITS OF THE CONVERSION.....................................................................................................24
Tax-Free Receipt of Common Stock.........................................................................................24
Greater Liquidity........................................................................................................24
Ability to Make New Investments..........................................................................................24
Beneficial Company Structure.............................................................................................24
Elected Governance.......................................................................................................24
Ability to Raise Capital.................................................................................................24
No Unrelated Business Taxable Income.....................................................................................25
Simplified Tax Reporting.................................................................................................25
Reduced State Income Tax Reporting.......................................................................................25
COMPARISON OF YOUR PARTNERSHIP AND SHELBOURNE..................................................................................25
Form of Organization........................................................................................................25
General Business............................................................................................................26
Duration of Existence.......................................................................................................26
Voting Rights...............................................................................................................27
Fiduciary Duties, Limitation of Liability and Indemnification...............................................................28
Review of Books and Records.................................................................................................29
Management..................................................................................................................29
Distributions; distribution policy..........................................................................................30
Management Fees to Affiliates...............................................................................................31
Taxation of Taxable Limited Partners........................................................................................33
Taxation of Tax-Exempt Limited Partners.....................................................................................33
RECOMMENDATION AND FAIRNESS....................................................................................................34
General Partners' Statement..............................................................................................34
BACKGROUND OF THE CONVERSION...................................................................................................35
General..................................................................................................................35
Your Partnership.........................................................................................................35
The Class Action.........................................................................................................37
The Class Action Settlement..............................................................................................38
ALTERNATIVES TO THE CONVERSION.................................................................................................39
Continuation of Your Partnership.........................................................................................39
Liquidation and Dissolution of Your Partnership..........................................................................41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................................43
SELECTED FINANCIAL DATA.....................................................................................................44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................................................................45
General..................................................................................................................45
Liquidity and Capital Resources..........................................................................................45
Real Estate Market.......................................................................................................46
THE CONVERSION.................................................................................................................49
Mechanics of the Conversion.................................................................................................49
Effective Time..............................................................................................................49
Conditions to the Conversion................................................................................................49
Fees And Expenses...........................................................................................................50
Accounting Treatment........................................................................................................50
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
VOTING.........................................................................................................................50
General..................................................................................................................50
Vote Required............................................................................................................51
Voting Procedure.........................................................................................................51
Record Date and Outstanding Units........................................................................................51
Effect of Voting to Approve the Conversion...............................................................................52
Solicitation of Votes; Solicitation Expenses.............................................................................52
Investor Lists...........................................................................................................52
SHELBOURNE.....................................................................................................................52
General.....................................................................................................................52
Objectives and Strategies...................................................................................................53
The Properties..............................................................................................................54
Other Assets and Liabilities................................................................................................57
Cash Dividend Policy........................................................................................................57
Management..................................................................................................................58
The Operating Partnership...................................................................................................62
PRO FORMA FINANCIAL INFORMATION OF SHELBOURNE..................................................................................64
DESCRIPTION OF CAPITAL STOCK...................................................................................................70
General.....................................................................................................................70
Common Stock................................................................................................................70
Preferred Stock.............................................................................................................71
Listing, Price and Trading..................................................................................................71
Restrictions on Transfers...................................................................................................71
Additional Issuances........................................................................................................73
Shareholder Rights Agreement................................................................................................74
CERTAIN PROVISIONS OF DELAWARE LAW AND SHELBOURNE'S
CERTIFICATE AND BYLAWS.........................................................................................................76
Amendment of Certificate and Bylaws.........................................................................................77
Dissolution of Shelbourne...................................................................................................77
Meetings of Stockholders....................................................................................................77
The Board of Directors......................................................................................................77
Limitation of Liability and Indemnification.................................................................................78
Business Combinations.......................................................................................................78
Indemnification Agreements..................................................................................................79
FEDERAL INCOME TAX CONSEQUENCES................................................................................................79
The Conversion..............................................................................................................80
Taxation of Shelbourne as a Real Estate Investment Trust....................................................................80
General..................................................................................................................80
Requirements for Qualification...........................................................................................82
Organizational Requirements..............................................................................................82
Income Tests.............................................................................................................82
Asset Tests..............................................................................................................85
Annual Distribution Requirements.........................................................................................86
Failure of Shelbourne to Qualify as a Real Estate Investment Trust.......................................................86
Taxation of Taxable U.S. Stockholders.......................................................................................87
Distributions by Shelbourne..............................................................................................87
Passive Activity Losses and the Investment Interest Limitation...........................................................87
Sale of Common Stock.....................................................................................................88
Backup Withholding.......................................................................................................88
Taxation of Tax-Exempt Stockholders.........................................................................................88
</TABLE>
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
Taxation of Non-U.S. Stockholders...........................................................................................89
Distributions by Shelbourne..............................................................................................89
Sale of Common Stock.....................................................................................................90
Backup Withholding Tax and Information Reporting.........................................................................90
Tax Status of the Operating Partnership.....................................................................................91
Other Taxes.................................................................................................................91
Transfer Taxes..............................................................................................................91
Possible Tax Law Changes....................................................................................................91
Importance of Obtaining Professional Tax Assistance.........................................................................92
AVAILABLE INFORMATION..........................................................................................................92
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................93
FORWARD-LOOKING STATEMENTS.....................................................................................................93
LEGAL MATTERS..................................................................................................................93
APPENDIX A - Consent Form.....................................................................................................A-1
APPENDIX B - Agreement and Plan of Merger.....................................................................................B-1
</TABLE>
(iv)
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE CONVERSION OF INTEGRATED RESOURCES HIGH EQUITY
PARTNERS, SERIES 85 INTO A PUBLICLY-TRADED
REAL ESTATE INVESTMENT TRUST
Q: What is the proposed conversion that I am being asked to vote upon?
A: You are being asked to approve the conversion of your partnership,
Integrated Resources High Equity Partners, Series 85, A California
Limited Partnership into a publicly-traded real estate investment
trust, commonly referred to as a REIT. The REIT is called Shelbourne
Properties I, Inc.
Q: Why is the conversion being proposed at this time?
A: The conversion is being proposed as the final step of a class action
settlement which was approved and found to be fair, reasonable and
adequate and in the best interests of your partnership by the
California Superior Court.
Q: What were the prior requirements of the settlement?
A: Initially, the settlement required us, as the general partners of your
partnership, to propose an amendment to the partnership agreement of
your partnership. You approved the amendment which modified the method
of calculating the fees payable to us by your partnership and fixed our
obligation to repay fees which we previously received. Following the
approval of the amendment, the settlement required us to arrange for a
tender offer for units in your partnership. The tender offer closed in
January 2000 and our affiliate, Millennium Funding II LLC, acquired
approximately 6.7% of the outstanding units in the tender.
Q: What is the final requirement of the settlement?
A: The settlement now requires us to propose and use our best efforts to
complete a restructuring of your partnership into a real estate
investment trust or other entity whose shares are traded on a national
securities exchange or the NASDAQ National Market. We believe the
conversion proposal satisfies this final requirement of the settlement.
Q: Why do we call the transaction a "conversion"?
A: Because the transaction will not change your economic interest but will
"convert" your partnership units into shares of stock of Shelbourne.
You can continue to hold your shares after the conversion or decide to
sell your shares on the American Stock Exchange.
Q: What will I receive if the conversion is approved?
A: You will receive three shares of common stock of Shelbourne in exchange
for each unit you own in your partnership, regardless of whether you
vote in favor of or against the conversion. The shares of Shelbourne
will be listed for trading on the American Stock Exchange under the
symbol _________.
Q: Will my percentage ownership change as a result of the conversion?
A: Your ownership percentage will not change. Limited partners now own 95%
of your partnership and after the conversion they will own 95% of the
common stock of Shelbourne.
Q: How will the trading market for common stock of Shelbourne compare with
the existing market for your units?
1
<PAGE>
A: There is no formal trading market for your units. The units are not
listed or traded on any exchange or quoted on any NASDAQ list or
system. Privately negotiated sales and sales through intermediaries
such as the trading system operated by Chicago Partnership Board are
the only means available to sell units. Partnership Spectrum, an
industry publication, has reported that the secondary market price for
units ranged from a high of $106 per unit to a low of $89.26 per unit
during the most recently reported period. These prices do not take into
account commissions and other transactional costs which sellers may be
required to pay, typically ranging between 8% and 10% of the sales
price.
We believe that the American Stock Exchange will provide you with a
more efficient market for the sale of common stock.
Q: What will Shelbourne own?
A: Initially, Shelbourne investments will be limited to the same
properties that your partnership now owns. However, unlike your
partnership, Shelbourne will have the ability to make new investments
and avail itself of potentially favorable investment opportunities.
Q: Will I receive future dividends from Shelbourne?
A: Shelbourne expects to pay quarterly dividends to stockholders.
Shelbourne must distribute 95% of its taxable income for the year 2000
and 90% for subsequent years, excluding its net capital gain, if any,
to maintain its status as a real estate investment trust.
Q: What are the principal risks and potential disadvantages of approving
the conversion?
A: The principal risks and potential disadvantages are:
o Unlike your partnership, Shelbourne will have perpetual existence
with no specific timing for liquidation of its assets.
o Shares of common stock may trade substantially below the net asset
value and book value of Shelbourne.
o Unlike your partnership, Shelbourne will be permitted to reinvest
sale and financing proceeds.
o may incur substantial debt which could create the risk of default and
hinder its ability to pay dividends.
o The amount of Shelbourne's dividends may be less than prior
distributions by your partnership.
o Shelbourne will be subject to entity-level taxes if it fails to
qualify or maintain qualification as a real estate investment trust.
Q: Aside from the benefits of an AMEX listing and investing in a company
that may have the ability to avail itself of favorable investment
opportunities, what are the other principal benefits of the conversion?
A: The principal benefits are:
o The conversion will be tax-free to you.
2
<PAGE>
o Shelbourne can offer either common stock or limited
partnership interests in a controlled partnership to potential
sellers of real estate. This increases Shelbourne's
flexibility in structuring future acquisitions on a tax
efficient basis.
o Following the conversion, Shelbourne's board of directors will be
elected by holders of common stock.
o Shelbourne will have the ability to borrow money and issue
equity securities. The proceeds from such loans or equity
issuances may be used to finance future investments, to
improve existing properties or for other purposes.
o Indebtedness incurred by Shelbourne will not result in unrelated
business taxable income to tax-exempt stockholders.
o The conversion will result in simplified tax administration
for you. You no longer will receive a Schedule K-1 which
complicates tax return preparation, but instead will receive
the simple and familiar Form 1099-DIV.
Q: Will the compensation structure change as a result of the conversion?
A: The provisions of the settlement required that we maintain the same
compensation structure after the conversion. Our affiliate, Shelbourne
Management LLC, will manage the day-to-day operations of Shelbourne.
Q: What vote is required to approve the conversion?
A: Limited Partners holding more than 50% of the outstanding units must
approve the conversion for it to become effective.
Q: How do I vote?
A: Just indicate on the enclosed consent form how you want to vote, and
sign and mail it in the enclosed postage paid return envelope as soon
as possible but no later than ___________ ___, 2000. We may extend that
date until ________ ___, 2000. If you sign and send in your consent
form and do not indicate how you want to vote, it will count as a vote
"For" the conversion.
Q: Can I change my vote after I mail my consent form?
A: Yes, you can change your vote at any time before the expiration date by
delivering to our depositary a substitute consent form together with a
letter indicating that your prior consent form has been revoked. Our
depositary is American Stock Transfer & Trust Company, and their
address is 40 Wall Street, New York, New York 10005.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the conversion or would like additional copies
of the consent solicitation you should contact our information agent, The
Swenson Group L.L.C., at (888) 448-5554.
3
<PAGE>
SUMMARY
The following is a summary of information relating to your partnership,
the conversion and Shelbourne. This summary highlights selected information from
this consent solicitation statement and may not contain all of the information
regarding the conversion that is important to you. Unless otherwise indicated,
the terms "we," "us," "our," and "ourselves" refer to Resources High Equity,
Inc. and Presidio AGP Corp., the general partners of Integrated Resources High
Equity Partners, Series 85, A California Limited Partnership, which we call
"your partnership". The conversion will be accomplished by merging your
partnership into Shelbourne Properties I L.P., a limited partnership
wholly-owned by Shelbourne. Shelbourne will conduct all of its business through
Shelbourne Properties I L.P., which we call the "operating partnership." When we
refer to Shelbourne in this consent solicitation statement we mean both
Shelbourne and the operating partnership, together, unless the context requires
otherwise. Shelbourne will be managed by Shelbourne Management LLC which we
refer to as "Shelbourne Management". To understand the conversion fully and for
a more complete description of the terms of and risks related to the conversion,
you should read carefully this entire consent solicitation and the other
documents to which we have referred you.
BACKGROUND OF THE PROPOSAL
Your Partnership
Your partnership was formed in 1983 to invest in and hold existing or
to-be-constructed income-producing properties. Your partnership currently owns
interests in office buildings, shopping centers and other commercial and
industrial properties. Units in your partnership were publicly offered and sold
during 1985 and 1986. Your partnership invested substantially all of the capital
raised from the sale of units in the five properties it currently owns as well
as in two other properties that have been sold. There are no mortgages on any of
your partnership's properties. Your partnership originally anticipated holding
its properties for seven to ten years and is required to liquidate by no later
than December 31, 2008.
Units in your partnership are not listed on any national stock exchange
or traded in any formal trading market. There is, however, a limited and
informal secondary market for your units.
The Class Action Settlement
In 1993 limited partners commenced an action against your general
partners in the California Superior Court. The action included claims for breach
of fiduciary duty; breach of contract; unfair and fraudulent business practices;
negligence; dissolution, accounting, receivership and removal of general
partner; fraud; and negligent misrepresentation. This action was brought years
before current management assumed responsibility for managing your partnership.
Your general partners at all times considered the action to be without merit.
In early 1996, a settlement proposal was submitted to the court but the
court declined to approve it, indicating that it did not consider that
settlement proposal to be fair. After further negotiations, in January 1999 the
parties agreed on the terms of a revised settlement. In February 1999, you
received a notice containing a detailed description of the terms of the
settlement. In April 1999, the court approved the revised settlement after
finding it to be fair, reasonable and adequate and in the best interest of the
limited partners.
4
<PAGE>
Under the terms of the settlement:
o We agreed to propose an amendment to your partnership's agreement of
limited partnership modifying the method of calculating the fees
payable to us by your partnership and fixing the amount that we
would be obligated to pay you upon liquidation of your partnership
as repayment of fees previously received.
o We agreed that our affiliate, Presidio Capital Corp., would
guarantee our payment obligation to limited partners upon
liquidation of your partnership.
o If the foregoing amendment was approved, then we agreed to make a
tender offer to limited partners of your partnership to acquire up
to 26,936 units at a price of $114.60 per unit.
o If the foregoing amendment was approved, we also agreed to propose
and use our best efforts to complete a conversion of your
partnership into a real estate investment trust or other entity with
shares traded on a national securities exchange or the NASDAQ
National Market.
This proposal satisfies the requirement to use our best efforts to
restructure your partnership as described above. Each of the other elements of
the settlement summarized above has been completed.
SHELBOURNE
Following the conversion, Shelbourne's outstanding shares of common
stock will be owned by you and us in proportion to our respective partnership
interests. Limited partners will receive 95% of the outstanding common stock in
exchange for their partnership units and we will receive 5% of the outstanding
common stock in exchange for our general partnership interest.
Shelbourne's primary business objective will be to maximize the value
of its common stock. Shelbourne will seek to achieve this objective by making
capital improvements to and/or selling properties and by making additional real
estate-related investments, including investments in joint ventures and other
real estate companies. Shelbourne may raise additional capital by mortgaging
existing properties or by selling equity or debt securities.
Following the conversion, Shelbourne will have a Board of Directors
consisting of seven directors, two of whom will be independent directors.
Directors of Shelbourne will be elected in the future by holders of common
stock. The settlement contemplated that Shelbourne would be externally managed
and that your partnership's fee structure would continue in effect for
Shelbourne after the conversion. Accordingly, our affiliate, Shelbourne
Management, will manage the day-to-day affairs of Shelbourne under an advisory
agreement. Shelbourne Management will receive fees for managing Shelbourne on
the same basis that fees are currently paid by your partnership.
Shelbourne was formed under the Delaware General Corporations Law.
Shelbourne's principal executive offices are located at 5 Cambridge Center, 9th
floor, Cambridge, MA 02142.
RISK FACTORS
There are risks associated with the conversion of your partnership,
which are more fully discussed beginning on page 16 in "RISK FACTORS", that you
should consider in determining whether to vote
5
<PAGE>
in favor of the conversion. The following list summarizes the risks of the
conversion that we believe to be most material to you:
o The nature of your investment will change from an interest in a
specified portfolio of income-producing properties required to be
sold by December 31, 2008 to an interest in a real estate company
with perpetual existence that may change its investments from time
to time without your approval.
o Common stock may trade at prices substantially below the value of
Shelbourne's net assets. As a result, the amount you could receive
upon sale of your shares of common stock may be less than the amount
you would receive upon liquidation of your partnership.
o Unlike your partnership, Shelbourne will be permitted to reinvest
sale and financing proceeds in new investments. This means that
these amounts may not be available for distribution to stockholders.
o Shelbourne will likely incur significant amounts of indebtedness to
finance future investments. This use of debt will subject Shelbourne
to the risk of default in its obligations, which could in turn
adversely affect Shelbourne's results of operations.
o The amount of Shelbourne's dividends may be less than prior
distributions by your partnership. The amount of dividends will
depend upon factors such as the profitability of present and future
investments, the terms of any indebtedness, working capital
fluctuations and prevailing economic conditions.
o We have some conflicts in recommending the conversion since our
affiliate, Shelbourne Management, will receive fees for managing
Shelbourne's business. Also, if the conversion is approved we no
longer will have any obligation to pay you a maximum of $8.80 per
unit upon liquidation of your partnership as repayment of fees
previously received.
o Maintaining qualification as a real estate investment trust will
require Shelbourne to comply with restrictions that do not apply to
your partnership. If Shelbourne fails to qualify or remain qualified
as a real estate investment trust, it will be subject to federal,
state and local income tax on its taxable income at regular
corporate rates. This would reduce the cash available for
distribution to stockholders and could materially reduce the value
of your common stock.
o Until you sell all of your common stock in Shelbourne, you will be
unable to offset your unused passive activity losses from your
partnership against dividends or capital gains from your common
stock.
BENEFITS OF THE CONVERSION
We believe that the conversion will provide you the following benefits
which are more fully described on page 24 in "BENEFITS OF THE CONVERSION."
o You will not be taxed on common stock you receive in the conversion.
6
<PAGE>
o Common stock will be traded on the American Stock Exchange, which
should provide you with significantly greater liquidity and a more
efficient market than the limited trading market on which your units
may currently be sold.
o Unlike your partnership, Shelbourne will have the ability to make
new investments. The ability to make new investments will enable
Shelbourne to change its investment portfolio in response to
changing market conditions and to avail itself of potentially
favorable investment opportunities.
o By conducting its operations through the operating partnership in an
umbrella partnership or "UPREIT", Shelbourne can offer either common
stock or limited partnership interests in the operating partnership
to potential sellers of real estate. This increases Shelbourne's
flexibility in structuring future acquisitions on a tax efficient
basis.
o Following the conversion, Shelbourne's board of directors will be
elected by holders of common stock.
o Shelbourne will have the ability to borrow money and issue equity
securities. The proceeds from such loans or equity issuances may be
used to finance future investments, to improve existing properties
or for other purposes.
o Indebtedness incurred by Shelbourne will not result in unrelated
business taxable income to tax-exempt stockholders.
o The conversion will result in simplified tax administration for you.
You no longer will receive a Schedule K-1 which complicates tax
return preparation, but instead will receive the simple and familiar
Form 1099-DIV.
o You generally will not be subject to state income tax or required to
file individual state income tax returns in states other than in
your state of residence solely as a result of an investment in
common stock.
COMPARISON OF YOUR PARTNERSHIP AND SHELBOURNE
There are differences between an investment in your partnership and an
investment in Shelbourne. The following chart summarizes some of these
differences. A more detailed comparison is set forth under "COMPARISON OF YOUR
PARTNERSHIP AND SHELBOURNE."
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP SHELBOURNE
- -------------- ---------------- ----------
<S> <C> <C>
General Business Owning and operating Owning and operating existing and to be
existing income-producing acquired properties, including on a
properties, including on joint venture basis, as well as other
a joint venture basis real estate-related investments such as
mortgages and securities of other real
estate companies. Shelbourne's
business will be conducted through the
operating partnership.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP SHELBOURNE
- -------------- ---------------- ----------
<S> <C> <C>
Management Conflicts Various conflicts based Present conflicts eliminated;
of Interest on our potentially Shelbourne Management may
opposing economic have conflicts of interest in
interests, particularly connection with services
with respect to provided by it to other
management and timing property owners
of sales of properties
Liquidity of Your Relatively illiquid Listed for trading on the American
Investment Stock Exchange
Investment Portfolio Fixed portfolio Investment flexibility; ability to
acquire new properties and sell
existing properties; ability to acquire
and sell other real estate-related
investments such as mortgages and
securities of other real estate
companies
Transactions with Our Limitations on Subject to applicable provisions of
Affiliates transactions with our Delaware law; transactions with our
affiliates contained in affiliates must be on terms comparable
your partnership agreement to transactions with unaffiliated third
parties
Borrowing Policy Minimal ability to employ Borrowing permitted on a secured and
leverage provided unsecured basis; borrowing will not
borrowing would not result in unrelated business taxable
result in unrelated income to tax-exempt stockholders
business taxable income.
Issuances of Prohibited from issuing Ability to raise additional capital or
Additional Securities additional securities acquire additional properties or other
investments through issuances of debt
or equity securities
Duration of Entity December 31, 2008; Perpetual, no fixed liquidation date
originally contemplated
holding period for
properties expires
in 1996
Federal Taxation Not subject to Federal tax Generally not subject to Federal tax on
income distributed to stockholders, but
subject to entity-level tax on any
undistributed income; significant
adverse tax consequences if it fails to
qualify or remain qualified as a real
estate investment trust
Your allocable share of Generally taxed on amounts distributed
your partnership's to you (unless you are tax-exempt),
taxable income (loss) is which distributions will be made pro
included in calculating rata to all holders of common
your taxable income, stock
regardless of whether
your partnership makes
any cash distributions;
there are special
allocations of
depreciation deductions
to taxable unitholders
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP SHELBOURNE
- -------------- ---------------- ----------
<S> <C> <C>
Tax Characterization Generally passive Dividends and capital gains from common
of Income activity income stock are not passive activity income
and generally cannot be offset by
unused passive activity losses from
your partnership or other sources
Tax Reporting Schedule K-1, generally Form 1099-DIV must be mailed to you by
mailed to you by March 15 January 31 of each year
of each year, typically
increasing your cost of
tax return preparation
You generally are You generally will not have to file tax
required to file state returns or pay taxes in states other
tax returns, and pay than your state of residence on account
taxes, in various states of owning common stock
where properties are
located
Distributions; Quarterly historical Quarterly dividends; dividend rate
distribution policy distributions; determined by the Board of Directors
distributions suspended based on Shelbourne's results of
as of September 30, 1999 operations, cash flow and capital
requirements; mandatory distributions
required to satisfy REIT requirements
and/or avoid entity-level taxes
Management Vested in general partners Vested in Board of Directors elected by
holders of common stock; our affiliate,
Shelbourne Management, to manage
Shelbourne's day-to-day business
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP SHELBOURNE
- -------------- ---------------- ----------
<S> <C> <C>
Voting Based on percentage One vote per share. Majority vote of
interest; voting is common stock required for some
generally permitted only significant transactions such as merger
for significant actions or sale of substantially all of the
requiring approval of assets
limited partners holding
majority of units such as
sale of substantially all
of the assets or
amendment of your
partnership agreement
Partnership Asset Partnership asset Partnership asset management fee equal
Management Fees management fee paid to us to 1.25% of appraised value of assets
equal to 1.25% of will be paid to Shelbourne Management
appraised value of assets
Property Management Up to 6% of property Up to 6% of property revenues, but no
Fees Payable to Us or revenues but no more than more than competitive rate for similar
to Our Affiliates competitive rate for services, will be paid to Shelbourne
similar services Management
Property Disposition Generally, 3% None
Fees Payable to Us or subordinated fee plus
Our Affiliates subordinated incentive
management fees
Reimbursement of All expenses paid by your All expenses paid by Shelbourne;
Expenses to Us or Our partnership; we are Shelbourne Management, our affiliate,
Affiliates reimbursed for expenses will be reimbursed for expenses
incurred for your incurred for Shelbourne, plus a
partnership plus a $150,000 non-accountable expense
$150,000 non-accountable reimbursement per annum
expense reimbursement per
annum
</TABLE>
10
<PAGE>
The following depicts the structure of your partnership before and
after the conversion:
BEFORE THE CONVERSION:
----------------------
--------------------------
PRESIDIO CAPITAL CORP.
--------------------------
/ \
/ (100%) \
/ (indirect) \
/ \
/ \
/ \
/ \
/ \
\ / \ /
\/ \/
--------------------------- --------------------------
General Partner General Partner
--------------- ---------------
Resources High Equity Presidio AGP Corp.
Inc.
--------------------------- --------------------------
\ /
\ /
\ /
\ /
--------------------- \ /
\ /
Limited Partners \ /
\ /
--------------------- \ /
\ \ 5% /
\ \ /
\ 95% \ /
\ \ /
\ \ /
\ \ / \\//
\ / \/
---------------------------------
Your Partnership
----------------
Integrated Resources High
Equity Partners, Series 85,
A California Limited Partnership
---------------------------------
11
<PAGE>
AFTER THE CONVERSION:
---------------------
---------------------------
Stockholders
------------
Former limited and general
partners(1)
---------------------------
|
| 100%
|
\|/
--------------------------- --------------------------
Advisor
Shellbourne Properties I, (Advisory -------
Inc. Agreement) Shelbourne
/...........\ Management LLC
("Shelbourne") \ / (affiliate of your general
--------------------------- partners
| \ --------------------------
| \
| \
| \
| \ 100%
| \
| \
| \ |
99% | _ _\|
| ------------------------
| General Partner
| ---------------
|
| Shelbourne Properties I
| GP, LLC
| -----------------------
| /
| /
| /
\|/ 1% /
----------------------------- /
Operating Partnership /
--------------------- | /
|/_ _
Shelbourne Properties I L.P.
(Property Owner)
(Successor to your partnership)
-----------------------------
- ------------
1 Limited partnership units will be converted into 95% of the outstanding common
stock and our 5% general partnership interest will be converted into 5% of the
outstanding common stock.
12
<PAGE>
GENERAL PARTNERS' STATEMENT
We believe that the conversion is fair and in your best interest and we
recommend that you vote "YES" to approve the conversion. Our belief is based on
the following:
o After the conversion you will own the same percentage interest in
Shelbourne that you presently own in your partnership.
o Limited partners and general partners will receive common stock in
the conversion on the same basis.
o The conversion will be tax-free to you.
o Management's compensation structure will not be changed.
o The American Stock Exchange will provide you with greater liquidity
and a more efficient market to sell common stock as compared to the
inefficient and limited secondary market for your partnership units.
VOTING
Your vote is important. Please complete and sign the enclosed consent
form and return it to the depositary by mail in the enclosed pre-addressed,
postage paid envelope or by facsimile to (718) 236-2641.
This consent solicitation statement is accompanied by a separate
consent form in the form of Appendix A. You may take one of the following
actions:
Vote "YES" -- I vote to approve the conversion.
or
Vote "NO" -- I vote not to approve the conversion.
or
Abstain from voting (abstentions will constitute "NO" votes)
We strongly urge you to vote "YES" to approve the conversion.
If the conversion is approved, you will receive three shares of common
stock in exchange for each of your partnership units whether or not you voted to
approve the conversion.
Please complete, sign and return the enclosed consent form to the
depositary no later than ________ __, 2000. We may extend that date from time to
time in our sole discretion until ________ __, 2000. You may withdraw your
consent form at any time before the expiration date by delivering written notice
of your withdrawal to the depositary. You may change your consent form at any
time before the expiration date by delivering to the depositary a duly completed
and signed substitute consent form, together with a letter indicating that your
prior consent form has been revoked.
13
<PAGE>
You must vote all of your units in the same way. If you return a signed
consent form but do not indicate a vote, you will be deemed to have voted "YES"
for approval of the conversion.
The conversion will be approved when limited partners holding a
majority of the outstanding units have voted "YES" to approve the conversion but
in no event prior to _____ __, 2000. The information agent will tabulate the
consent forms.
The conversion will apply prospectively from and after the date it
becomes effective. If the conversion becomes effective, you will be bound by its
terms, whether or not you vote in favor of it.
The depositary is:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
ALLOCATION OF COMMON STOCK
Units in your partnership will be exchanged for shares of common stock
on a three-for-one basis. We and our affiliates who own units, Millennium
Funding II Corp., Millennium Funding I LLC and Millennium Funding II LLC, will
be allocated common stock on the same basis as unitholders.
We own a 5% general partnership interest in your partnership
corresponding to 21,053 units in your partnership. Our affiliates, Millennium
Funding II Corp, Millennium Funding I LLC and Millennium Funding II LLC, own a
total of 103,337 units in your partnership. We and our affiliates will therefore
receive 373,170 shares of common stock in the conversion for our interests in
your partnership.
ALTERNATIVES TO THE CONVERSION
To assist you in evaluating the conversion, we have compared the
alternatives to the conversion discussed below which are discussed in more
detail on page 39 in "ALTERNATIVES TO THE CONVERSION."
Continuation of Your Partnership
Continuation of your partnership in its current form would have the
following effects, some of which you might perceive as benefits:
o Your partnership would pursue its original investment objectives
consistent with the provisions of your partnership agreement;
o Your partnership would sell its properties and distribute the net
proceeds to you not later than December 31, 2008; and
o There would be no change in the nature of your voting rights
However, we believe that continuation of your partnership in its
current form would have the following disadvantages:
14
<PAGE>
o You would continue to hold an illiquid investment because of the
absence of an established and efficient public market for your
units;
o Your partnership owns a fixed portfolio of properties and the value
of your units is dependent upon the operation of those properties;
and
o Since your partnership is not authorized to raise additional funds
for investment, it is unable to benefit from new investment
opportunities;
Liquidation and Dissolution of Your Partnership
Another alternative to the conversion is to liquidate your partnership
by selling all of its assets at the best possible price.
o Liquidation of your partnership would provide liquidity to you as
properties are sold and net sales proceeds are distributed; and
o You would receive up to $8.80 per unit from us as repayment of fees
previously received.
However, we do not believe that liquidation would be as beneficial to
you as the conversion for the following reasons:
o The public market valuation of an investment in an operating real
estate company like Shelbourne may exceed the liquidation value of
your partnership's properties;
o An aggressive bulk sale of your partnership's properties could
result in significant discounts from fair market values while a
gradual liquidation likely would involve higher administrative costs
and greater uncertainty, either of which would reduce the portion of
net sales proceeds available for distribution to you; and
o Your partnership's joint venture interests in two properties would
likely be sold at a substantial discount to the fair market value of
those properties.
MISCELLANEOUS
No Dissenters' or Appraisal Rights
You do not have the right to receive cash based on an appraisal of your
interest in your partnership or otherwise. However, as part of the
court-approved settlement of the class action involving your partnership, we
arranged for a tender offer for 26,936 units at a price of $114.60 per Unit. The
tender price was based primarily on March 1998 appraisals of your partnership's
properties. The tender was consummated in January 2000 and 26,936 units were
acquired by our affiliate, Millennium Funding II LLC.
Limited Partner Lists
Subject to your partnership agreement and applicable law, you may be
permitted to inspect and obtain copies of your partnership's books and records,
including records listing the names, addresses and percentage interests held by
each partner in your partnership.
15
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and the other
information set forth or incorporated by reference in this consent solicitation
statement before voting on the conversion.
The conversion will result in a fundamental change in the nature of your
investment.
The nature of your investment will change fundamentally. Shelbourne
plans to operate indefinitely, has no required date by which it must liquidate
its assets and may change its investments from time to time without your
approval. Shelbourne does not intend to distribute proceeds of any sales of its
assets except as necessary to maintain its status as a real estate investment
trust and to avoid the imposition of income and excise taxes on Shelbourne.
Instead, Shelbourne intends to reinvest the proceeds of any sales or financings.
See "SHELBOURNE -- OBJECTIVES AND STRATEGIES."
Shelbourne's Common Stock may trade at prices substantially below the value of
Shelbourne's net assets.
There is presently no market for Shelbourne's common stock. It is
possible that common stock will trade at prices substantially below the value of
Shelbourne's net assets. As a result, the amount you could receive upon sale of
your shares of common stock may be less than the amount you would receive when
your partnership is liquidated. As discussed under "ALTERNATIVES TO THE
CONVERSION -- Liquidation and Dissolution of Your Partnership," we estimated the
liquidation value of your partnership as of December 31, 1999 at $153.55 per
unit. This estimated liquidation value, however, does not take into account any
discount that may be applicable to your partnership's joint venture investments.
We believe that following the conversion the market price of shares of common
stock will depend on several factors. Such factors include how the market
perceives Shelbourne; whether Shelbourne maintains or increases its dividend
level; the size of Shelbourne in terms of its assets and market capitalization;
the degree to which leverage is used in Shelbourne's capital structure; the
historical performance of Shelbourne; external factors such as the
creditworthiness of tenants of Shelbourne's properties, market interest rates,
conditions of the real estate and stock market, performance of our investments
in mortgage and other real estate companies; and technical factors relating to
the supply and demand for shares of common stock.
Shelbourne intends to reinvest rather than distribute property sales proceeds.
Because Shelbourne intends to reinvest the proceeds of property sales
in new investments, these proceeds will not be distributed to you other than to
assure Shelbourne's continued qualification as a real estate investment trust
and avoid the imposition of income and excise taxes on Shelbourne. Currently,
after establishing reserves for existing property requirements, property sales
proceeds would be distributed to you since your partnership is not permitted to
make new investments.
Shelbourne's ability to incur debt could adversely affect Shelbourne's results
of operations and distributions to stockholders.
Shelbourne will likely incur significant indebtedness to finance future
investments. The use of leverage creates the risk that Shelbourne could default
on its obligations which, in turn, could adversely affect Shelbourne's results
of operations and ability to pay dividends to its stockholders. Your partnership
did not incur any indebtedness in connection with raising capital or acquiring
its properties. In contrast,
16
<PAGE>
Shelbourne may borrow money on a secured, unsecured and cross-collateralized
basis to finance future investments, to improve existing properties or for other
purposes. The properties owned by Shelbourne could be subject to foreclosure if
required principal and interest payments are not made when due. Shelbourne may
be unable to make distributions because of the obligation to make principal
payments, thereby jeopardizing Shelbourne's qualification as a real estate
investment trust or subjecting Shelbourne to entity-level taxes. Finally, any
default by Shelbourne in any of its debt obligations may cause other debt
obligations to become immediately due and payable. See "SHELBOURNE -- OBJECTIVES
AND STRATEGIES."
Dividends are not guaranteed and may fluctuate.
The amount of Shelbourne's dividends may be less than prior
distributions by your partnership. The amount of dividends will depend upon
numerous factors, many of which are beyond the control of management. These
factors include profitability, interest and principal payments on any
indebtedness, the cost of acquisitions including related debt service payments,
issuances of debt and equity securities, fluctuations in working capital,
capital expenditures, adjustments in reserves and prevailing economic
conditions. Shelbourne will not adhere to any particular formula in determining
what dividends it will declare and pay. The Board of Directors of Shelbourne
will determine the actual dividend rate based on Shelbourne's results of
operations, cash flow and capital requirements, economic conditions, tax
considerations and other factors. Shelbourne, however, will be required to
distribute substantially all of its taxable income in order to maintain its
status as a real estate investment trust. See "SHELBOURNE -- CASH DIVIDEND
POLICY."
We have conflicts of interest in recommending the conversion.
We have two material conflicts of interest in the conversion. First,
Presidio Capital Investment Company, LLC, our beneficial owner, has an economic
interest in the conversion since it also beneficially owns Shelbourne
Management. Shelbourne Management will have a contractual right to receive fees
for managing Shelbourne's business for ten years from the conversion. We, as
your general partners, currently have the right to receive fees on the same
basis from your partnership. However, the duration of our fees is limited by the
requirement that your partnership be liquidated no later than December 31, 2008.
In addition, your partnership agreement gives limited partners the right to
remove us as general partners.
Second, if the conversion is approved, we no longer will be obligated
to pay you additional amounts when your partnership is liquidated. If your
partnership were liquidated in the year 2000 we would be required to pay you
$8.80 per unit as repayment of fees previously received. The amount which we are
required to pay to you upon liquidation of your partnership is reduced each
calendar year and eliminated after 2007. Elimination of our obligation to pay
you this additional amount was an agreed-upon element of the settlement. See
"BACKGROUND OF THE CONVERSION."
Stockholders will be diluted by any subsequent equity issuances.
The issuance of additional equity securities to raise capital or make
new investments would reduce your percentage interest in Shelbourne and could
reduce dividends you would receive from Shelbourne. Unlike your partnership,
Shelbourne will have the ability to raise capital by issuing additional shares
of common stock and causing the operating partnership to issue additional
limited partnership interests.
17
<PAGE>
Shelbourne may enter into transactions with our affiliates.
Shelbourne will be permitted to purchase properties from, sell
properties to, borrow money from or enter into other transactions with,
companies in which our beneficial owner, NorthStar Capital Investment Corp. has
an economic interest and/or controls. These affiliated transactions must be on
terms comparable to those obtainable from third parties but are not subject to
the limitations similar to those contained in your partnership agreement.
Shelbourne's ability to transact with our affiliates will also be subject to
applicable provisions of Delaware law.
Provisions in the Certificate, Bylaws and Shareholder Rights Agreement could
inhibit changes in control.
Some of the provisions of Shelbourne's certificate of incorporation,
bylaws and shareholder rights agreement described below, may have the effect of
discouraging a third party from making an acquisition proposal for Shelbourne
and may therefore inhibit a change in control of Shelbourne. In order to
maintain its qualification as a real estate investment trust for federal income
tax purposes, not more than 50% in value of the outstanding stock of Shelbourne
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Internal Revenue Code to include certain entities). See "FEDERAL INCOME
TAX CONSEQUENCES -- TAXATION OF SHELBOURNE AS A REAL ESTATE INVESTMENT TRUST -
Requirements for Qualification." In order to facilitate maintenance of its
qualification as a real estate investment trust for federal income tax purposes,
and to otherwise address concerns relating to concentration of capital stock
ownership, Shelbourne generally has prohibited ownership, directly or by virtue
of the attribution provisions of the Internal Revenue Code, by any single
stockholder of more than 8% of the issued and outstanding shares of Shelbourne's
common stock. However, the ownership limit will not apply to NorthStar Capital
Investment Corp. or any of its officers, directors and affiliates provided that
their ownership in excess of this limit will not jeopardize Shelbourne's
qualification as a real estate investment trust for Federal income tax purposes.
The Board of Directors may waive the ownership limitation described above or
modify the ownership limit with respect to one or more persons if it is
satisfied, based upon the advice of tax counsel, that ownership in excess of
this limit will not jeopardize Shelbourne's qualification as a real estate
investment trust for federal income tax purposes or if it determines that it is
no longer in the best interests of Shelbourne's shareholders for Shelbourne to
continue to qualify as a real estate investment trust. The ownership limit may
have the effect of inhibiting or impeding a change in control and, therefore,
could adversely affect the stockholders' ability to realize a premium over the
then-prevailing market price for the common stock In addition, the Board of
Directors has been divided into three classes, the initial terms of which expire
in 2001, 2002 and 2003, with directors of a given class chosen for three-year
terms upon expiration of the terms of the members of that class. The staggered
terms of the members of the Board of Directors may adversely affect the
stockholders' ability to effect a change in control of Shelbourne, even if such
a change in control were in the best interests of some, or a majority, of
Shelbourne's stockholders. See "SHELBOURNE -- MANAGEMENT - Directors."
The certificate of incorporation authorizes the Board of Directors to
issue shares of preferred stock in series and to establish the rights and
preferences of any series of preferred stock so issued. See "DESCRIPTION OF
CAPITAL STOCK -- PREFERRED STOCK" and "CERTAIN PROVISIONS OF DELAWARE LAW AND
SHELBOURNE'S CERTIFICATE AND BYLAWS -- THE BOARD OF DIRECTORS." The issuance of
preferred stock also could have the effect of delaying or preventing a change in
control of Shelbourne, even if such a change in control were in the best
interests of some, or a majority, of Shelbourne's stockholders. No shares of
preferred stock will be issued or outstanding immediately subsequent to the
conversion and Shelbourne has no present intention to issue any such shares.
18
<PAGE>
Shelbourne has also adopted a shareholder rights agreement. Under the
terms of the shareholder rights agreement, in general, if a person or group
becomes an "acquiring person" meaning such person or group acquires more than
15% of the outstanding shares of common stock, all other stockholders will have
the right to purchase securities from Shelbourne at a discount to such
securities' fair market value, thus causing substantial dilution to the
acquiring person. The shareholder rights agreement may have the effect of
inhibiting or impeding a change in control and, therefore, could adversely
affect the stockholders' ability to realize a premium over the then- prevailing
market price for the common stock in connection with such a transaction. In
addition, since the Board of Directors of Shelbourne can prevent the shareholder
rights agreement from operating in the event the Board approves of an acquiring
person, the shareholder rights agreement gives the Board significant discretion
over whether a potential acquiror's efforts to acquire a large interest in
Shelbourne will be successful. Because the shareholder rights agreement contains
provisions that are designed to assure that NorthStar Capital Investment Corp.
and its affiliates will never, alone, be considered a group that is an acquiring
person, the shareholder rights agreement provides NorthStar Capital Investment
Corp. and its affiliates with some advantages under the shareholder rights
agreement that are not available to other stockholders. See "DESCRIPTION OF
CAPITAL STOCK -- SHAREHOLDER RIGHTS AGREEMENT."
Some provisions of the Delaware General Corporation Law also may have
the effect of inhibiting a third party from making an acquisition proposal for
Shelbourne or of impeding a change in control of Shelbourne under circumstances
that otherwise could provide the holders of shares of common stock with the
opportunity to realize a premium over the then-prevailing market price of such
shares. See "CERTAIN PROVISIONS OF DELAWARE LAW AND SHELBOURNE'S CERTIFICATE AND
BYLAWS."
Shelbourne's performance and value are subject to risks associated with the real
estate industry.
Following the conversion, Shelbourne may make additional real
estate-related investments including investments in additional properties, joint
ventures and other real estate companies. These investments will be subject to
the general risks associated with the ownership of real estate investments. Such
risks include adverse changes normally associated with changes in national,
regional and local economic and market conditions, changes in laws and
governmental regulations including those governing usage, zoning and taxes,
changes in interest rates and the availability of financing. Other factors
affecting real estate, which would impact on Shelbourne's properties and could
have an impact on its other investments, include acts of God, property damage or
casualty losses, unexpected capital expenditures, changes in market rents and
the creditworthiness of tenants. See "SHELBOURNE -- OBJECTIVES AND STRATEGIES."
If Shelbourne's borrowers default on mortgage loans, Shelbourne's income could
be adversely affected.
Shelbourne may invest in mortgage loans and is therefore subject to
risks inherent in the business of lending, such as the risk of default by or
bankruptcy of the borrower. Upon a default by a borrower, Shelbourne may not be
able to sell the property securing a mortgage loan at a price that would enable
it to recover the balance of a defaulted mortgage loan. In addition, the
mortgage loans could be subject to regulation by federal, state and local
authorities which could interfere with Shelbourne's administration of the
mortgage loans and any collections upon a borrower's default. Shelbourne is also
subject to interest rate risk that is associated with the business of making
mortgage loans.
19
<PAGE>
Shelbourne will be managed by a third-party advisor and will therefore have less
control over its operations.
Shelbourne will rely on Shelbourne Management to manage its business
and assets. Subject to the control of Shelbourne's Board of Directors,
Shelbourne Management will make all decisions with respect to the management of
the company. Thus, the success of Shelbourne's business will depend in large
part on the ability of Shelbourne Management to manage Shelbourne's day-to-day
operations. Any adversity experienced by Shelbourne Management could adversely
impact the operation of Shelbourne's properties and, consequently, Shelbourne's
cash flow and ability to make distributions to its stockholders. In addition,
Shelbourne Management manages the assets of other entities, including entities
which may seek to make investments which may also be potential acquisition
targets for Shelbourne. Shelbourne Management may not always take the actions in
advising Shelbourne that would be expected of Shelbourne Management if its
business had been limited to managing Shelbourne's assets. Shelbourne Management
will also manage two other publicly traded real estate investment trusts if the
conversion of the other High Equity partnerships are approved and may manage
other public real estate investment trusts. See, "BACKGROUND OF THE CONVERSION -
The Class Action Settlement." Shelbourne Management has discretion to allocate
investment opportunities among the companies it manages.
Shelbourne's ability to grow could be adversely affected if Shelbourne is not
successful in raising capital.
Shelbourne's ability to grow is largely dependent on its ability to
raise additional capital to acquire additional properties and make new
investments. While Shelbourne has the ability to raise additional capital in a
variety of ways, including through the issuance of debt and equity securities,
it may not be successful in raising such capital in the capital and financial
markets. For example, since Shelbourne must distribute substantially all of its
taxable income to maintain its status as a real estate investment trust, lenders
may be unwilling to lend money to it. See "SHELBOURNE -- CASH DIVIDEND POLICY."
If Shelbourne is unable to raise additional capital on favorable terms, that
could have a material adverse effect on its ability to achieve its objectives
and on the value of your investment.
Illiquidity of real estate investments could adversely affect Shelbourne's
financial condition.
Real estate investments are illiquid relative to other investments such
as publicly traded securities. The illiquidity of Shelbourne's assets will limit
its ability to be able to buy or sell property in response to economic or other
conditions. In addition, some significant costs and expenses attendant to real
estate ownership are fixed, such as principal and interest payments on debt,
real estate taxes, and operating and maintenance costs. As a result,
Shelbourne's ability to respond to adverse changes in the performance of its
investments will be restricted, which could have an adverse effect on
Shelbourne's financial condition and results of operations.
Liability for environmental matters could adversely affect Shelbourne's
financial condition.
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of some hazardous or toxic substances released
on or in its property, as well as some other costs relating to hazardous or
toxic substances. Such liability may be imposed without regard to whether the
owner or operator knew of, or was responsible for, the release of such
substances. The presence of, or the failure to properly remove, such substances,
when released, may adversely affect the owner's ability to sell the affected
real estate or to borrow using such real
20
<PAGE>
estate as collateral. Such costs or liabilities could exceed the value of the
affected real estate. Your partnership has not been notified by any governmental
authority of any noncompliance, liability or other claim in connection with any
of its properties. In addition, your partnership is not aware of any other
environmental condition with respect to any of its properties that would have a
material adverse effect on its business, assets or results of operations.
Uninsured losses could adversely affect Shelbourne's financial condition.
Your partnership carries, and Shelbourne will continue to carry
comprehensive liability, fire, flood, extended coverage and rental loss
insurance, as applicable, with respect to its properties as customarily carried
for similar properties. We believe such insurance is adequate. There are,
however, some types of losses such as from wars or catastrophic acts of nature
that may be either uninsurable or not economically insurable. Any uninsured loss
could result in both loss of cash flow from, and asset value of, the affected
property.
We do not anticipate obtaining new owner's title insurance policies in
connection with the conversion. Each of your partnership's properties has
previously been insured by title insurance policies. However, each such title
insurance policy may be in an amount less than the current value of the
applicable property. In the event of a loss with respect to a property relating
to a title defect, Shelbourne could lose both its capital invested in and
anticipated profits from such property.
FEDERAL INCOME TAX RISKS
Failure to qualify or remain qualified as a real estate investment trust would
cause Shelbourne to be taxed as a corporation.
Shelbourne intends to elect to be treated for tax purposes and to
operate so as to qualify as a real estate investment trust under the Internal
Revenue Code effective for its taxable year ending December 31, 2000. If
Shelbourne qualifies as a real estate investment trust, it generally will not be
subject to corporate-level income tax on income that it currently distributes to
its stockholders as long as it makes current distributions of at least 95% (90%
for taxable years after 2000) of its taxable income excluding net capital gain.
This treatment substantially eliminates the "double taxation," i.e., taxation at
both the corporate and stockholder levels, that ordinarily results from
investment in a corporation. No assurance can be given that Shelbourne will
qualify or remain qualified as a real estate investment trust, or that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
real estate investment trust or the Federal income tax consequences of such
qualification. As a condition of the conversion, Shelbourne will receive an
opinion of Rosenman & Colin LLP to the effect that, commencing with Shelbourne's
taxable year ending on December 31, 2000, Shelbourne will be organized in
conformity with the requirements for qualification as a real estate investment
trust, and Shelbourne's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a real estate investment trust,
provided that (1) the conversion and some procedural steps described under
"Federal Income Tax Consequences" are completed in a timely fashion and (2)
Shelbourne and the operating partnership operate in accordance with various
assumptions and factual representations made by them and by us concerning their
organization, business, properties and operations. However, an opinion of
counsel is not binding on the Internal Revenue Service (the "Service") or the
courts. See "FEDERAL INCOME TAX CONSEQUENCES -- TAXATION OF SHELBOURNE AS A REAL
ESTATE INVESTMENT TRUST."
21
<PAGE>
If Shelbourne were to fail to qualify as a real estate investment trust
in any taxable year, it would not be allowed a deduction for distributions to
stockholders in computing its taxable income, and its taxable income would be
subject to Federal income tax at regular corporate rates. Unless entitled to
relief, Shelbourne also would be disqualified from treatment as a real estate
investment trust for the four taxable years following the year during which
qualification was lost. The resulting taxes imposed on Shelbourne would reduce
the funds available for distribution to its stockholders for each of the years
involved, and could materially reduce the value of your common stock. See
"FEDERAL INCOME TAX CONSEQUENCES - TAXATION OF SHELBOURNE AS A REAL ESTATE
INVESTMENT TRUST - Failure of Shelbourne to Qualify as a Real Estate Investment
Trust."
To qualify as a real estate investment trust Shelbourne will need to maintain a
certain level of distributions.
In order to qualify as a real estate investment trust, Shelbourne
generally will be required each year to distribute to its stockholders at least
95% (90% for taxable years after 2000) of its taxable income excluding any net
capital gain. In addition, Shelbourne will be subject to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions made by it with
respect to any calendar year are less than the sum of:
(1) 85% of its ordinary income for that year;
(2) 95% of its capital gain net income for that year less any
capital gains that Shelbourne elects to retain and pay
taxes on; and
(3) any undistributed taxable income from prior periods less any
capital gains that Shelbourne elected to retain and pay
taxes on.
Shelbourne intends to make distributions to its stockholders in amounts
sufficient to comply with the foregoing distribution requirement and also avoid
the 4% excise tax. The requirement to distribute a substantial portion of its
taxable income could cause Shelbourne to distribute amounts that would otherwise
be spent on future acquisitions, capital expenditures or repayment of debt.
Failure to spend cash flow on such items could require Shelbourne to borrow or
sell assets or issue additional equity to fund the cost of such items. See
"FEDERAL INCOME TAX CONSEQUENCES - TAXATION OF SHELBOURNE AS A REAL ESTATE
INVESTMENT TRUST - Requirements for Qualification - Annual Distribution
Requirements."
There are potential tax disadvantages to conducting business as a real estate
investment trust.
While conducting business as a real estate investment trust will
provide Shelbourne with certain advantages, it also will result in certain tax
disadvantages to Shelbourne and its stockholders. Maintaining qualification as a
real estate investment trust will require Shelbourne to comply with various
restrictions with respect to its assets, income and distributions that are not
applicable to your partnership. Unlike your partnership, Shelbourne may be
subject to entity-level income taxes under certain circumstances even while
remaining qualified as a real estate investment trust. Unlike your partnership,
income and losses of Shelbourne will not pass through to its stockholders, and
taxable stockholders generally will be taxed on dividends paid to them.
Unlike your investment in your partnership, your ownership of common
stock will not be a passive activity for purposes of the passive activity loss
limitation, and dividends and capital gains from common stock may not be offset
by your unused passive activity losses from your partnership or other
investments. However, unused passive activity losses from your partnership
generally may be deducted when you sell all of your common stock. See
"COMPARISON OF YOUR PARTNERSHIP AND SHELBOURNE --
22
<PAGE>
TAXATION OF TAXABLE LIMITED PARTNERS" and "FEDERAL INCOME TAX CONSEQUENCES --
TAXATION OF TAXABLE U.S. STOCKHOLDERS."
OTHER TAX RISKS
Possible non-conformity between federal and state tax laws could adversely
affect Shelbourne's qualification as a real estate investment trust under state
laws.
While we anticipate that Shelbourne will qualify as a real estate
investment trust for Federal income tax purposes, Shelbourne's qualification as
a real estate investment trust under the laws of the individual states will
depend on, among other things, such states' level of conformity with Federal tax
law. We believe that, at the present time, any nonconformity between state and
Federal income tax law with respect to the requirements for qualification as a
real estate investment trust will not have a material adverse effect on
Shelbourne and its stockholders. There can be no assurance, however, that, in
the future, changes in either state or federal law would not have a material
adverse effect on Shelbourne or its stockholders. You should consult your tax
advisors regarding your state's tax law. See "FEDERAL INCOME TAX CONSEQUENCES --
OTHER TAXES."
23
<PAGE>
BENEFITS OF THE CONVERSION
As discussed under "BACKGROUND OF THE CONVERSION," we are proposing the
conversion as required by the settlement of the class action litigation
involving your partnership. We expect that the following benefits will result
from the conversion.
Tax-Free Receipt of Common Stock
You will not be taxed on common stock you receive in the conversion.
Greater Liquidity
Common stock will be traded on the American Stock Exchange. As a
result, stockholders in Shelbourne should have greater liquidity than you
currently have in the existing limited and informal secondary market for units.
In addition, trading on the American Stock Exchange is expected to more
accurately reflect the value of common stock than is reflected with respect to
your partnership units on the secondary market. See "ALTERNATIVES TO THE
CONVERSION -- CONTINUATION OF YOUR PARTNERSHIP."
Ability to Make New Investments
Shelbourne will have the ability to make new investments. Shelbourne
may acquire new properties, interests in joint ventures and other real estate
companies, mortgages and other real estate-related assets. The ability to make
new investments will enable Shelbourne to change its investment portfolio in
response to changing market conditions and to avail itself of potentially
favorable investment opportunities. However, there can be no assurance that
suitable additional real estate-related investments may not be available on
favorable terms. Through such additional investments, Shelbourne will attempt to
maximize the value of the common stock.
Beneficial Company Structure
Shelbourne's "UPREIT" structure will enhance its ability to make future
acquisitions. Shelbourne, through the operating partnership, may issue
additional partnership interests in transactions which would afford beneficial
tax treatment to prospective sellers.
Elected Governance
Following the conversion, directors of Shelbourne will be elected by
holders of common stock. In addition, a vote of stockholders holding two-thirds
of the outstanding common stock generally may remove a director of Shelbourne.
Each year, holders of common stock will elect approximately one-third of
Shelbourne's directors, each of whom will serve for a three-year term.
Ability to Raise Capital
Shelbourne will have the ability to raise capital by borrowing money,
including by mortgaging existing properties, and by issuing equity securities.
The proceeds from such loans or equity issuances may be used to finance future
investments, to improve existing properties, or for other purposes. In addition,
the borrowing of money by Shelbourne will not result in unrelated business
taxable income to tax-exempt stockholders.
24
<PAGE>
No Unrelated Business Taxable Income
If you are tax-exempt, dividends paid to you generally will not
constitute unrelated business taxable income even if Shelbourne borrows funds to
finance acquisitions or improvements.
Simplified Tax Reporting
The conversion will result in simplified tax administration for many of
you. You no longer will receive a Schedule K-1, which is generally received in
March, which complicates and typically leads to more costly tax return
preparation, but instead will receive the simple and familiar Form 1099-DIV by
January 31 of each year to report your taxable income and gain from Shelbourne.
Reduced State Income Tax Reporting
You generally will not be subject to state income tax or required to
file individual state income tax returns in states other than in your state of
residence solely as a result of an investment in common stock.
COMPARISON OF YOUR PARTNERSHIP AND SHELBOURNE
Your rights and obligations are currently governed by the California
Uniform Limited Partnership Act, which we will refer to as "California
partnership law", and your partnership agreement. Following the conversion, your
rights will be governed by the Delaware General Corporation Law and the
organizational documents of Shelbourne. The following compares some of such
rights as well as some attributes of the ownership of units in your partnership
and shares of common stock. See "DESCRIPTION OF CAPITAL STOCK" for additional
information on common stock.
YOUR PARTNERSHIP SHELBOURNE
- --------------------------------------- --------------------------------------
Form of Organization
Your partnership is a limited Shelbourne is a corporation organized
partnership formed under California under Delaware General Corporation
partnership law. Your partnership has Law. Shelbourne intends to qualify
been treated as a partnership for as a real estate investment trust
Federal income tax purposes, and is not under the Internal Revenue Code,
subject to entity-level taxes. thereby generally avoiding Federal
taxation of income distributed to
stockholders. Maintaining real
estate investment trust status will
require ongoing satisfaction of
various tests and restrictions that
do not apply to your partnership.
Shelbourne may be subject to
entity-level taxes in some
circumstances.
Your partnership is a limited partnership governed by California
partnership law. Shelbourne is a corporation governed by Delaware corporate law.
Qualification of Shelbourne as a real estate investment trust will enable
Shelbourne to avoid much of the double taxation normally associated with
corporations.
25
<PAGE>
YOUR PARTNERSHIP SHELBOURNE
- --------------------------------------- ---------------------------------
General Business
The business of your partnership is Shelbourne will have the
limited to the ownership of interests authority to engage in any and
in its properties. The properties were all business activities
intended to be sold over varying permitted a corporation
periods of time with the resulting organized under the laws of the
liquidation of your partnership. Your State of Delaware which is
partnership is prohibited from consistent with qualification as
reinvesting its funds in additional a real estate investment trust.
properties. Specifically, through the
operating partnership,
Shelbourne will own the
operating partnership's
properties and, when
appropriate, recognize the value
of the properties through sales
and/or initial mortgage
financing. The proceeds of such
transactions will be used to
make new real estate-related
investments. Shelbourne will
also acquire new investments
with borrowed money or capital
raised by issuing additional
equity securities. Equity
securities in Shelbourne may be
more attractive to some types of
investors than partnership
interests, thereby enhancing
Shelbourne's ability to raise
additional capital.
Shelbourne will be permitted to engage in a broader range of business
opportunities as compared to your partnership. Such opportunities will be
facilitated as a result of the greater flexibility of Shelbourne with respect to
raising additional capital and borrowing.
- --------------------------------------- ---------------------------------
Duration of Existence
Your partnership has a finite term of In accordance with the Delaware
existence. Your partnership agreement General Corporation Law and
provides for a term lasting until Shelbourne's certificate of
December 31, 2008, unless sooner incorporation, Shelbourne will
terminated in connection with a have a perpetual existence, and
liquidation following the sale of all continue to operate
the Properties. While your partnership indefinitely.
initially contemplated selling its
interests in its properties within
varying time periods, we have the
discretion and authority to determine
the actual timing of any sales. Any such
determination would be based, in part,
on then prevailing economic and market
conditions.
Your partnership agreement provides for the dissolution of your
partnership in 2008, whereas Shelbourne's certificate of incorporation provides
for perpetual existence. Accordingly, after the conversion, liquidation of your
investment in Shelbourne will not likely be achieved through liquidating
distributions, but through the sale of shares of Common Stock on the American
Stock Exchange.
26
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- ---------------------------------------- -------------------------------------
Voting Rights
<S> <C>
You are entitled to one vote per unit The bylaws and Delaware law provide
on matters requiring a vote of limited that the stockholders of Shelbourne
partners. Although you have no right shall be entitled to vote, subject to
to elect management of your partnership any voting rights which may be
on an annual basis or to participate in granted to holders of preferred
the management or control of its stock, on all matters submitted to a
business, the vote of limited partners vote of the stockholders. In
holding more than 50% of the determining the number of shares
outstanding units may, subject to some entitled to vote, each share of
exceptions and limitations set forth in common stock is entitled to one vote.
the your partnership agreement, approve
some significant actions such as Generally, matters submitted to the
approve or initiate (1) removal of a stockholders require the affirmative
general partner and the election of a vote of stockholders holding a
successor general partner, (2) election majority of the number of votes cast
of an additional general partner, (3) either present in person or by proxy
termination and dissolution of your at a duly convened meeting of
partnership, (4) some amendments to stockholders, except that the removal
your partnership, (5) sale of of directors and the amendment of
substantially all of the assets of your some sections of the certificate of
partnership, (6) the pledge or incorporation requires the
encumbrance of substantially all of the affirmative vote of stockholders
assets of your partnership, and (7) the holding two-thirds of the number of
extension of the term of your votes entitled to be cast on such
partnership. proposals.
The bylaws of Shelbourne require
Shelbourne to send notice at
least 10 days and not more than
60 days before the annual meeting
of stockholders to each
stockholder entitled to vote at
such meeting or to each
stockholder who, by law, under
the certificate of incorporation
or under the bylaws is entitled
to such notice.
</TABLE>
You will be entitled to vote on more matters as a stockholder of
Shelbourne than you are as a limited partner in your partnership, including the
entitlement to vote in the annual election of directors.
27
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- ----------------------------------------- ------------------------------------------
Fiduciary Duties, Limitation of Liability and Indemnification
<S> <C>
We are accountable to your partnership Although it is unclear whether or to
as fiduciaries and are required to what extent there are any differences in
exercise good faith and integrity in all such fiduciary duties, it is possible
our dealings in your partnership's that the fiduciary duties of directors
affairs. Your partnership agreement of Shelbourne to its stockholders could
generally provides that neither we nor be less than our fiduciary duties to
any of our affiliates performing you, which may result in decreased
services on behalf of your partnership potential liability of the directors of
will be liable to your partnership or Shelbourne. Shelbourne's certificate of
any of their respective partners for any incorporation limits the liability of
loss suffered by your partnership that Shelbourne's directors to the fullest
arises out of any action or inaction of extent permitted from time to time by
us or our affiliates if we in good faith Delaware law. The certificate of
determine that such course of conduct incorporation presently permits the
was in the best interests of your liability of directors to Shelbourne or
partnership, provided that such course its stockholders for money damages to be
of conduct did not constitute negligence limited, except for liability (1) for
or misconduct of us and our affiliates. any transaction from which the director
derived an improper benefit, (2) for any
Your partnership agreement generally breach of the director's duty of loyalty
requires your partnership to indemnify to Shelbourne or its stockholders, (3)
us to the maximum extent permitted by acts or omissions not in good faith or
law from any liability, loss or damage which involve intentional misconduct or
incurred by reason of an act performed a knowing violation of law, and (4)
or omitted to be performed by them, under Section 174 of the General
including costs and expenses, provided Corporation Law of the State of
that (1) the course of conduct was Delaware.
determined to be in the best interest of
your partnership, and (2) the course of Shelbourne's bylaws require Shelbourne
conduct did not constitute negligence or to indemnify its directors and officers
misconduct. to the fullest extent permitted from
time to time by Delaware law.
Delaware law permits indemnification to
some persons against expenses and some
other liabilities arising out of legal
actions brought or threatened against
such persons for their conduct on behalf
of a corporation, provided that each
such person acted in good faith and in a
manner that he reasonably believed was
in or not opposed to such corporation's
best interests and in the case of a
criminal proceeding, had no reasonable
cause to believe his or her conduct was
unlawful. Delaware does not allow
indemnification of directors in the case
of an action by or in the right of a
corporation (including stockholder
derivative suits) unless the directors
successfully defend the action or
indemnification is ordered by the court.
Shelbourne has also entered into
indemnification agreements with each of
its directors and executive officers
which, among other things, require the
that Shelbourne indemnify its directors
and executive officers to the fullest
extent permitted by law and advance to
the directors and executive officers all
related expenses, including legal costs,
subject to reimbursement, if it is
subsequently determined that the
indemnification is not permitted.
</TABLE>
The rights of stockholders against management of Shelbourne in some
circumstances are more limited than the rights you have against us or your
general partners.
28
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- ---------------------------------------- ------------------------------------------
Review of Books and Records
<S> <C>
Under your partnership agreement and Under Delaware General Corporation
applicable law, you may be entitled to Law, a stockholder is entitled, upon
review and obtain a copy of a current written demand, to inspect for any
list of the names and addresses of proper purposes during usual business
limited partners in your partnership as hours, Shelbourne's stock ledger, a
well as other information maintained at list of Shelbourne's stockholders and
the principal offices of your its other books and records and to
partnership. make copies or extracts therefrom.
In addition, Shelbourne is required to
prepare, at least 10 days before every
meeting of stockholders, a complete list
of the stockholders entitled to vote at
the meeting, arranged in alphabetical
order, and showing the address of each
stockholder and the number of shares
registered in the name of each
stockholder. Such list must be open to
the examination of any stockholder, for
any purpose germane to the meeting,
during ordinary business hours, for at
least 10 days prior to the meeting
either at the place where the meeting is
to be held or at a place in the city
which is specified in the notice of the
meeting.
</TABLE>
The rights of stockholders to obtain an investor list is somewhat more
limited than your corresponding right in your partnership.
<TABLE>
<CAPTION>
- ------------------------------------------ ------------------------------------------
Management
<S> <C>
With the exception of some significant Shelbourne will be managed by its Board
transactions which require your approval of Directors and executive officers.
such as a sale of all of your Management of the day-to-day affairs of
partnership's assets, we have exclusive Shelbourne will be performed by
authority and control over the Shelbourne Management. The Board of
management and operation of your Directors will be elected by the holders
partnership. You do not have the right of common stock.
to annually elect the management of your
partnership. However, we may be removed
at any time by a vote of a majority of
the outstanding units in your
partnership.
</TABLE>
Unlike limited partners in your partnership, holders of Common Stock
will vote to elect management of Shelbourne.
29
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- ----------------------------------------- -----------------------------------------
Distributions; distribution policy
<S> <C>
Your partnership generally distributes Shelbourne intends to make quarterly
available cash on a quarterly basis. dividend payments to its stockholders.
Amounts distributed to you historically The amount of such dividends will be
have been derived from your share of established by the Board of Directors,
adjusted cash from operations. We may, taking into account the cash needs of
under your partnership agreement, create Shelbourne, the requirements of the
working capital and other reserves that Internal Revenue Code for qualification
may have the effect of decreasing cash as a real estate investment trust and
distributions. You also are entitled to the amount of distributions necessary to
receive your share of cash from sales or avoid becoming subject to non-deductible
financings upon the sale or, in limited excise tax. See "FEDERAL INCOME TAX
circumstances, financing of your CONSEQUENCES." Under the Internal
partnership's properties. However, Revenue Code, Shelbourne is required to
except for the sale of two properties, distribute ordinary income dividends of
your partnership has not to date sold or at least 95% (90% after taxable year
financed any of its real estate 2000) of its taxable income (excluding
investments. net capital gain) in order to maintain
its qualification as a real estate
investment trust. Unlike your
partnership, Shelbourne is not required
to distribute net proceeds from a
financing of properties or from sales of
properties. For a summary of
Shelbourne's dividend policy, see,
"SHELBOURNE -- CASH DIVIDEND POLICY".
</TABLE>
Shelbourne will pay dividends when declared by the Board of Directors
of Shelbourne. The amount of such dividends will depend upon Shelbourne's
operating expenses, debt service payments, capital expenditures and other
factors. To maintain its qualification as a real estate investment trust,
Shelbourne must distribute 95% (90% after 2000) of its taxable income (excluding
net capital gain).
30
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- ---------------------------------- ---------------------------------------------
Management Fees to Affiliates
<S> <C>
Your partnership agreement Shelbourne Management will manage Shelbourne
provides for the payment of the under an advisory agreement and will be
following fees to us and our responsible to do the following:
affiliates in consideration of
our and their performance of some o manage Shelbourne's day-to-day operations;
services on behalf of your
partnership. o provide or arrange for customary property
management services to be provided at
Management and Administrative Shelbourne's properties;
Fees. In consideration of
providing management and o supervise Shelbourne's financings including
administrative services for your any sales of Shelbourne's securities;
partnership, we or our affiliates
are currently entitled to receive o conduct relations for Shelbourne with the
(1) a per annum partnership asset American Stock Exchange or with dealers which
management fee equal to 1.25% of make markets in Shelbourne's securities;
the gross assets of your
partnership per annum, and (2) o select and conduct relations with lenders,
$150,000 per annum for lawyers, consultants, accountants, mortgage
non-accountable expenses. In loan originators, brokers, participants,
addition, your partnership pays attorneys, appraisers, insurers, and others
our affiliates competitive who may be relevant to Shelbourne's activities;
property management fees not in
excess of 6% of revenues. o administer day-to-day bookkeeping and
accounting functions;
Liquidation Fees. As a result of
some subordination provisions o prepare reports to stockholders which may be
relating to liquidation stage required by governmental authorities for the
fees, it is not currently ordinary conduct or Shelbourne's business;
anticipated that we would be
entitled to receive any fees o negotiate and enter into leases of space at
which would otherwise be payable Shelbourne's properties;
to us or our affiliates in
connection with the sale of o supervise the development and improvement of
properties and the liquidation of properties, including capital and tenant
your partnership. improvements.
Reimbursement of Expenses. Your Under the advisory agreement, Shelbourne
partnership agreement further Management will be paid:
provides that we and our
affiliates are entitled to be o an asset management fee equal to 1.25% of
reimbursed for accountable gross assets of Shelbourne;
expenses.
o $150,000 for non-accountable expenses;
o competitive property management fees not in
excess of 6% of revenues; and
o reimbursements for accountable expenses.
Since the asset management fee is based on gross
assets, the amount payable to Shelbourne
Management will increase to the extent Shelbourne
acquires new investments, whether for cash, by
causing Shelbourne to incur indebtedness or
otherwise.
</TABLE>
The method of determining the amount of fees payable to the advisor for
managing Shelbourne and its properties is substantially the same as the method
for determining the amount of fees payable to us and our affiliates for
performing the same services.
The following information compares (1) the compensation paid by your
partnership to us and our affiliates and (2) the compensation that would have
been paid to us and our affiliates if the conversion had been in effect during
the periods presented below.
31
<PAGE>
HISTORICAL AND PRO FORMA PAYMENTS TO THE GENERAL PARTNERS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1997 1998
---- ----
Net
Historical Shelbourne Net Increase Historical Shelbourne Increase
Partnership Pro Forma (Decrease) Partnership Pro Forma (Decrease)
----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset Management Fee $908,172 $908,172 $0 $887,329 $887,329 $0
Property Management Fees $350,490 $350,490 0 $371,144 $371,144 0
General Partners' 75,160 75,160 0 79,160 79,160 0
Distributions
Reimb. of Exp.-Non-Accountable 150,000 150,000 0 150,000 150,000 0
Reimb. of Part. Exp. To 41,994 41,994 0 102,007 102,007 0
Affiliates ---------- ---------- -- ---------- ---------- --
Total $1,525,816 $1,525,816 $0 $1,589,640 $1,589,640 $0
========== ========== == ========== ========== ==
<CAPTION>
Year Ended December 31,
---------------------------------------
1999
----
Net
Historical Shelbourne Increase
Partnership Pro Forma (Decrease)
----------- --------- ----------
<S> <C> <C> <C>
Asset Management Fee $418,769 $418,769 (1)(2) $0
Property Management Fees $291,991 $291,991 (3) 0
General Partners' 39,581 39,581 0
Distributions
Reimb. of Exp.-Non-Accountable 150,000 150,000 0
Reimb. of Part. Exp. To 57,739 57,739 0
Affiliates -------- -------- --
Total $958,080 $958,080 $0
======== ======== ==
</TABLE>
- -----------
(1) Since the asset management fee is based on gross assets, the amount payable
to Shelbourne Management will increase to the extent Shelbourne acquires
new investments, whether for cash, by causing Shelbourne to incur
indebtedness or otherwise.
(2) While the settlement fixed the Asset Management Fee for 1999 at $418,769,
the fee in future years will be based on 1.25% of the gross assets of
Shelbourne. The fee for 1999 would have been $690,075 if it had been
calculated based on 1.25% of gross assets.
(3) Historical cost includes $350,490, $371,144 and $291,991 of Supervisory
Management Fees paid to our affiliate, Resources Supervisory Management
Corp. for the years ended December 31, 1997, 1998 and 1999, respectively,
of which $196,300, $212,371 and $220,011, respectively, was paid to
unaffiliated management companies
32
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP SHELBOURNE
- --------------------------------------- --------------------------------------
Taxation of Taxable Limited Partners
<S> <C>
Your partnership, which is treated as a Dividends paid to taxable
partnership for Federal income tax stockholders generally will be
purposes, is not subject to tax, but taxable to them as ordinary dividend
you must report your allocable share of income (except for distributions
partnership income and loss on your tax properly designated as capital gain
return. Partnership distributions are distributions). Dividends and
not taxable to you except to the extent capital gains from common stock
such distributions exceed your adjusted cannot be offset by passive activity
tax basis in your partnership units. losses, including any unused passive
Your partnership specially allocates activity losses from your
depreciation deductions to taxable partnership, in the case of
unitholders. Losses from your stockholders who are subject to the
partnership constitute passive activity passive activity loss limitation.
losses which, under the passive Unused passive activity losses from
activity loss limitation rules, cannot your partnership generally may be
be deducted currently except to the deducted when you sell all of your
extent of your passive activity income, common stock. Tax losses of
if any, from other investments. Income Shelbourne will not pass through to
from your partnership generally stockholders, but will reduce
constitutes passive activity income Shelbourne's future taxable income
which, under the passive activity loss (subject to applicable limitations).
limitation (but subject to other Each January, stockholders will be
applicable limitations), can be offset mailed the familiar Form 1099-DIV for
by unused passive activity losses from corporate dividends.
your partnership or other investments.
Generally, by March 15 of each year, As a stockholder, you generally will
you receive annual Schedule K-1 forms not be required to file state income
with respect to information for tax returns or pay state income taxes
inclusion on your Federal income tax outside your state of residence with
returns. respect to Shelbourne's operations.
Shelbourne must pay state income
You generally must file state income taxes in certain states where it owns
tax returns and may incur state income properties.
tax in various states in which your
partnership owns property.
</TABLE>
Shelbourne's dividends generally will be taxable to taxable
stockholders as ordinary income which is not passive activity income.
Stockholders will receive a Form 1099-DIV rather than a Schedule K-1.
<TABLE>
<CAPTION>
- ---------------------------------------- -----------------------------------
Taxation of Tax-Exempt Limited Partners
<S> <C>
Leveraged acquisitions by your The Service has ruled that
partnership would give rise to distributions by a real estate
unrelated business taxable income under investment trust to a tax-exempt
the Internal Revenue Code. pension trust generally will not
constitute unrelated business taxable
income. Accordingly, dividends
received from Shelbourne by a
stockholder whose income is exempt
from Federal income taxation (other
than certain categories of tax-exempt
stockholders) should not constitute
unrelated business taxable income
assuming the stockholder does not
hold its shares subject to
acquisition indebtedness.
</TABLE>
Shelbourne's dividends generally will not constitute unrelated business
taxable income to tax-exempt stockholders.
33
<PAGE>
Recommendation And Fairness
General Partners' Statement
We believe that the conversion is fair and in the best interest of
limited partners. Accordingly, we recommend that you vote "YES" to approve the
conversion.
Our belief that the conversion is fair is based on the following
factors:
o After the conversion you will own the same percentage
interest in Shelbourne that you presently own in your
partnership.
o Limited partners and general partners will receive common
stock in the conversion on the same basis.
o The conversion will be tax-free to you.
o Management's compensation structure will not be changed. The
settlement contemplated that Shelbourne would be externally
managed and that your partnership's fee structure would
continue in effect for Shelbourne after the conversion.
We gave greatest weight to the first two factors listed above in
determining that the conversion is fair to you.
In concluding that the conversion is fair, we did not consider the
liquidation value, going-concern value, net book value or historic or current
market prices of either your partnership units or shares of common stock. We do
not believe that these values are relevant in assessing the fairness of a
transaction such as the conversion in which a single partnership, without any
change in its assets or liabilities, is restructured to operate as a
wholly-owned subsidiary of a corporation. More specifically, following the
conversion:
o Shelbourne will own the identical properties owned by your
partnership prior to the conversion; and
o You will own the identical economic interest in Shelbourne
that you now own in your partnership.
We are recommending that you vote in favor of the conversion for the
following reasons:
o Trading of units on the informal secondary market is
sporadic and limited in volume. The American Stock Exchange
is an organized national securities exchange that should
provide you with the ability to sell your units in a more
efficient and liquid manner than that provided by the
existing secondary market for units.
34
<PAGE>
o As a limited partner, you hold an investment in a
fixed-property portfolio. Your partnership is not permitted
to make additional investments. Shelbourne's ability to make
new investments will enable it to change its investment
portfolio in response to changing market conditions and to
avail itself of potentially favorable investment
opportunities.
o Shelbourne will have the ability to finance new investments
by borrowing money or issuing equity securities.
Background of the Conversion
General
We are proposing the conversion as part of the court-approved
settlement of the class action litigation involving your partnership. The
following summarizes the history of your partnership and the events leading
towards and surrounding the settlement.
Your Partnership
Your partnership was formed in 1983 to invest in and hold existing or
to-be-constructed income-producing properties. Your partnership currently owns
interests in office buildings, shopping centers and other commercial and
industrial properties. Units in your partnership were registered under the
Securities Act of 1933 and publicly offered and sold between February 1985 and
May 1986 resulting in the sale of 400,010 partnership units for aggregate gross
proceeds to your partnership of $100,002,500. Substantially all of the capital
raised by your partnership through the sale of units, net of offering costs,
fees and some distributions, was invested in the properties currently owned by
your partnership as well as two other properties which have since been sold. A
complete description of the properties currently owned by your partnership is
set forth under "SHELBOURNE -- THE PROPERTIES."
Your partnership's properties were acquired between July 1985 and
December 1986. Although we originally anticipated holding your partnership's
properties for seven to ten years following the time such properties were
acquired, your partnership agreement provided us with the discretion and
authority to determine the actual timing of sales. Accordingly, based on our
continued assessment of prevailing economic and market conditions we determined
not to meet your partnership's original timetable for liquidation.
Your partnership has two general partners. The Managing General
Partner is Resources High Equity, Inc., a Delaware corporation, and the
Associate General Partner is Presidio AGP Corp.
As the managing general partner, Resources High Equity, Inc. is
responsible for evaluating and negotiating all property dispositions as well as
for management of your partnership's properties, and the administration and day
to day operation of your partnership. Presidio AGP Corp., the associate general
partner of your partnership, does not have any power or responsibility with
respect to your partnership and does not devote any material amount of its
business time and attention to the affairs of your partnership. We are
accountable to your partnership as fiduciaries and accordingly must exercise
good faith and integrity in handling its affairs. We do not have any outstanding
obligations or commitments to your partnership other
35
<PAGE>
than our contingent obligation to pay you up to $8.80 per unit upon
liquidation of your partnership. See the discussion of such contingent
obligation included in "ALTERNATIVES TO THE CONVERSION -- Liquidation and
Dissolution of Your Partnership."
Your partnership's general partners are wholly-owned by Presidio
Capital Corp. Presidio Capital Corp. is a British Virgin Islands corporation
that is wholly-owned by Presidio Capital Investment Company, LLC, a Delaware
limited liability company. The majority interest in Presidio Capital Investment
Company, LLC is owned by NorthStar Presidio Capital Holding Corp., a Delaware
corporation.
In October 1999 Presidio Capital Corp. entered into an agreement with
AP-PCC III, L.P., an affiliate of Winthrop Financial Associates. Winthrop is a
Boston-based partnership and property management company which is not affiliated
with Presidio Capital Corp. Under the agreement, AP-PCC III, L.P. is responsible
for providing your partnership with the asset management and investor relation
services previously provided by us. In order to facilitate the provision of
these services, nominees of AP-PCC III, L.P. were elected as officers and
directors of your general partners. Following the conversion AP-PCC III, L.P.
will continue to furnish the foregoing services for the advisor. In addition,
nominees of AP-PCC III, L.P. have been elected as officers and directors of the
advisor.
The units in your partnership are not listed on any national stock
exchange or traded in any formal trading market. There is, however, a limited
and informal secondary market for units. For a listing of recently reported
trading activity and prices relating to sales of units on the secondary market,
see the table entitled "SECONDARY MARKET TRADING VOLUME AND UNIT PRICES" set
forth under "ALTERNATIVES TO THE CONVERSION -- CONTINUATION OF YOUR
PARTNERSHIP."
The stated investment objectives of your partnership were to (1)
preserve its capital, (2) provide quarterly distributions to partners, and (3)
create the potential for capital gains through appreciation of its properties.
We believe that your partnership has, to some extent, achieved its objectives of
providing quarterly distributions to partners. Prior to the quarter ended
September 30, 1999, your partnership has made quarterly distributions to limited
partners. For a discussion of the operating history and performance of your
partnership, see "SELECTED FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The following table sets forth (1) equity balances on a total and per
unit basis for all partners in your partnership as of the date of the original
offering of units in your partnership and as of December 31, 1999, (2) income
allocated by your partnership during such period, (3) distributions from your
partnership during such period, and (4) losses allocated by your partnership
during such period. The beginning equity account
36
<PAGE>
of the general partners includes a reallocation of $5,000,125, representing 5%
of the gross proceeds originally raised by your partnership, to reflect the
general partners' 5% equity interest in your partnership.
<TABLE>
<CAPTION>
Organization
Beginning Equity Costs Charged to Distributions on Equity Balances as
Balance Capital Income Allocated Equity Losses Allocated of 12/31/99
--------------------- ----------------- ------------------- ---------------------- -------------------- ------------------
Total Per Total Per Total Per Total Per Unit Total Per Total Per
Unit Unit Unit Unit Unit
- --------- ------------ ------- ----------- ------ ----------- ------- ------------ --------- ------------ ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited 95,002,375 237.50 (1,425,000) (3.56) 33,172,945 82.93 (50,173,235) (125.43) (35,873,266) (89.68) 40,703,819 101.76
Partners
- --------- ------------ ------- ----------- ------ ----------- ------- ------------ --------- ------------ ------- ----------- ------
General 5,001,125 -- (75,000) -- 1,745,946 (2,640,698) (1,888,067) 2,143,306
Partners
- --------- ------------ ------- ----------- ------ ----------- ------- ------------ --------- ------------ ------- ----------- ------
</TABLE>
The Class Action
In May 1993, some of the limited partners in your partnership
commenced a class action in the California Superior Court on behalf of all
limited partners, and in April 1994, the complaint in the action was amended to
include claims on behalf of all limited partners who owned units in each of your
partnership, High Equity Partners L.P. - Series 86, and High Equity Partners
L.P. - Series 88. The amended complaint asserted various state law class and
derivative claims against the general partners of the High Equity partnerships
and some related persons and entities for, among other things, common law fraud,
negligent misrepresentation, breach of contract, unfair and fraudulent business
practices, negligence, dissolution, accounting, receivership and removal of
general partner and breaches of fiduciary duty. The amended complaint alleged,
among other things, that the general partners of the High Equity partnerships
caused a waste of the High Equity partnerships' assets by collecting management
fees in lieu of pursuing a strategy to maximize the value of the investments
owned by the investors in the High Equity partnerships; that the general
partners of the High Equity partnerships breached the duty of loyalty and due
care to the investors by expropriating management fees from the High Equity
partnerships without trying to manage the High Equity partnerships for the
purposes for which they were intended; that the general partners of the High
Equity partnerships were acting improperly to entrench themselves in a position
of control over the High Equity partnerships and that their actions prevented
non-affiliated entities from making and completing tender offers to purchase
units of limited partnership interest in the High Equity partnerships; that, by
refusing to seek the sale of the High Equity partnerships' properties, the
general partners of the High Equity partnerships diminished the value of the
investors' equity in the High Equity partnerships; that the general partners of
the High Equity partnerships took heavily overvalued asset management fees; and
that the High Equity partnership units were sold and marketed through the use of
false and misleading statements. The plaintiffs sought, among other things, the
recovery of compensatory and punitive damages, dissolution, an accounting,
receivership, and removal of the general partner, as well as an award of
attorneys' fees and costs. The defendants in the action at all times considered
the action to be without merit and vigorously defended the action. The action
was brought years before current management assumed responsibility for managing
your partnership.
37
<PAGE>
In early 1996, the parties to the action submitted a proposed
settlement to the court, which contemplated a reorganization of the three High
Equity partnerships into a single real estate investment trust under terms which
were substantially different from the conversion being proposed now. In early
1997, the court declined to grant final approval to the proposed settlement.
In July 1997, the plaintiffs filed an amended complaint, which
generally asserts the same claims as the earlier complaint but contains more
detailed factual assertions and eliminates some claims they had previously
asserted. The defendants challenged the amended complaint on legal grounds and
filed demurrers and a motion to strike. In October 1997, the court granted
substantial portions of our motions. Thereafter, the defendants served answers
denying the allegations and asserting numerous defenses.
In February 1998, the court certified three separate plaintiff
classes, and appointed class counsel and liaison counsel.
The Class Action Settlement
In mid-1998, the parties actively began negotiating a possible
settlement of the action. In September 1998, an agreement in principle was
signed, and, during the following months, the parties negotiated a more formal
settlement stipulation, which they executed in December 1998.
In January 1999, we agreed with plaintiffs' counsel on the terms of the
settlement of the action and entered into a settlement stipulation.
In February 1999, we mailed you a court-approved notice of the
settlement that contained a detailed description of the terms of the settlement
and notified you of a hearing that was held on April 29, 1999 to consider
approval of the terms of the settlement. All limited partners, including those
who had opted out of the action, were furnished notice and given an opportunity
to be heard at the hearing. Willie R. Barnes, an expert appointed by the court
as well as the court determined that the settlement was fair, reasonable and
adequate and in the best interests of the settlement class and the HEP
partnerships.
Pursuant to the settlement, we agreed to take some actions regarding
your partnership subject to first obtaining the consent of limited partners to
amendments to your partnership agreement described below. The settlement became
effective in August 1999 following approval of the amendments. As amended, your
partnership agreement provides for (a) a partnership management fee equal to
1.25% of the gross assets of your partnership in lieu of the prior fee of 1.05%
of the gross amount of your partnership's original offering proceeds paid or
allocable to acquire properties, (b) a fixed 1999 Partnership Asset Management
Fee of $418,769 which is $426,867 less than the amount that would have been paid
for 1999 under the prior formula and (c) fixing the amount that we would be
liable to pay upon liquidation of your partnership as repayment of fees
previously received by us and our affiliates, which amount would be reduced by
10% for each full calendar year after 1998 in which a liquidation does not
occur. As amended, your partnership agreement provides that upon a
reorganization of your partnership into a real estate investment trust or other
public entity, we would have no liability to repay any amount. Our affiliate,
Presidio Capital Corp., guaranteed our payment obligation.
38
<PAGE>
As required by the settlement, our affiliate, Millennium Funding II,
LLC, made a tender offer to limited partners of your partnership to acquire
26,936 units of your partnership at a price of $114.60 per unit. The offer
closed in January 2000 and Millennium acquired all 26,936 units subject to the
tender.
The final requirement of the settlement obligated us and the other HEP
general partners to use our best efforts to reorganize your partnership and the
other HEP partnerships into separate real estate investment trusts or other
entities whose shares will be listed on a national securities exchange or on the
NASDAQ National Market System. We are proposing this conversion to satisfy the
foregoing requirement of the settlement with respect to your partnership.
Alternatives to the Conversion
In order to assist you in evaluating the conversion, we have done an
analysis and comparison of alternatives to the conversion. We are not proposing
the alternatives discussed below, but rather are providing them for comparison
purposes.
Continuation of Your Partnership
Continuing your partnership would provide you with continuity of your
original investment. From its date of organization, your partnership has pursued
the specific investment objectives set forth in your partnership agreement, and
if continued, would continue to pursue those investment objectives. If we
continue your partnership, you would have the opportunity to realize any
potential benefits of owning your partnership's existing properties over the
remaining term of your partnership. Your partnership is required to sell its
properties and distribute the net proceeds to you not later than December 31,
2008. In addition, if your partnership were continued there would be no change
in the nature of your voting rights.
We do not believe that continuation of your partnership would provide
you with as many benefits as the conversion. As a limited partner in your
partnership, you hold an investment in a fixed property portfolio. Your
partnership is not permitted to make additional investments. This means that in
order to maximize returns to limited partners, we must wait for the optimum time
to sell your partnership's properties, rather than improving the investment
portfolio owned by your partnership.
In addition, there is no formal trading market for the units in your
partnership. Secondary market sales activity for the units, including privately
negotiated sales, has been limited. At present, privately negotiated sales and
sales through intermediaries (e.g., through the trading system operated by
Chicago Partnership Board, Inc., which publishes sell offers by holders of
units) are the only means available to a limited partner to liquidate an
investment in units because the units are not listed or traded on any exchange
or quoted on any NASDAQ list or system.
The following table sets forth the number and prices of units sold from
February 1, 1996 through January 31, 2000 as reported by Partnership Spectrum,
an independent third party industry publication. These prices do not take into
account commissions and other transactional costs which sellers of units may be
required to pay and which typically range between 8% and 10% of the reported
selling price.
39
<PAGE>
SECONDARY MARKET TRADING VOLUME AND UNIT PRICES
(ALL PRICE INFORMATION ON A PER UNIT BASIS)
Total Units Number of Weighted
Date Traded Trades Average High Low
---- ----------- --------- -------- ---- ---
2/1/96-3/31/96 715 18 $53.20 $55.85 $39.00
4/1/96-5/30/96 4,104 54 $52.38 $57.89 $45.00
6/1/96-7/31/96 2,782 41 $51.08 $58.13 $45.00
8/1/96-9/30/96 3,840 49 $54.74 $60.00 $45.00
10/1/96-11/30/96 2,125 30 $56.51 $63.00 $51.25
12/1/96-1/31/97 4,988 66 $61.01 $69.00 $51.92
2/1/97-3/31/97 4,387 53 $64.47 $76.50 $56.00
4/1/97-5/30/97 1,032 39 $64.77 $80.00 $57.00
6/1/97-7/31/97 1,458 22 $73.23 $80.11 $58.00
8/1/97-9/30/97 1,983 31 $67.79 $83.00 $58.00
10/1/97-11/30/97 1,201 44 $66.30 $81.11 $58.00
12/1/97-1/31/98 2,078 45 $77.50 $89.00 $58.00
2/1/98-3/31/98 1,998 61 $80.95 $95.25 $60.00
4/1/98-5/31/98 869 29 $90.52 $100.00 $82.50
6/1/98-7/31/98 3,403 32 $95.05 $100.00 $95.00
8/1/98-9/30/98 3,749 17 $95.56 $101.25 $95.00
10/1/98-11/30/98 8,570 11 $96.43 $100.17 $96.30
12/1/98-1/31/99 1,510 43 $97.13 $103.12 $95.00
2/1/99-3/31/99 1,233 47 $97.29 $102.00 $95.00
4/1/99-5/31/99 1,295 31 $109.39 $133.67 $95.00
6/1/99-7/31/99 1,066 45 $98.19 $111.80 $95.00
8/1/99-9/30/99 1,568 53 $95.36 $105.00 $85.00
10/1/99-11/30/99 602 11 $92.46 $97.00 $85.00
12/1/99-1/31/00 498 18 $97.80 $106.00 $89.26
--- -- ------ ------- ------
40
<PAGE>
For the reasons set forth above, we believe that anticipated benefits
of the conversion to you significantly outweigh the benefits of continuing your
partnership outside of the conversion in accordance with its existing business
plan.
Liquidation and Dissolution of Your Partnership
Another hypothetical alternative is to liquidate your partnership by
selling all of its assets at the best possible price. If your partnership were
liquidated, it would sell its assets, pay off existing liabilities, distribute
the cash proceeds in accordance with your partnership agreement, and then
dissolve. Liquidation of your partnership would provide liquidity to you as
properties are sold and net sales proceeds are distributed. If your partnership
were liquidated you would no longer be subject to the risks associated with
owning real estate. If your partnership were liquidated now, we would pay you
$8.80 per unit as repayment of fees previously received. That amount decreases
every quarter and is eliminated if your partnership is not liquidated until
December 31, 2008.
We do not believe that liquidation would be as beneficial to you as the
conversion. An aggressive bulk sale of your partnership's properties could
result in significant discounts from fair market values while a gradual
liquidation likely would involve higher administrative costs and greater
uncertainty, either of which would reduce the portion of net sales proceeds
available for distribution to you. Moreover, two of your partnership's
properties which are held in joint ventures with other parties would likely be
sold at substantial discounts to the fair market value of those properties. As a
result, liquidation of these investments likely would result in your partnership
receiving substantially less than fair market value.
Your partnership is not required to liquidate at the present time.
Using March 1998 appraisals of your partnership's properties we estimated the
liquidation value of your partnership as of December 31, 1999. The appraisals
were performed by Cushman & Wakefield, Inc. and various of its subsidiaries,
which we refer to collectively in this consent solicitation statement as the
"appraiser." These appraisals were obtained as part of the settlement of the
action and may not reflect the current market value of your partnership's
properties. The following table sets forth the values in the appraisals. For
joint venture investments, the value listed represents your partnership's
proportionate interest in the joint venture.
Property Appraised Value
-------- ---------------
Century Park I $ 9,500,000(1)
568 Broadway 12,456,000(2)
Seattle Tower 5,150,000(1)
Southport Shopping Center 19,700,000
Loch Raven Plaza 8,400,000
------------------------- --------------------
TOTAL $ 55,206,000
- ---------------
(1) Your partnership has a 50% interest in this property and the amount listed
in the table represents 50% of the appraised value.
(2) Your partnership has a 38.925% interest in this property and the amount
listed in the table represents 38.925% of the appraised value.
To estimate your partnership's liquidation value as of December 31,
1999, we subtracted from the total appraised value of your partnership's
properties estimated liquidation costs of $1,656,000 which represents
approximately 3% of the total appraised value. We then added the $7,399,000 of
net current
41
<PAGE>
assets of your partnership at December 31, 1999 to arrive at the estimated
liquidation value of your partnership's assets of $60,949,000. Limited partners
in your partnership would be entitled to 95% of the liquidation proceeds of your
partnership's assets plus $8.80 per unit which we would be required to pay in
the event of a liquidation of your partnership as of December 31, 1999,
resulting in a per unit estimated liquidation value of $153.55. Such estimated
liquidation value does not take into account any discount that may be applicable
to your partnership's joint venture investments.
In preparing the appraisals, the appraiser generally inspected the
partnership's properties, the interiors of the improvements and the surrounding
environs. The appraiser also reviewed economic and demographic trends in the
neighborhoods and regions in which the properties are located and considered the
competitive markets in the local areas. The appraiser used certain assumptions
in determining the appraised values of the properties and the appraisals are
subject to certain qualification and limitations, certain of which are discussed
below.
In evaluating a property, the appraiser assumed the accuracy of the
legal description provided or for any matters which are legal in nature. Unless
otherwise indicated, the appraiser assumed title to a property is good and
marketable and the property is free and clear of all liens. The appraiser did
not obtain any surveys of properties in connection with preparing the
appraisals. For purposes of forecasting income and expenses relating to a
property, the appraiser reviewed lease summaries and other information provided
by the owners of the properties or third parties in order to arrive at its best
estimates of what the investment community, as of the dates of the appraisals,
envision for the future in terms of rental rates, expenses, supply, and demand.
The appraiser conducted visual inspections of the properties only, and did not
consider potential hidden structural defects or damages that might exist at a
property which could have a negative impact on the property's appraised value.
Similarly, unless otherwise stated in the appraisals, the existence of
potentially hazardous or toxic materials which may have been used in the
construction or maintenance or operation of the improvements or may be located
at or about the properties was not considered in arriving at the opinion of
value stated in the appraisals.
Appraisers typically use three approaches in valuing real property:
the cost approach, the income approach, and the sales comparison approach. The
type and age of the property and the quantity and quality of data affect the
applicability of each approach in a specific appraisal situation. Due to the
leases in place at your partnership's properties, the appraiser considered the
income approach most relevant to its valuation of the properties. In addition,
the appraiser did not use the cost approach to value the properties. Although
this approach would generally be considered somewhat meaningful in appraising a
property, the appraiser believed the primary approach to value the properties
was the income approach, usually with support from the sales comparison
approach. The cost approach renders an estimate of value based upon the price of
obtaining a site and constructing improvements, both with equal desirability and
utility as the subject property. Historically, investors have not emphasized
cost analysis in purchasing investment grade properties. The estimation of
obsolescence for functional and economic conditions, as well as depreciation on
improvements, makes this approach difficult. Accordingly, such approach was not
employed in the appraisals due to the fact that the marketplace does not rigidly
trade this property type on a cost/value basis.
The income approach is a method of converting the anticipated economic
benefits of owning property into a value estimate through capitalization. The
principle of "anticipation" underlies this approach in that investors recognize
the relationship between an asset's income and its value. In order to value the
anticipated economic benefits of a particular property, potential income and
expenses must be estimated, and the most appropriate capitalization method must
be selected. The two most common methods of converting net income into value are
direct capitalization and discounted cash flow analysis. In direct
capitalization, net operating income is divided by an overall rate extracted
from market sales to indicate a value. In the
42
<PAGE>
discounted cash flow method, anticipated future net income streams and a
reversionary value are discounted to an estimate of net present value at a
chosen yield rate (internal rate of return).
In the sales comparison approach, value is estimated by comparing the
property with similar, recently sold properties in the surrounding or competing
area. Inherent in this approach is the principle of substitution, which holds
that when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
While the value conclusions presented generally complement one
another, given the characteristics specific to the subject property, the
appraiser relied primarily on the income approach in estimating the leased fee
value. Real estate appraisers typically rely on this approach in their
investment decisions. The quality and quantity of comparable sales present in
the sales comparison approach supported the appraiser's overall conclusion.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of
Shelbourne's common stock for each stockholder known by Shelbourne to own in
excess of 5% of Shelbourne's outstanding voting securities upon consummation of
the conversion. No director or executive officer will, upon consummation of the
conversion, own any securities of Shelbourne.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Ownership
of Common
Name of Beneficial Owner Title of Securities Address Stock % of Class
------------------------ ------------------- ------- ----- ----------
<S> <C> <C> <C> <C>
NorthStar Capital Investment Corp. (1) Common Stock 527 Madison Avenue 373,170 (2) 29.54%
New York, New York 10022
</TABLE>
- ------------
(1) NorthStar Capital Investment Corp. is the general partner of NorthStar
Partnership, L.P. the indirect majority owner of Presidio Capital
Investment Company, LLC which is the 100% parent of Presidio Capital
Corp.
(2) Comprised of (a) 219,099 shares which will be held by Millennium
Funding II Corp., a wholly-owned subsidiary of Presidio Capital Corp.,
(b) 10,053 shares which will be held by Millennium Funding I LLC, a
wholly-owned subsidiary of Presidio Capital Investment Company, LLC,
(c) 80,859 shares which will be held by Millennium Funding II LLC, a
wholly-owned subsidiary of Presidio Capital Investment Company, LLC
and (d) 63,159 shares which will be received by us in exchange for our
5% general partnership interest in your partnership.
43
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is selected financial data for the periods indicated, on a
historical basis and on a pro forma basis as if the conversion was consummated
on January 1, 1999. The pro forma balance sheet information is presented as if
the conversion was consummated on December 31, 1999. The information set forth
below should be read in conjunction with the Financial Statements of your
partnership, the Pro Forma Financial Information of Shelbourne and Management's
Discussion and Analysis of the Financial Condition and Results of Operations,
appearing elsewhere in this consent solicitation statement or incorporated
herein by reference.
<TABLE>
<CAPTION>
Shelbourne Pro Forma
Historical High Equity Partners L.P. - Series 85 For the Year Ended
For the Year Ended December 31, December 31,
---------------------------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenues $8,062,512 $9,139,351 $9,297,488 $9,798,441 $11,388,898 $11,388,898
Total Costs and Expenses $26,687,446 $7,004,634 $7,162,829 $6,867,218 $6,541,360 $6,541,360
Net Income (Loss) ($18,624,934) $2,134,717 $2,134,659 $2,931,223 $4,847,538 $4,847,538
Balance Sheet Data
Cash and Cash Equiv. $2,450,943 $4,870,517 $4,350,887 $6,301,641 $8,521,370 $7,013,939
Total Assets $37,309,597 $39,290,185 $39,600,417 $40,814,689 $44,178,753 $42,671,322
Total Liabilities $1,622,068 $2,478,491 $2,157,258 $2,023,503 $1,331,628 $1,331,628
L.P. Equity $33,902,201 $34,970,158 $35,570,050 $36,850,676 $40,703,819
G.P. Equity (Deficit) $1,785,328 $1,841,536 $1,873,109 $1,940,510 $2,143,306
Total Common Stockholders Equity $41,339,694
Other Financial Data
Net Increase (Decrease) ($ 215,442) ) $2,419,574 ($519,630) ) $1,950,754 $2,219,729 $712,298
in Cash and Cash Equiv.
Net Cash Provided By $2,870,781 $4,075,413 $2,808,029 $3,574,184 $4,163,401 $4,163,401
Operating Activities
Distributions $1,010,552 $1,010,552 $1,360,033 $1,583,196 $1,187,398 $2,694,829
Per Unit/Share Data
Net Income (loss)/units ($44.23) $5.07 $5.07 $6.96 $11.51
Earnings Per Share $3.84
Book Value Per Unit $84.76 $87.43 $88.93 $92.13 $101.76
Book Value - conversion per share $32.73
Cash distributions as a return
of capital per unit $2.40 $2.40 $3.57 $3.76 $2.82
Proforma Shelbourne distribution $1.82
from earnings and profits per share
Ratio of earnings to total assets -49.92% 5.43% 5.39% 7.18% 10.97% 11.36%
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following is our discussion and analysis of the financial condition
of your partnership and Shelbourne and the historical operations of your
partnership. Our discussion should be read in conjunction with the financial
statements of your partnership and the related notes.
Following the restructuring, Shelbourne will own 100% of the operating
partnership and will make all of its future investments through the operating
partnership. The operating partnership will own the properties currently owned
by your partnership. As a result, Shelbourne's revenues will be derived
primarily from distributions from the operating partnership. The distributions
from the operating partnership will be derived primarily from revenue generated
by the ownership, operation, financing and disposition of the properties
currently owned by your partnership and any other properties and real estate
related assets the operating partnership may acquire in the future.
Liquidity and Capital Resources
Your partnership currently uses its working capital reserves and any
undistributed cash from operations as its primary source of liquidity. In
addition to these sources, Shelbourne will have as potential sources of
liquidity capital raised by borrowing money or issuing additional equity
securities.
Your partnership had $8,521,370 of cash and cash equivalents at
December 31, 1999, as compared to $6,301,641 at December 31, 1998. During the
year ended December 31, 1999, cash and cash equivalents increased $2,219,729 as
a result of $4,163,401 of net cash provided by operating activities which was
partially offset by $756,274 of net cash used in investing activities and
$1,187,398 of net cash used in financing activities. Cash used in investing
activities consisted of capital and tenant improvements to the properties and
cash used in financing activities consisted of distributions to partners. Your
partnership's primary source of funds, and Shelbourne's initial primary source
of funds, is cash flow from the operation of your partnership's properties,
principally rents received from tenants, which amounted to $4,163,401 for the
year ended December 31, 1999.
For the year ended December 31, 1999, your partnership's capital
expenditures and distributions were funded entirely from cash flow. The
following table sets forth, for each of the last three fiscal years, your
partnership's expenditures at each of its properties for capital improvements
and capitalized tenant procurement costs:
45
<PAGE>
Capital Improvements and Capitalized Tenant Procurement Costs
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ ------------------
<S> <C> <C> <C>
Seattle Tower $ 355,407 $ 490,322 $ 78,754
Century Park I 173,239 89,729 506,704
568 Broadway 154,616 293,021 84,805
Loch Raven 95,206 908,324 990,911
Southport 272,628 502,081 520,032
------------------- ------------------ ------------------
Totals $1,051,096 $2,283,477 $2,181,206
=================== ================== ==================
</TABLE>
Your partnership has budgeted expenditures for capital improvements and
capitalized tenant procurement costs of $1,005,000 in 2000. These costs which
are anticipated to be incurred in the normal course of business are expected to
be funded from cash flow from the operation of the properties and working
capital reserves which are temporarily invested in short-term money market
instruments. However, the actual amount of such expenditures will depend upon
the level of leasing activity and other factors which cannot be predicted with
certainty.
Except as discussed below, management is not aware of any other trends,
events, commitments or uncertainties that will have a significant impact on
Shelbourne's liquidity. If, however, real estate market conditions deteriorate
in any areas where your partnership's properties are located, there is
substantial risk that future cash flow may be insufficient to fund the capital
improvements and lease procurement costs of the properties. In that event,
Shelbourne would utilize its remaining working capital reserves, reduce
distributions, raise additional capital through financing or the issuance of
equity, or sell one or more properties.
Real Estate Market
For selected markets and property types, the real estate market has
begun to recover from the effects of the substantial decline in the early 1990's
in the market value of existing properties. However, market values have been
slow to recover, and high vacancy rates continue to exist in some areas.
Technological changes are also occurring which may reduce the office space needs
of many users. As a result, Shelbourne's potential for realizing the full value
of its investment in the properties is at continued risk.
Impairment of Assets
Your partnership evaluates the recoverability of the net carrying value
of its real estate and related assets at least annually, and more often if
circumstances dictate. If there is an indication that the carrying amount of a
property may not be recoverable, your partnership prepares an estimate of the
future undiscounted cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding period. In
performing this review, management takes into account, among other things, the
existing occupancy, the expected leasing prospects of the property and the
economic situation in the region where the property is located.
If the sum of the expected future undiscounted cash flow is less than
the carrying amount of the property, your partnership recognizes an impairment
loss, and reduces the carrying amount of the asset to its
46
<PAGE>
estimated fair value. Fair value is the amount at which the asset could
be bought or sold in a current transaction between willing parties, that is,
other than in a forced or liquidation sale. Management estimates fair value
using discounted cash flows or market comparables, as most appropriate for each
property. Independent certified appraisers are utilized to assist management,
when warranted.
Impairment adjustments to reduce the carrying value of the real estate
assets recorded by your partnership do not affect the tax basis of the assets
and are not included in the determination of taxable income or loss.
Management is not aware of any other current trends, events, or
commitments that will have a significant impact on the long-term value of the
properties. However, because the cash flows used to evaluate the recoverability
of the assets and their fair values are based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying values at the balance sheet dates. The cash flows and market
comparables used in this process are based on good faith estimates and
assumptions developed by management. Unanticipated events and circumstances may
occur and some assumptions may not materialize. Actual results may vary from the
estimates and the variances may be material. Shelbourne may provide additional
adjustments to reduce the carrying value of the properties, which could be
material in subsequent years if real estate markets or local economic conditions
change.
All of your partnership's properties have experienced varying degrees
of operating difficulties and your partnership recorded significant impairment
adjustments in 1995 and prior years. Improvements in the real estate market and
property operations resulted in no adjustments for impairment being needed in
1996 through 1999.
The following table represents the impairment adjustments recorded
against your partnership's properties held as of December 31, 1999:
Property
Seattle Tower $6,050,000
Century Park I 11,700,000
568 Broadway 10,821,150
Loch Raven 4,800,000
Southport 4,900,000
---------
$38,271,150
Results Of Operations
1999 vs. 1998
Your partnership experienced an increase in net income of 65.4% for the
year ended December 31, 1999 to $4,847,538 compared to the prior year net income
of $2,931,223 due to higher rental revenues and lower costs and expenses. The
increases to net income also reflected higher interest and other income during
1999.
47
<PAGE>
Rental revenues increased by 19.1% during the year ended December 31,
1999 to $10,941,322 from $9,189,542 for the same period in 1998 with Southport,
568 Broadway and Loch Raven reflecting higher rental rates on lease turnovers.
Costs and expenses decreased by 4.7% during the year ended December 31,
1999 to $6,541,360 compared to $6,867,218 for the same period in 1998, primarily
due to decreases in partnership management and property management fees and
partially offset by an increase in administrative expenses. Administrative
expenses for the year ended December 31, 1999 increased $299,193 or 32.7%
compared to 1998 due to higher professional fees related to the settlement of
the litigation and reorganization of your partnership. Depreciation and
amortization decreased $73,253 or 5.2% due to higher depreciation recorded in
1998 on certain capitalized tenant improvements. Partnership management fees
decreased $468,561 or 52.8% in 1999 due to an amendment to the partnership
agreement.
Interest income increased by 80.3% to $334,116 in 1999 due to higher
interest rates and higher invested cash balances during the current year
compared to 1998. Other income increased by $79,210 during the year ended
December 31, 1999 to $113,460 compared to $34,250 in 1998 due to an increase in
fees from investor servicing primarily related to an increase in investor
transfers.
1998 vs. 1997
Your partnership experienced an increase in net income of 37.3% for the
year ended December 31, 1998 to $2,931,223 compared to the prior year net income
of $2,134,659 due to the gain on the sale of the Westbrook property, higher
rental revenues and lower costs and expenses. These increases to net income were
partially offset by lower interest and other income during 1998.
Rental revenues increased by 21% to $1,231,778 at Century Park and by
5.7% or $2,999,473 at Southport during the year ended December 31, 1998 compared
to 1997, primarily due to higher occupancy and rental rates, respectively. These
increases were partially offset by lower rental revenues at Westbrook during the
second half of 1998 as a result of the sale of the property in August 1998, as
previously discussed.
Costs and expenses decreased by 4.1% during the year ended December 31,
1998 to $6,867,218 compared to $7,162,829 in the same period in 1997, primarily
due to decreases in operating expenses, partnership management fees and
administrative expenses. Operating expenses decreased by 4.4% during 1998 to
$3,276,169 due to the sale of Westbrook in August 1998 and a decrease in
insurance expenses at all of the properties due to the payment of lower premiums
while coverage remained the same. Administrative expenses for the year ended
December 31, 1998 decreased $200,905 or 17.9% compared to 1997 due to lower
legal and accounting fees related to the ongoing litigation and possible
reorganization of your partnership. Depreciation and amortization increased
$55,581 or 4.1% due to higher depreciation recorded in 1998 on certain
capitalized tenant improvements. Property management fees increased 5.9% to
$371,144 in 1998 due to higher revenues, as previously discussed.
Interest income decreased by 10.7% to $185,290 in 1998 due to lower
interest rates and lower invested cash balances during the current year compared
to 1997. Other income decreased by 50.1% to $34,250 for the year ended December
31, 1998 compared to 1997 due to a decrease in fees from investor servicing
primarily related to a decrease in investor transfers.
48
<PAGE>
THE CONVERSION
MECHANICS OF THE CONVERSION
The conversion will be accomplished by merging your partnership into
Shelbourne Properties I L.P., a newly-formed partnership wholly-owned by
Shelbourne on the terms set forth in the Merger Agreement attached to this
consent solicitation statement as Appendix B. Shelbourne Properties I L.P., will
survive the merger as the operating partnership. As part of the merger, each
unit in your partnership will be converted into three shares of common stock. As
a result of the conversion, Shelbourne will own 100% of the operating
partnership. Shelbourne will own a 1% partnership interest in the operating
partnership through its wholly-owned subsidiary, which will be the general
partner of the operating partnership.
EFFECTIVE TIME
The conversion will become effective as soon as practicable after the
later of (a) the last date on which consent forms may be received by the
depositary in order to be valid or (b) the last of the conditions to the
conversion are fulfilled or waived.
The conversion will become effective upon filing certificates of merger
and other documents and instruments required by Delaware and California law with
the Office of the Secretary of State of the State of Delaware and the State of
California.
CONDITIONS TO THE CONVERSION
Our obligation to effect the conversion is subject to satisfaction of
the following conditions:
o Approval of the conversion by limited partners holding a majority of
the outstanding units in your partnership
o This consent solicitation statement has become effective and is not
subject to any stop order or a proceeding seeking a stop order
o The issuance of securities in the conversion complies with all
requirements of state securities or "blue sky" laws
o Shelbourne has at least 100 shareholders and not more than 50% (by
value) of the outstanding common stock is owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal
Revenue Code to include certain entities)
o No pension trust individually owns more than 25% (by value) of the
common stock of Shelbourne, and all pension trusts that individually
own 10% (by value) or more of the common stock of Shelbourne own in
the aggregate less than 50% (by value) of the common stock of
Shelbourne
o Less than 50% (in value) of the common stock will be held directly or
indirectly by foreign persons
o The common stock has been approved for listing upon issuance on the
American Stock Exchange
o Rosenman & Colin LLP has rendered tax opinions concerning the
conversion and Shelbourne's qualification as a real estate investment
trust. See "FEDERAL INCOME TAX
49
<PAGE>
CONSEQUENCES -- THE CONVERSION" and "-- TAXATION OF SHELBOURNE AS A
REAL ESTATE INVESTMENT TRUST - General."
FEES AND EXPENSES
All costs and expenses incurred in connection with the conversion will
be paid by your partnership, whether or not the conversion is consummated. The
following is an estimate of such expenses.
Registration, Listing and Filing Fees $25,715
Legal Fees 250,000
Accounting Fees and Expenses 10,000
Solicitation Fees and Expenses 50,000
Printing and Engraving Expenses 30,000
Postage 40,000
Miscellaneous 19,285
-------
Total $425,000
ACCOUNTING TREATMENT
The conversion will be accomplished by merging your partnership into
Shelbourne Properties I L.P., a limited partnership wholly-owned by Shelbourne
Properties I, Inc. As there will be no change in the ultimate ownership
structure the conversion will be accounted for on a historical cost basis.
VOTING
Your vote is important. Please complete and sign the enclosed consent
form and return it to the information agent by mail in the enclosed
pre-addressed, postage paid envelope or by facsimile to (718) 236-2641.
General
You may take one of the following actions with respect to the conversion:
Vote "YES"-- I vote to approve the conversion
or
Vote "NO"-- I vote not to approve the conversion
or
Abstain from voting (Abstention will constitute a "NO" vote.)
We strongly urge you to vote "YES" for approval of the conversion.
50
<PAGE>
If the conversion is approved, you will receive three shares of common
stock in exchange for each of your units whether or not you voted in favor of
the conversion.
Vote Required
The affirmative vote of limited partners holding a majority of the
outstanding units of your partnership is required for approval of the
conversion. This consent solicitation statement constitutes our solicitation of
your consent to the conversion, including all such actions required by your
partnership to consummate the conversion. We also must approve the conversion as
general partners of your partnership. We intend to approve the conversion, and
our affiliates, Millennium Funding II Corp., Millennium Funding I LLC and
Millennium Funding II LLC who own an aggregate of 25.8% of the units, intend to
vote "YES" to approve the conversion. In addition, in 1998 Presidio Capital
Corp. entered into an agreement with a limited partner owning 15,566 units,
representing approximately 3.9% of the outstanding units, in which the limited
partner agreed to vote all of its units in favor of a conversion, such as the
one which we are proposing, which results in limited partners receiving
securities listed on a national securities exchange.
Voting Procedure
Please complete, sign and return the enclosed consent form to the
depositary in the enclosed pre-addressed, postage paid envelope no later than
the expiration date, which is currently __________ __, 2000. We may extend the
expiration date to a date which is no later than _____________ ____, 2000. The
depositary is:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
You may withdraw a consent form at any time before the expiration date
by delivering to the depositary written notice of your withdrawal. You may
change a consent form at any time before the expiration date by delivering to
the depositary a duly completed and signed substitute consent form, together
with a letter indicating that your prior consent form(s) have been revoked.
You must vote all of your units in the same way. If you return a signed
consent form but do not indicate a vote (i.e., "YES," "NO" or "ABSTAIN") as to
the conversion, you will be deemed to have voted "YES" for approval of the
conversion.
The conversion will be approved at such time as limited partners
holding a majority of the outstanding units shall have consented to the
conversion but in no event prior to ________ ___, 2000. The depositary will
tabulate the consent forms received from you.
The conversion will apply prospectively from and after the date it
becomes effective. You will be bound by the conversion, if it becomes effective,
whether or not you vote in favor of the conversion. Delivery of a consent form
is at your risk. The consent form will be effective only when it is actually
received by the depositary. A pre-addressed, postage paid envelope to be used in
returning completed consent forms has been included with this consent
solicitation statement.
Record Date and Outstanding Units
If you are a limited partner at the close of business on __________
___, 2000, the record date for voting, you will be entitled to one vote for each
unit held. On the record date there were 400,010 units
51
<PAGE>
outstanding held by 8,981 limited partners, including 103,337 units,
representing 25.8% of the outstanding units, owned by our affiliates Millennium
Funding II Corp., Millennium Funding I LLC and Millennium Funding II LLC.
Effect of Voting to Approve the Conversion
Your vote to approve the conversion will constitute your approval to
the following:
(1) the merger of your partnership on substantially the terms
provided in the merger agreement attached as Appendix B; and
(2) the taking of any and all actions that we consider necessary
or advisable to consummate the conversion, including all
transactions related to the conversion described in this
consent solicitation statement.
Solicitation of Votes; Solicitation Expenses
We may solicit your approval of the conversion. Our employees may
solicit approval of the conversion by use of the mails, by telephone, telegram,
or other means. Solicitation expenses will be paid as set forth under "THE
CONVERSION -- FEES AND EXPENSES." No party soliciting approval of the conversion
will receive compensation contingent on the outcome of their solicitation
efforts or the approval of the conversion.
Investor Lists
Subject to some limitations, you may be permitted to inspect and obtain
copies of your partnership's books and records, including records listing the
names, addresses and percentage interests held by each general partner and
limited partner. Under Rule 14a-7 of the Exchange Act, we will, at your option,
either (a) mail (at your expense) to the limited partners you designate copies
of any proxy statement, proxy form or other soliciting material that you
furnished to us, or (b) deliver to you (at your expense), within five business
days of the receipt of the request, a reasonably current list of the names and
addresses of the limited partners. In connection with a request under Rule 14a-7
of the Exchange Act, we are obligated, upon your written request, to deliver to
you (1) a statement of the approximate number of limited partners in your
partnership, and (2) the estimated cost of mailing a proxy statement, form of
proxy or other similar communication to such limited partners.
SHELBOURNE
GENERAL
Shelbourne was recently formed for purposes of the conversion.
Shelbourne's principal executive offices are located at 5 Cambridge Center, 9th
floor, Cambridge, MA 02142. The telephone number of Shelbourne at such office is
(617) 234-3000.
Shelbourne will conduct all of its operations, including the historic
operations of your partnership, through the operating partnership. Following the
conversion, Shelbourne will elect to be treated for Federal income tax purposes
as a real estate investment trust.
52
<PAGE>
As a result of the conversion, Shelbourne's only asset will be its
ownership interests in the operating partnership. Shelbourne will be a limited
partner of the operating partnership, and Shelbourne Properties I GP, LLC, a
wholly-owned subsidiary of Shelbourne, will be the general partner of the
operating partnership.
OBJECTIVES AND STRATEGIES
Shelbourne's primary business objective following the conversion will
be to maximize the value of common stock. Shelbourne will seek to achieve this
objective by making capital improvements to and/or selling its properties and by
making additional investments including investments in real property, other real
estate-related investments such as mortgages, joint ventures and other real
estate companies. To achieve these objectives, Shelbourne may need to raise
additional capital. Shelbourne will raise capital either by selling or
leveraging properties, by otherwise borrowing money, or by selling additional
equity or debt securities.
We believe that investment opportunities exist within the current real
estate environment for investors with cash or access to capital. Shelbourne may
pursue a variety of types of real estate investments including acquiring
properties, investing in mortgage loans, and investing in other real estate
companies. We have not identified or executed commitments for any additional
investments at the current time. While Shelbourne will seek to implement its
investment strategies as soon as practicable following the conversion, the
ultimate timing and extent of any new investments will depend upon various
factors. These factors include Shelbourne's capitalization and ability to raise
debt and/or equity financing, the availability of attractive investments,
expected investment returns and other similar economic factors generally
considered when making real estate-related investments. Shelbourne also will
consider the effect that such investment will have on its ability to satisfy the
various income, asset and distribution tests applicable to real estate
investment trusts, and will use reasonable efforts to avoid making any
investments that might jeopardize its ability to maintain qualification as a
real estate investment trust, unless the Board of Directors determines that
maintaining such qualification is no longer in the best interests of
Shelbourne's stockholders. See "FEDERAL INCOME TAX CONSEQUENCES -- TAXATION OF
SHELBOURNE AS A REAL ESTATE INVESTMENT TRUST -Requirements for Qualification."
The ability of Shelbourne to make new investments will depend in part
upon it raising additional capital or obtaining financing following the
conversion. Shelbourne may seek to raise additional capital through placing
mortgages on existing properties and the public and/or private sale of debt
and/or equity securities. The ability of Shelbourne to raise additional capital,
and the manner in which Shelbourne raises such capital, may depend in part on
the trading price of common stock following the conversion. By conducting its
operations through the operating partnership, Shelbourne will be able to offer
either common stock or limited partnership interests in the operating
partnership to potential property sellers thereby increasing Shelbourne's
flexibility in structuring acquisition on a tax-efficient basis.
53
<PAGE>
THE PROPERTIES
The operating partnership will own and operate the properties your
partnership currently owns. All of the properties are owned free of any mortgage
indebtedness.
The following table contains information on your partnership's
properties.
<TABLE>
<CAPTION>
4/30/98
12/31/99 Appraised
Carrying Value Value Date Acquired Total Square Footage
-------------- --------- ------------- --------------------
<S> <C> <C> <C> <C>
DESCRIPTION
Century Park I Office Complex
Kearny Mesa, California (50% owned) $4,375,397 $9,500,000 11/86 200,002
568 Broadway Office Building $4,975,050 12,456,000 12/86 300,007
New York, New York (38.925% owned)
Seattle Tower Office Building $2,806,565 5,150,000 12/86 149,845
Seattle, Washington (50% owned)
Loch Raven Plaza $5,859,831 8,400,000 6/86 150,983
Retail/Office Complex
Towson, Maryland
Southport Shopping Center $14,335,871 19,700,000 4/86 143,089
Fort Lauderdale, Florida ----------- ---------- -------
Total $32,352,714 $55,206,000 943,926
</TABLE>
The following table lists the occupancy rates of your partnership's
properties at the beginning of each of the last 5 years.
<TABLE>
<CAPTION>
Occupancy
----------------------------------------------------------------------------------
Property 1/1/2000 1/1/1999 1/1/1998 1/1/1997 1/1/1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
568 Broadway Office Building 100% 100% 100% 100% 95%
Century Park I Office Complex 100% 100% 91% 74% 74%
Loch Raven Plaza 92% 93% 90% 91% 88%
Seattle Tower Office Building 98% 96% 95% 96% 92%
Southport Shopping Center 98% 99% 100% 95% 96%
</TABLE>
54
<PAGE>
The following table lists the average annual rent per square foot for
the last 5 years at each property owned by your partnership.
<TABLE>
<CAPTION>
Average Rental Rate Per Square Foot
----------------------------------------------------------------------------------------
Property 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
568 Broadway Office Building $25.81 $21.07 $21.06 $16.15 $15.90
Century Park I Office Complex $13.71 $12.32 $10.10 $8.20 $5.20
Loch Raven Plaza $10.36 $7.01 $7.76 $5.96 $9.17
Seattle Tower Office Building $16.57 $15.06 $14.57 $11.11 $9.73
Southport Shopping Center $26.21 $20.96 $19.83 $11.35 $17.44
</TABLE>
The following tables contain information on leases at your
partnership's properties that are scheduled to expire over the next ten years.
The annual rent numbers were determined based on schedule base rent for this
year.
568 Broadway Office Building
<TABLE>
<CAPTION>
Number of Expiring Square Footage of Annual Rent of Percentage of
Year Leases Expiring Leases Expiring Leases Gross Annual Rent
- ---- ------------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
2000 1 1,090 $16,486 .27%
2001 8 38,134 $1,183,850 19.66%
2002 9 22,786 $413,021 6.86%
2003 12 45,618 $1,150,785 19.11%
2004 5 26,925 $454,656 7.55%
2005 17 46,187 $787,719 13.08%
2006 4 15,375 $325,340 5.40%
2007 3 7,922 $165,300 2.74%
2008 13 81,990 $1,376,229 22.85%
2009 1 5,500 $148,500 2.47%
</TABLE>
55
<PAGE>
Century Park I Office Complex
<TABLE>
<CAPTION>
Number of Expiring Square Footage of Annual Rent of Percentage of
Year Leases Expiring Leases Expiring Leases Gross Annual Rent
- ---- ------------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
2000
2001 1 9,406 $147,204 5.75%
2002 1 25,988 $390,340 15.24%
2003 1 14,705 $204,547 7.98%
2004
2005 3 96,719 $1,229,692 48.0%
2006
2007 1 51,242 $590,308 23.04%
</TABLE>
Seattle Tower Office Building
<TABLE>
<CAPTION>
Number of Expiring Square Footage of Annual Rent of Percentage of
Year Leases Expiring Leases Expiring Leases Gross Annual Rent
- ---- ------------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
2000 6 11,190 $186,707 8.00%
2001 30 79,495 $1,293,726 55.60%
2002 7 16,719 $297,962 12.81%
2003 8 19,278 $335,452 14.42%
2004 4 8,945 $172,100 7.40%
2005 1 2,381 $41,310 1.78%
</TABLE>
Loch Raven Plaza
<TABLE>
<CAPTION>
Number of Expiring Square Footage of Annual Rent of Percentage of
Year Leases Expiring Leases Expiring Leases Gross Annual Rent
- ---- ------------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
2000 3 53,909 $250,000 26.70%
2001 2 4,030 $54,806 5.85%
2002 3 7,740 $111,376 11.89%
2003 5 14,300 $130,825 13.97%
2004 7 49,603 $339,046 36.21%
2005 1 7,000 $35,000 3.74%
2006 1 1,530 $15,392 1.64%
</TABLE>
56
<PAGE>
Southport Shopping Center
<TABLE>
<CAPTION>
Number of Expiring Square Footage of Annual Rent of Percentage of
Year Leases Expiring Leases Expiring Leases Gross Annual Rent
- ---- ------------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
2000 2 3,965 $79,055 4.10%
2001 11 17,412 $416,610 21.63%
2002 9 24,209 $259,312 13.46%
2003 5 15,478 $262,131 13.61%
2004 6 18,602 $395,639 20.54%
2005 9 52,828 $453,094 23.53%
2006
2007 1 7,303 $60,168 3.12%
</TABLE>
You can find additional information about your partnership's properties in your
partnership's Annual Report on Form 10-K for 1999 which is incorporated by
reference in this consent solicitation.
OTHER ASSETS AND LIABILITIES
Following the conversion, the operating partnership will own the other
assets of your partnership. These other assets include, among other things, cash
and cash equivalents totaling approximately $8,521,370, as of December 31, 1999.
The operating partnership will be subject to the liabilities of your
partnership. These liabilities, totaling approximately $1,331,628 as of December
31, 1999, consist primarily of your partnership's accounts payable. The assets
of the operating partnership as of the date of the conversion will be reduced by
the expenses of the conversion.
CASH DIVIDEND POLICY
Following the conversion, the sole partners of the operating
partnership will be Shelbourne as the 99% limited partner and Shelbourne
Properties I GP, LLC, a wholly-owned subsidiary of Shelbourne, as the 1% general
partner. The operating partnership's partnership agreement will provide for
distributions to its partners in proportion to their percentage interest in the
operating partnership. Shelbourne Properties I GP, LLC, as the general partner
of the operating partnership, will have the exclusive right to declare and cause
the operating partnership to make distributions. For so long as Shelbourne
elects to qualify as a real estate investment trust, Shelbourne will use
reasonable efforts to cause the operating partnership to make distributions to
Shelbourne in amounts such that Shelbourne will be able to pay dividends that
will satisfy the requirements for qualification as a real estate investment
trust and avoid any Federal income or excise tax liability for Shelbourne. See
"FEDERAL INCOME TAX CONSEQUENCES -- TAXATION OF SHELBOURNE AS A REAL ESTATE
INVESTMENT TRUST - Requirements for Qualification - Annual Distribution
Requirements."
The operating partnership expects to make regular quarterly cash
distributions to Shelbourne. Shelbourne, in turn, will pay cash dividends to
holders of common stock. We expect Shelbourne to pay quarterly dividends within
45 days after the end of each calendar quarter to holders of record of common
stock on the record date determined by Shelbourne's Board of Directors. The
first dividend on the shares of
57
<PAGE>
common stock will be paid for the period from the effective date of the
conversion through the end of the calendar quarter in which such effective date
occurs.
The amount of funds actually available for the payment of dividends
will be affected by a number of factors and circumstances, including the revenue
actually received from properties and other investments, operating expenses, the
interest expense incurred in borrowings, the ability of tenants to meet their
obligations, unanticipated capital expenditures, general economic conditions and
a large number of other factors and circumstances, including those discussed
under "RISK FACTORS." Many of these factors are not within Shelbourne's control.
Shelbourne's dividend policy may be altered by Shelbourne's Board of
Directors without the approval of its stockholders.
MANAGEMENT
General. Following the conversion, all management, advisory and
property management services that we or our affiliates currently perform for
your partnership will be performed by one of our affiliates, Shelbourne
Management LLC, under an advisory agreement. Shelbourne will retain Shelbourne
Management pursuant to the authority of its Board of Directors. Pursuant to
Shelbourne's organizational documents, responsibility for operation of
Shelbourne's business and affairs is vested in the Board of Directors.
Accordingly, the Board of Directors is ultimately responsible for the management
and control of Shelbourne's business and operations, as well as the general
supervision of Shelbourne's officers, agents, employees, advisors, managers, and
independent contractors, including the advisor. The settlement contemplated that
Shelbourne would be externally managed and that your partnership's fee structure
would continue in effect for Shelbourne after the conversion.
Directors. The certificate of incorporation divides the Board of
Directors into three classes of directors. The initial terms of the three
classes will expire in 2001 (Steven Stuart and Peter Braverman), 2002 (Michael
L. Ashner and Robert Martin) and 2003 (David T. Hamamoto, W. Edward Scheetz and
David G. King, Jr.), respectively. Beginning in 2001, directors of each class
will be chosen for three-year terms upon the expiration of their current terms
and each year one class of directors will be elected by the stockholders.
Shelbourne believes that classification of the Board of Directors helps to
assure the continuity and stability of Shelbourne's business strategies and
policies as determined by the Board of Directors. Holders of shares of common
stock have no right to cumulative voting in the election of directors.
Consequently, at each annual meeting of stockholders, the holders of a majority
of the shares of common stock will be able to elect all of the successors of the
class of directors whose terms expire at that meeting.
Officers. Officers of Shelbourne will be elected by and serve at the
discretion of the Board of Directors. There are no arrangements or
understandings between or among any of the officers or directors and any other
person pursuant to which any officer or director was selected as such. There are
no family relationships among any directors and officers of Shelbourne.
The Advisory Agreement and the Advisor. The advisory agreement with
Shelbourne Management will commence on the effective date of the conversion and
terminate ten years after such date. During that period, Shelbourne Management
will manage the day-to-day operations of Shelbourne and the operating
partnership and will be responsible to do the following:
o manage Shelbourne's day-to-day operations;
58
<PAGE>
o provide or arrange for customary property management services
to be provided at Shelbourne's properties;
o supervise Shelbourne's financings including any sales of
Shelbourne's securities;
o conduct relations for Shelbourne with the American Stock
Exchange or with dealers which make markets in Shelbourne's
securities;
o select and conduct relations with lenders, lawyers,
consultants, accountants, mortgage loan originators, brokers,
participants, attorneys, appraisers, insurers, and others who
may be relevant to Shelbourne's activities;
o administer day-to-day bookkeeping and accounting functions;
o prepare reports to stockholders which may be required by
governmental authorities for the ordinary conduct of
Shelbourne's business;
o negotiate and enter into leases of space at Shelbourne's
properties;
o supervise the development and improvement of properties,
including capital and tenant improvements.
Shelbourne Management will receive (1) an annual asset management fee,
payable quarterly, equal to 1.25% of the gross asset value of Shelbourne as of
the last day of each year, (2) property management fees of up to 6% of property
revenues, (3) $150,000 for non-accountable expenses and (4) reimbursement of
expenses incurred in connection with the performance of its services. Gross
asset value is the gross asset value of all assets owned by the operating
partnership as determined by the latest appraisal of such assets by an
independent appraiser of national reputation selected by the advisor. As
provided in the settlement, the fees payable to Shelbourne Management are
determined on the same basis as the fees currently paid by your partnership.
Since the asset management fee is based on gross assets, the amount payable to
Shelbourne Management will increase to the extent Shelbourne acquires new
investments, whether for cash, by causing Shelbourne to incur indebtedness or
otherwise.
Shelbourne Management is a newly-formed company affiliated with us
which will provide management services to entities in which Presidio Capital
Investment Company, LLC, our beneficial owner, has an interest including the
other High Equity partnerships if they are converted into real estate investment
trusts. See "BACKGROUND OF THE CONVERSION - The Class Action Settlement."
The initial directors and executive officers of Shelbourne and
Shelbourne Management following the conversion are set forth below. The
individuals listed below as the sole director and the executive officers of
Shelbourne Management will also serve as the sole director and hold the same
executive officer positions of Shelbourne Properties I GP, LLC, the general
partner of the operating partnership.
Name Age Title
Michael L. Ashner 47 President and Sole Director of Shelbourne
Management and President and Director of
Shelbourne
Peter Braverman 47 Vice President of Shelbourne Management
and Vice President
David T. Hamamoto 40 Director of Shelbourne
59
<PAGE>
Steven B. Kauff 37 Vice President of Shelbourne Management
and Vice President
David G. King, Jr. 37 Vice President of Shelbourne Management
and Vice President
Dallas E. Lucas 37 Vice President of Shelbourne Management
and Vice President
Robert Martin 38 Director of Shelbourne
W. Edward Scheetz 34 Director of Shelbourne
Steven Stuart 36 Director of Shelbourne
Lara Sweeney 27 Vice President and Secretary of
Shelbourne Management and
Carolyn Tiffany 32 Vice President and Treasurer of
Shelbourne Management and Vice
President and Treasurer of Shelbourne
Michael L. Ashner. Mr. Ashner has been President and the sole director
of your general partners since November 1999. Mr. Ashner serves as the Chief
Executive Officer of Winthrop Financial Associates, A Limited Partnership
("WFA") and its affiliates, a position he has held since January 15, 1996, as
well as the Chief Executive Officer of The Newkirk Group. From June 1994 until
January 1996, Mr. Ashner was a Director, President and Co-chairman of National
Property Investors, Inc., a real estate investment company ("NPI"). Mr. Ashner
was also a Director and executive officer of NPI Property Management Corporation
("NPI Management") from April 1984 until January 1996. In addition, since 1981
Mr. Ashner has been President of Exeter Capital Corporation, a firm which has
organized and administered real estate limited partnerships. Mr. Ashner also
currently serves on the Board of Directors of Interstate Hotel Corp., Nexthealth
Corp. and NBTY Inc.
Peter Braverman. Mr. Braverman has been a Vice President of your
general partners since November 1999. Mr. Braverman has served as the Executive
Vice President of WFA and its affiliates since January 1996. Mr. Braverman also
serves as the Executive Vice President of The Newkirk Group. From June 1995
until January 1996, Mr. Braverman was a Vice President of NPI and NPI
Management. From June 1991 until March 1994, Mr. Braverman was President of the
Braverman Group, a firm specializing in management consulting for the real
estate and construction industries. From 1988 to 1991, Mr. Braverman was a Vice
President and Assistant Secretary of Fischbach Corporation, a publicly traded,
international real estate and construction firm.
David T. Hamamoto. Mr. Hamamoto is a Co-Chief Executive Officer of
NorthStar Capital Investment Corp., having co-founded the firm in July 1997. At
Northstar Capital Investment Corp., Mr. Hamamoto has overseen the investment of
more than $1 billion in real estate assets and operating companies with an
aggregate cost exceeding $2 billion. In his capacity as Co-Chief Executive
Officer, Mr. Hamamoto is responsible for capital raising, setting investment
strategy, creating deal flow, advising on financing, asset management, and
acquisition issues, and overseeing the day-to-day activities of Northstar
Capital Investment Corp.'s investment professionals. Prior to founding Northstar
Capital Investment Corp., Mr. Hamamoto initiated the effort in 1988 to build a
real estate principal investment business at Goldman, Sachs & Co. under the
auspices of the Whitehall Funds, and was a co-head of the Whitehall Funds and a
partner at
60
<PAGE>
Goldman, Sachs & Co. from 1994 to 1997. Mr. Hamamoto is a director of
Emeritus Corporation, one of the largest publicly traded owners and operators of
assisted living facilities, and U.S. Franchise Systems, a publicly traded
franchising concern. Mr. Hamamoto received a B.S. from Stanford University and
an M.B.A. from the Wharton School of the University of Pennsylvania.
Steven B. Kauff. Mr. Kauff has been a Vice President of Northstar
Capital Investment Corp. since July 1999. He is also a Vice President of your
general partners. Prior to joining Northstar Capital Investment Corp. he was
with Arthur Andersen LLP in the Real Estate and Hospitality Services Group from
1996 to 1999, where he specialized in transaction consulting, due diligence and
tax products for real estate ventures, including real estate investment trusts
and partnerships. From 1994 to 1996, Mr. Kauff was with Price Waterhouse LLP in
the Real Estate Industry Services Group.
David G. King, Jr. Mr. King has been a Vice President and Assistant
Treasurer of Northstar Capital Investment Corp. since November 1997. He is also
a Vice President of your general partners. Prior to joining Northstar Capital
Investment Corp., he was a Senior Vice President of Finance at Olympia & York
Companies (USA).
Dallas E. Lucas. Mr. Lucas has been a director, Vice President,
Treasurer and Chief Financial Officer of Northstar Capital Investment Corp.
since August 1998. He is also a Vice President of your general partners. From
1994 until August 1998 he was the Chief Financial Officer and Senior Vice
President of Crescent Real Estate Equities Company.
Robert Martin. Mr. Martin is a Senior Managing Director at
Insignia/ESG. He has been actively involved in the real estate business for more
than 15 years.
W. Edward Scheetz. Mr. Scheetz is a Co-Chief Executive Officer of
Northstar Capital Investment Corp., having co-founded the firm in July 1997. At
Northstar Capital Investment Corp., Mr. Scheetz has overseen the investment of
more than $1 billion in real estate assets and operating companies with an
aggregate cost exceeding $2 billion. In his capacity as Co-Chief Executive
Officer, Mr. Scheetz is responsible for capital raising, setting investment
strategy, creating deal flow, advising on financing, asset management, and
acquisition issues, and overseeing the day-to-day activities of Northstar
Capital Investment Corp.'s investment professionals. Prior to founding Northstar
Capital Investment Corp., Mr. Scheetz was a partner from 1993 to 1997 at Apollo
Real Estate Advisors where he was responsible for the investment activities of
Apollo Real Estate Investment Fund I and II. From 1989 to 1993, Mr. Scheetz was
a principal with Trammell Crow Ventures where he was responsible for that firm's
opportunistic real estate investment activities. Mr. Scheetz received an A.B. in
economics from Princeton University.
Steven Stuart. Mr. Stuart is a Managing Director of Links Real Estate
Advisors. Until recently, he was Director, co-founder and Head of Banking in the
Real Estate Finance Group at Deutsche Bank Securities in New York. Mr. Stuart
joined Deutsche in January 1997 from Goldman, Sachs, where he was a Vice
President in the Real Estate Department working with real estate investment
trusts, government agencies and financial institutions on real estate advisory
assignments and structured financings including over $15 billion of commercial
mortgage-backed securities transactions. Mr. Stuart, who joined Goldman, Sachs
in 1986 left the firm for an appointment as the Special Assistant to the
Director of the FSLIC from 1988-1989, and was actively involved in policy
matters and the sale and liquidation of insolvent thrift institutions before
resuming his career at Goldman. Mr. Stuart is a graduate of Columbia University
and active in numerous trade organizations and is on the board of LTC Healthcare
(LTI).
61
<PAGE>
Lara Sweeney. Ms. Sweeney has been a Vice President and Secretary of
your general partners since November 1999. Ms. Sweeney has been a Senior Vice
President of Winthrop Financial Associates, A Limited Partnership since 1996.
Ms. Sweeney was Director of Investor Relations for NPI from 1994 until 1996.
Carolyn Tiffany. Ms. Tiffany has been a Vice President and Treasurer of
your general partners since November 1999. Ms. Tiffany has been with WFA since
January 1993. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and
Associate in WFA's accounting and asset management departments. Ms. Tiffany was
a Vice President in the asset management and investor relations departments of
WFA from October 1995 to December 1997, at which time she became the Chief
Operating Officer of WFA. In addition, Ms. Tiffany is the Chief Operating
Officer of The Newkirk Group.
Compensation of Directors and Executive Officers
Shelbourne intends to pay an annual fee of $6,667 to each of its two
independent directors (Robert Martin and Steven Stuart). Shelbourne will not pay
any director's fees to directors who are employees of Shelbourne and/or
Shelbourne Management. Shelbourne will reimburse all directors for travel
expenses and other out-of-pocket expenses incurred in connection with their
serving as directors of Shelbourne. Executive officers of Shelbourne will not
receive any remuneration for their services as such to Shelbourne, but will be
compensated by Shelbourne Management in their capacities as officers and
employees of Shelbourne Management.
Committees of the Board of Directors
The Board of Directors will establish an Audit Committee that will
consist solely of independent directors. The Audit Committee will recommend to
the Board of Directors the independent public accountants to be selected to
audit Shelbourne's annual financial statements, will approve (1) any special
assignments given to such accountants, (2) such accountants' letter of comments
and management's responses thereto and (3) any major accounting changes made or
contemplated, and will review the effectiveness and adequacy of Shelbourne's
internal accounting controls.
The Board of Directors may from time to time establish other committees
to facilitate the management of Shelbourne.
Beneficial Ownership of Shares by Certain Persons
We own, together with our affiliates, a 29.5% interest in your
partnership comprised of a 5% general partnership interest owned by us and
103,337 units owned by our affiliates. Accordingly, we, together with our
affiliates, will be entitled to receive 373,170 shares of common stock in the
conversion, representing approximately 29.5% of the total number of shares of
common stock that will be outstanding immediately following the conversion.
THE OPERATING PARTNERSHIP
General
Following the conversion, your partnership will be merged with and into
Shelbourne Properties I L.P. which will become the operating partnership and
will own and operate the assets and properties currently owned by your
partnership.
62
<PAGE>
Organization; Term
Shelbourne Properties I L.P. was organized under the laws of the State
of Delaware as of April 3, 2000. The operating partnership's partnership
agreement will provide for perpetual existence.
Ownership of Properties
Following the conversion, legal title to the interests in the
properties currently held by your partnership will be held by the operating
partnership. No specific assets have been identified for sale, financing or
purchase following the conversion.
Partnership Agreement
Shelbourne Properties I L.P. has adopted a partnership agreement which
will remain in effect following the conversion. The following is a summary of
the operating partnership's partnership agreement.
Management
Shelbourne Properties I GP, LLC, a wholly-owned subsidiary of
Shelbourne, as the sole general partner of the operating partnership, has full,
exclusive and complete responsibility and discretion in the management,
operation and control of the operating partnership. Shelbourne has retained
Shelbourne Management to provide day-to-day management and administrative
services following the conversion. Shelbourne Management will generally provide
the services that we provided prior to the conversion. See "SHELBOURNE --
MANAGEMENT - The Advisory Agreement and the Advisor."
Business Operations
The operating partnership's partnership agreement provides that all
business activities of Shelbourne, including all activities pertaining to the
acquisition and operation of properties, must be conducted through the operating
partnership. The operating partnership will be operated in a manner that is
intended to enable Shelbourne to satisfy the requirements for classification as
a real estate investment trust.
Issuance of Additional Partnership Interests
Shelbourne may from time to time after the conversion contribute
additional capital to, or make loans to, the operating partnership for a variety
of purposes including the funding of future acquisitions, the funding of capital
expenditures or the establishment of reserves. In addition, the operating
partnership's partnership agreement will further provide that Shelbourne
Properties I GP, LLC, as general partner, may from time to time cause the
operating partnership to issue additional partnership interests, which
additional partnership interests may be convertible into shares of Shelbourne's
common stock.
Exculpation and Indemnification of the General Partner
The operating partnership's partnership agreement generally provides
that Shelbourne Properties I GP, LLC, as general partner of the operating
partnership, will incur no liability to the operating partnership or any limited
partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if Shelbourne Properties I GP, LLC carried
out its duties in good faith. In addition, Shelbourne Properties I GP, LLC is
not responsible for any misconduct or negligence on the part of its agents,
provided it appointed such agents in good faith. Shelbourne Properties I GP, LLC
may consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisors,
63
<PAGE>
and any action it takes or omits to take in reliance upon the opinion of such
persons, as to matters that Shelbourne Properties I GP, LLC reasonably believes
to be within their professional or expert competence, shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
The operating partnership's partnership agreement also provides for
indemnification of Shelbourne Properties I GP, LLC, the directors and officers
of Shelbourne Properties I GP, LLC, and such other persons as Shelbourne
Properties I GP, LLC may from time to time designate against any judgments,
penalties, fines, settlements and reasonable expenses, including legal fees,
actually incurred by such person in connection with the preceding unless it is
established that: (1) the act or omission of the indemnified person was material
to the matter giving rise to the preceding and either was committed in bad faith
or was the result of active and deliberate dishonesty; (2) the indemnified
person actually received an improper personal benefit in money, property or
services; or (3) in the case of any criminal proceeding, the indemnified person
had reasonable cause to believe that the act or omission was unlawful.
Tax Matters
Shelbourne Properties I GP, LLC will be the tax matters partner of the
operating partnership and, as such, will have the authority to make tax
elections and other tax-related decisions on behalf of the operating
partnership.
PRO FORMA FINANCIAL INFORMATION OF SHELBOURNE
The following pro forma statements of operations and cash flows of
Shelbourne for the year ended December 31, 1999 assume that the conversion was
consummated on January 1, 1999 and have been prepared based on the historical
financial statements of your partnership and Shelbourne. The pro forma balance
sheet has been prepared as if the conversion was consummated on December 31,
1999.
The following pro forma financial information should be read in
conjunction with the financial statements of your partnership which are
incorporated by reference in this consent solicitation statement and which form
the basis of the pro forma financial statements for Shelbourne. These statements
do not purport to be indicative of the results of operations or cash flows that
actually would have occurred had the conversion been consummated on January 1,
1999 or December 31, 1999, or that may be expected to occur in the future.
64
<PAGE>
SHELBOURNE PROPERTIES I, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma Other
Capitalization of Pro Forma Shelbourne
Historical (e) Shelbourne Adjustments Pro Forma (a)
--------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
ASSETS
REAL ESTATE $32,352,714 $32,352,714
CASH AND CASH EQUIVALENTS 8,521,370 ($1,507,431)(d) 7,013,939
OTHER ASSETS 3,095,251 3,095,251
RECEIVABLES 209,418 209,418
----------- ---------------- --------------- -----------
$44,178,753 ($ 1,507,431) $42,671,322
=========== ================ =============== ===========
LIABILITIES AND PARTNERS' EQUITY:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 1,224,373 $ 1,224,373
DUE TO AFFILIATES 107,255 107,255
----------- ---------------- --------------- -----------
1,331,628 1,331,628
----------- ---------------- --------------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
LIMITED PARTNERS' EQUITY (400,010
UNITS ISSUED AND OUTSTANDING) 40,703,819 ($40,703,819)(b)
---------- ----------------
GENERAL PARTNERS' EQUITY 2,143,306 (2,143,306)(b)
COMMON STOCK, PAR VALUE $.01 12,632 (c) 12,632
(1,263,189 SHARES ISSUED AND
OUTSTANDING)
PAID-IN CAPITAL 42,834,493 (c) (1,507,431)(d) 41,327,062
----------- ---------------- --------------- -----------
42,847,125 (1,507,431) 41,339,694
----------- ---------------- --------------- -----------
$44,178,753 ($ 1,507,431) $41,671,322
=========== ================ =============== ===========
</TABLE>
65
<PAGE>
SHELBOURNE PROPERTIES I, INC. PRO FORMA
STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma Other
Historical Capitalization Pro Forma Shelbourne
(e) of Shelbourne Adjustments Pro Forma (a)
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
RENTAL INCOME $10,941,322 $10,941,322
-------------- --------------- -------------- ---------------
COST AND EXPENSES
OPERATING EXPENSES 3,272,085 3,272,085
DEPRECIATION AND AMORTIZATION 1,343,257 1,343,257
PARTNERSHIP MANAGEMENT FEE 418,768 418,768
ADMINISTRATIVE EXPENSES 1,215,259 1,215,259
PROPERTY MANAGEMENT FEE 291,991 291,991(f)
-------------- --------------- -------------- ---------------
6,541,360 6,541,360
-------------- --------------- -------------- ---------------
INCOME BEFORE INTEREST AND OTHER INCOME: $4,399,962 $4,399,962
INTEREST INCOME 334,116 334,116
OTHER INCOME 113,460 113,460
-------------- --------------- -------------- ---------------
NET INCOME $4,847,538 $4,847,538
=============== ============= ============== ===============
NET INCOME PER UNIT (400,010 UNITS
OUTSTANDING) $11.51
=============== ============= ============== ===============
NET INCOME PER SHARE (1,263,189 SHARES)
OUTSTANDING) $3.84
=============== ============= ============== ===============
</TABLE>
66
<PAGE>
SHELBOURNE PROPERTIES I, INC. PRO FORMA
STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma Shelbourne
Historical (e) Adjustments Pro Forma (a)
--------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net Income $4,847,538 $4,847,538
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,343,257 1,343,257
Straight-line adjustment for stepped lease rentals (1,250,983) (1,250,983)
Changes in asset and liabilities
Receivables (61,995) (61,995)
Accounts payable and accrued expenses (40,891) ($425,000)(a) (465,891)
Due to affiliates (255,185) (255,185)
Other assets (418,340) (418,340)
--------------- ----------------- ----------------
Net cash provided by operating activities 4,163,401 (425,000) 3,738,401
--------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements to real estate (756,274) (756,274)
--------------- ----------------- ----------------
Net cash used in investing activities (756,274) (756,274)
--------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to partners (1,187,398) (1,507,431)(d) (2,694,629)
--------------- ----------------- ----------------
Net cash used in financing activities (1,187,398) (1,507,431) (2,694,629)
--------------- ----------------- ----------------
Increase (decrease) in cash and cash equivalents 2,219,729 (1,932,431) 287,298
Cash and cash equivalents, beginning of period 6,301,641 6,301,641
--------------- ----------------- ----------------
Cash and cash equivalents, end of period $8,521,370 ($1,932,431) $6,588,939
=============== ================= ================
</TABLE>
67
<PAGE>
SHELBOURNE PROPERTIES I, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
For the year ended
December 31, 1999
---------------------
Average number of pro forma common and common 1,263,189
equivalent shares outstanding during the period =========
Pro forma net income $4,847,538
=========
Pro forma net income per common and common $3.84
equivalent shares ====
68
<PAGE>
SHELBOURNE PROPERTIES I, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999
(a) The conversion will result in transaction costs of approximately
$425,000 which are non-recurring and as a result have not been included
as a pro forma adjustment.
(b) These adjustments eliminate the Partnership Equity.
(c) These adjustments capitalize Shelbourne.
(d) This adjustment reflects the distribution of 95% of taxable income in
order to qualify as a real estate investment trust.
(e) The information appearing in this column represents historical financial
information of your partnership.
(f) While the settlement fixed the Asset Management Fee for 1999 at $418,769,
the fee in future years will be based on 1.25% of the gross assets of
Shelbourne. The fee for 1999 would have been $690,075 if it had been
calculated based on 1.25% of gross assets.
69
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description of Shelbourne's capital stock set forth below does not
purport to be complete and is qualified in its entirety by reference to
Shelbourne's certificate of incorporation and bylaws, copies of which are
exhibits to the Registration Statement of which this consent solicitation
statement is a part.
GENERAL
Shelbourne will have authority under its certificate of incorporation
to issue up to 4,500,000 shares of stock, consisting of 2,500,000 shares of
common stock, par value $0.01 per share, 1,500,000 shares of Excess Stock, par
value $0.01 per share, and 500,000 shares of Preferred Stock, par value $0.01
per share. Under Delaware law, stockholders generally are not responsible for
the corporation's debts or obligations. Immediately following consummation of
the conversion, 1,263,189 shares of common stock will be issued and outstanding
and no shares of Excess Stock or Preferred Stock will be issued and outstanding.
With respect to the Preferred Stock, the certificate of incorporation
authorizes the Board of Directors to set or change the preferences, conversion
or other rights, voting powers, restrictions, limitations as to distributions,
qualifications or terms or conditions of redemption of such stock.
COMMON STOCK
All shares of common stock offered hereby have been duly authorized,
and will be fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of shares and to the provisions of Shelbourne's
certificate of incorporation regarding Excess Stock, holders of common stock are
entitled to receive dividends on common stock if, as and when authorized and
declared by the Board of Directors of Shelbourne out of assets legally available
therefor and to share ratably in the assets of Shelbourne legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of Shelbourne.
Subject to the provisions of Shelbourne's certificate of incorporation
regarding Excess Stock, each outstanding share of common stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of directors, and, except as otherwise required by law or except as
provided with respect to any other class or series of shares, the holders of
common stock possess exclusive voting power. There is no cumulative voting in
the election of directors, which means that the holders of a majority of the
outstanding shares of common stock can elect all of the directors then standing
for election, and the holders of the remaining shares of common stock will not
be able to elect any director.
Holders of common stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of Shelbourne.
Shelbourne intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of Shelbourne's certificate of incorporation
regarding Excess Stock, all common stock has equal dividend, distribution,
liquidation and other rights, and has no preference or exchange rights and,
except as provided by Delaware law, no appraisal rights.
70
<PAGE>
PREFERRED STOCK
The Board of Directors may from time to time establish and issue one or
more series of preferred stock without stockholder approval. The Board of
Directors may classify or reclassify any unissued preferred stock by setting or
changing the number, designation, preference, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series. Because the Board of Directors has the
power to establish the preferences and rights of each series of preferred stock,
it may afford the holders of any series of preferred stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of common
stock. In addition, the Board of Directors could authorize the issuance of
Preferred Stock with terms and conditions that could have the effect of
discouraging a takeover or any other transaction that holders of common stock
might believe to be in their best interests or in which holders of some, or a
majority, of the common stock might receive a premium for their shares over the
then current market price of such shares. As of the date hereof, no shares of
Preferred Stock are outstanding, and Shelbourne has no present plans to issue
any Preferred Stock. Shelbourne has authorized the issuance of a series of
preferred stock in connection with Shelbourne's shareholder rights plan. See
"DESCRIPTION OF CAPITAL STOCK -- SHAREHOLDER RIGHTS AGREEMENT" and "CERTAIN
PROVISIONS OF DELAWARE LAW AND OF SHELBOURNE'S CERTIFICATE AND BYLAWS."
LISTING, PRICE AND TRADING
There is currently no established trading market for common stock, and,
prior to the conversion, common stock will not be listed on any national
securities exchange or quoted on the National Association of Securities Dealers
quotation system. Therefore, no sale or bid price information is available with
respect to shares of common stock. Consummation of the conversion is conditioned
on the common stock being approved for listing on the American Stock Exchange,
subject to official notice of issuance. American Stock Transfer & Trust Company
will act as transfer agent and registrar of common stock. There can be no
assurance as to the price at which common stock will trade on the American Stock
Exchange.
Subject to the restrictions on ownership (discussed below), shares of
common stock that you receive in the conversion will be freely transferable.
RESTRICTIONS ON TRANSFERS
For Shelbourne to continue to qualify as a real estate investment trust
under the Internal Revenue Code, it must adhere to the following ownership
limits:
(a) not more than 50% in value of the outstanding equity securities of
all classes may be owned, directly or indirectly, by five or fewer individuals,
as defined in the Internal Revenue Code to include certain entities, during the
last half of a taxable year; and
(b) the equity securities must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year.
A description of these complex requirements is included in the "Federal
Income Tax Considerations" section starting on page 79 of this consent
solicitation.
In order to protect Shelbourne against the risk of losing its status as
a real estate investment trust and to otherwise protect Shelbourne from the
consequences of a concentration of ownership among its stockholders, the
certificate of incorporation, subject to some exceptions, provides that no
single person, which includes any "group" of persons (other than the "Related
Parties," as defined below), may
71
<PAGE>
"beneficially own" more than 8% (the "Ownership Limit") of the aggregate number
of outstanding shares of any class or series of capital stock. Under the
certificate of incorporation, a person generally "beneficially owns" shares if:
(a) such person has direct ownership of such shares;
(b) such person has indirect ownership of such shares taking into
account the constructive ownership rules of the Internal Revenue Code; or
(c) such person would be permitted to "beneficially own" such shares
pursuant to Rule 13d- 3 under the Exchange Act.
A Related Party, however, will not be deemed to beneficially own shares
by virtue of clause (c) above and a "group" of which a Related Party is a member
will generally not have attributed to the group's beneficial ownership any
shares beneficially owned by such Related Party. Northstar Capital Investment
Corp. and its officers, directors and affiliates are "Related Parties." Related
Parties will be limited in the number of shares which they may beneficially own
if, and to the extent that, the Board of Directors determines that such
ownership would jeopardize Shelbourne's status as a real estate investment trust
for Federal income tax purposes (the "Related Limit").
Any transfer of shares of capital stock or of any security convertible
into shares of capital stock that would create a direct or indirect ownership of
shares of capital stock in excess of the Ownership Limit or the Related Limit,
as applicable, or that would result:
(1) in the disqualification of Shelbourne as a real estate investment
trust, including any transfer that results in the shares of capital stock being
owned by fewer than 100 persons;
(2) in Shelbourne's being "closely held" within the meaning of
Section 856(h) of the Internal Revenue Code;
(3) in Shelbourne's being a "pension-held real estate investment
trust" within the meaning of Section 856(h)(3)(D) of the Internal Revenue Code;
(4) in Shelbourne's failing to be a "domestically controlled real
estate investment trust" within the meaning of Section 897(h)(4)(B) of the
Internal Revenue Code; or
(5) in Shelbourne's ownership (taking into account the constructive
ownership rules of the Internal Revenue Code), or ownership by any actual or
constructive owner of 10% or more of the common stock, of 10% or more of the
vote or ownership interests in a tenant of any of Shelbourne's properties taking
into account the constructive ownership rules of Section 318 of the Internal
Revenue Code as modified by Section 856(d)(5) of the Internal Revenue Code,
shall be null and void, and the intended transferee will acquire no rights to
the shares of capital stock.
The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of Shelbourne to attempt to qualify, or to continue to qualify, as a
real estate investment trust. The Board of Directors may, in its sole
discretion, waive the Ownership Limit if evidence satisfactory to the Board of
Directors is presented that the changes in ownership will not jeopardize
Shelbourne's status as a real estate investment trust and the Board of Directors
otherwise decides that such action is in the best interest of Shelbourne.
72
<PAGE>
If any purported transfer of capital stock of Shelbourne or any other
event would otherwise result in any person violating the Ownership Limit or the
Related Limit, as applicable, or the certificate of incorporation, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the applicable Limit and the Prohibited Transferee shall acquire no
right or interest in such excess shares. In addition, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such shares in excess of the applicable Limit (the "Prohibited Owner") shall
cease to own any right or interest in such excess shares. Any such excess shares
described above will be converted automatically into an equal number of shares
of Excess Stock (the "Excess Shares") and transferred automatically, by
operation of law, to a trust, the beneficiary of which will be a qualified
charitable organization selected by Shelbourne (the "Beneficiary"). Such
automatic transfer shall be deemed to be effective as of the close of business
on the Trading Day (as defined in the certificate of incorporation) prior to the
date of such violative transfer. As soon as practical after the transfer of
shares to the trust, the trustee of the trust will be required to sell such
Excess Shares to a person or entity who could own such shares without violating
the applicable Limit, and distribute to the Prohibited Transferee an amount
equal to the lesser of the price paid by the Prohibited Transferee for such
Excess Shares or the sales proceeds received by the trust for such Excess
Shares. The trustee of such trust shall be designated by Shelbourne and be
unaffiliated with Shelbourne and any Prohibited Transferee or Prohibited Owner.
In the case of any Excess Shares resulting from any event other than a transfer,
or from a transfer for no consideration such as a gift, the trustee will be
required to sell such Excess Shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the fair
market value of such Excess Shares as of the date of such event or the sales
proceeds received by the trust for such Excess Shares. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner, as applicable, will be distributed to the Beneficiary. Prior
to a sale of any such Excess Shares by the trust, the trustee will be entitled
to receive in trust for the Beneficiary, all dividends and other distributions
paid by Shelbourne with respect to such Excess Shares.
In addition, shares of stock of Shelbourne held in the trust shall be
deemed to have been offered for sale to Shelbourne, or its designee, at a price
per share equal to the lesser of (1) the price per share in the transaction that
resulted in such transfer to the trust or, in the case of a devise or gift, the
market price at the time of such devise or gift, and (2) the market price on the
date Shelbourne, or its designee, accepts such offer. Shelbourne shall have the
right to accept such offer for a period of 90 days. Upon such a sale to
Shelbourne, the interest of the Beneficiary in the shares sold shall terminate
and the trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
These restrictions do not preclude settlement of transactions through
the American Stock Exchange.
Each stockholder shall upon demand be required to disclose to
Shelbourne in writing any information with respect to the direct, indirect and
constructive ownership of capital stock as the Board of Directors deems
necessary to comply with the provisions of the Internal Revenue Code applicable
to real estate investment trusts, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of precluding acquisition of
control of Shelbourne.
ADDITIONAL ISSUANCES
Pursuant to the certificate of incorporation, the Board of Directors
may, in its sole discretion, issue additional equity securities, provided that
the total number of shares issued does not exceed the authorized
73
<PAGE>
number of shares of stock set forth in the certificate of incorporation.
Shelbourne may from time to time, in the future, seek to raise additional
capital through equity issuances. Any additional issuances of securities could
have a dilutive effect on the distribution and voting rights of stockholders.
SHAREHOLDER RIGHTS AGREEMENT
The Board of Directors of Shelbourne has adopted a shareholder rights
agreement . The adoption of the shareholder rights agreement could make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, Shelbourne or a large block of Shelbourne's common stock. Pursuant to
the terms of the shareholder rights agreement, each share of common stock issued
in the conversion will be accompanied by a preferred stock purchase right. In
addition, one purchase right will automatically attach to each share of common
stock issued between the date of the conversion and the Distribution Date (as
hereinafter defined). Each purchase right entitles the registered holder to
purchase from Shelbourne a unit consisting of one one-thousandth of a share (a
"Unit") of Series A Junior Participating Cumulative Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock") at a cash exercise price of
$86.29 per Unit (the "Exercise Price"), subject to adjustment. Each Share
offered hereby will be entitled to a purchase right when distributed.
Initially, the purchase rights are not exercisable and are attached to
and trade with the outstanding shares of common stock. The purchase rights will
separate from the common stock and will become exercisable on the "Distribution
Date" which means the earliest of the following two dates:
(1) the close of business on the tenth calendar day following the first
public announcement that a person or group of affiliated or associated persons
has become an "acquiring person" meaning such person or group has acquired
beneficial ownership of more than 15% of the sum of the outstanding shares of
common stock and Excess Stock ("Common Shares") (the date of said announcement
being referred to as the "Stock Acquisition Date"); or
(2) the close of business on the tenth business day, or such other
calendar day as the Board of Directors may determine, following the commencement
of a tender offer or exchange offer that would result upon its consummation in a
person or group becoming the beneficial owner of more than 15% of the
outstanding Common Shares.
For these purposes, no Related Parties will be deemed an acquiring
person. In addition, no "group" of which a Related Party is a member will be
deemed to beneficially own the Common Shares beneficially owned by such Related
Party.
Until the Distribution Date or earlier redemption, exchange or
expiration of the purchase rights:
(a) the purchase rights will be evidenced by the common stock
certificates and will be transferred with and only with such common stock
certificates;
(b) new common stock certificates issued after the date of the
conversion will contain a notation incorporating the shareholder rights
agreement by reference; and
(c) the surrender for transfer of any certificates for common stock
will also constitute the transfer of the purchase rights associated with the
common stock represented by such certificate.
The purchase rights are not exercisable until the Distribution Date and
will expire in 2010, unless previously redeemed or exchanged by Shelbourne as
described below.
74
<PAGE>
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of common stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the purchase rights. Except as otherwise determined by the Board
of Directors, only shares of common stock issued prior to the Distribution Date
will be issued with purchase rights.
In the event that a Stock Acquisition Date occurs, proper provision
will be made so that each holder of a purchase right other than an acquiring
person or its associates or affiliates, whose purchase rights shall become null
and void, will thereafter have the right to receive upon exercise that number of
units of Series A Preferred Stock of Shelbourne having a market value of two
times the exercise price of the purchase right (such right being referred to as
the "Subscription Right"). In the event that, at any time following the Stock
Acquisition Date any one of the following occurs, each holder of a purchase
right shall thereafter have the right to receive, upon exercise, common stock of
the acquiring entity having a market value equal to two times the exercise price
of the purchase right (such right being referred to as the "Merger Right"):
(a) Shelbourne consolidates with, or merges with and into, any other
person, and Shelbourne is not the continuing or surviving corporation;
(b) any person consolidates with Shelbourne, or merges with and into
Shelbourne and Shelbourne is the continuing or surviving corporation of such
merger and, in connection with such merger, all or part of the shares of common
stock are changed into or exchanged for stock or other securities of any other
person or cash or any other property; or
(c) 50% or more of Shelbourne's assets or earning power is sold,
mortgaged or otherwise transferred.
The holder of a purchase right will continue to have the Merger Right
whether or not such holder has exercised the Subscription Right. Purchase rights
that are or were beneficially owned by an acquiring person may under some
circumstances specified in the shareholder rights agreement become null and
void.
At any time after the Stock Acquisition Date the Board of Directors
may, at its option, exchange all or any part of the then outstanding and
exercisable purchase rights for shares of common stock or units of Series A
Preferred Stock at an exchange ratio of one share of common stock or one Unit of
Series A Preferred Stock per purchase right. Notwithstanding the foregoing, the
Board of Directors generally will not be empowered to effect such exchange at
any time after any person becomes the beneficial owner of 50% or more of the
common stock of Shelbourne.
The Exercise Price payable, and the number of units of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
purchase rights are subject to adjustment from time to time to prevent dilution
(a) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (b) if holders of the Series
A Preferred Stock are granted certain rights or warrants to subscribe for Series
A Preferred Stock or convertible securities at less than the current market
price of the Series A Preferred Stock, or (c) upon the distribution to holders
of the Series A Preferred Stock of evidences of indebtedness or assets excluding
regular quarterly cash dividends, or of subscription rights or warrants other
than those referred to above.
With some exceptions, no adjustment in the Exercise Price will be
required until cumulative adjustments amount to at least 1% of the Exercise
Price, determined on a per purchase right basis. Shelbourne is not obligated to
issue fractional units. If Shelbourne elects not to issue fractional units, in
lieu
75
<PAGE>
thereof an adjustment in cash will be made based on the fair market value
of the Series A Preferred Stock on the last trading date prior to the date of
exercise. Any of the provisions of the shareholder rights agreement may be
amended by the Board of Directors at any time prior to the Distribution Date.
The purchase rights may be redeemed in whole, but not in part, at a
price of $0.01 per purchase right by the Board of Directors only until the
earlier of (1) the close of business on the tenth calendar day after the Stock
Acquisition Date, or (2) the expiration date of the shareholder rights
agreement. Such redemption amount shall be payable in cash, common stock or
other consideration deemed appropriate by the Board of Directors. Immediately
upon the action of the Board of Directors ordering redemption of the purchase
rights, the purchase rights will terminate and thereafter the only right of the
holders of purchase rights will be to receive the redemption price.
The shareholder rights agreement may be amended by the Board of
Directors in its sole discretion until the Distribution Date. After the
Distribution Date, the Board of Directors may, subject to some limitations set
forth in the shareholder rights agreement, amend the shareholder rights
agreement only to cure any ambiguity, defect or inconsistency, to shorten or
lengthen any time period, or to make changes that do not adversely affect the
interests of purchase rights holders, excluding the interests of an acquiring
person or its associates or affiliates.
Until a purchase right is exercised, the holder will have no rights as
a stockholder of Shelbourne, beyond those as an existing stockholder, including
the right to vote or to receive dividends. While the distribution of the
purchase rights will not be taxable to stockholders or to Shelbourne,
stockholders may, depending upon the circumstances, recognize taxable income in
the event that the purchase rights become exercisable for units, other
securities of Shelbourne, other consideration or for common stock of an
acquiring entity.
A copy of the shareholder rights agreement has been filed with the
Commission and is incorporated as an exhibit hereto by reference to the
Registration Statement to which this is a part. A copy of the shareholder rights
agreement is also available from Shelbourne upon written request. The foregoing
description of the purchase rights does not purport to be complete and is
qualified in its entirety by reference to the purchase rights Agreement, which
is incorporated herein by reference.
CERTAIN PROVISIONS OF DELAWARE LAW AND
SHELBOURNE'S CERTIFICATE AND BYLAWS
The following summary of some provisions of Delaware law and
Shelbourne's certificate of incorporation and bylaws does not purport to be
complete and is subject to and qualified in its entirety by reference to
Delaware law and Shelbourne's certificate of incorporation and bylaws, copies of
which have been filed with the Commission and are incorporated as exhibits
hereto by reference to the Registration Statement of which this is a part.
Some of the provisions of Shelbourne's certificate of incorporation and
bylaws could make more difficult the acquisition of Shelbourne by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage some types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of Shelbourne to
negotiate first with the Board of Directors. Shelbourne believes that the
benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms. The description set
forth below is intended as a summary only and is qualified in its entirety by
reference to the certificate of incorporation and the bylaws, which have been
filed with the
76
<PAGE>
Commission and are incorporated as exhibits hereto by reference
to the Registration Statement to which this is a part. See "DESCRIPTION OF
CAPITAL STOCK -- RESTRICTIONS ON TRANSFERS."
AMENDMENT OF CERTIFICATE AND BYLAWS
Except as described in the following two sentences, Shelbourne's
certificate of incorporation may be amended only by the affirmative vote of the
holders of two-thirds of all of the votes entitled to be cast on the matter.
However, if a majority of the directors then in office approve such amendment,
the holders of only a majority of the all the votes entitled to be cast on the
matter are needed to approve the amendment. In addition, amendments dealing with
some articles of the certificate of incorporation such as articles relating to
stockholder action; the powers, election of, removal of and classification of
directors; limitation of liability; and amendment of the By-laws or the
certificate of incorporation, shall require the affirmative vote of not less
than two-thirds of the outstanding votes entitled to be cast on the matter.
Unless otherwise required by law, the Board of Directors may amend Shelbourne's
bylaws by the affirmative vote of a majority of the directors then in office.
The bylaws may also be amended by the stockholders, at an annual meeting or at a
special meeting called for such purpose, by the affirmative vote of at least
two-thirds of the votes entitled to be cast on the matter; provided, that if the
Board of Directors recommends that stockholders approve such amendment at such
meeting, such amendment shall require the affirmative vote of only a majority of
the shares present at such meeting and entitled to vote.
DISSOLUTION OF SHELBOURNE
Delaware law permits the dissolution of Shelbourne by (1) the
affirmative vote of a majority of the entire Board of Directors declaring such
dissolution to be advisable and directing that the proposed dissolution be
submitted for consideration at an annual or special meeting of stockholders, and
(2) upon proper notice, stockholder approval by the affirmative vote of a
majority of the votes entitled to be cast on the matter.
MEETINGS OF STOCKHOLDERS
Under Shelbourne's bylaws, annual meetings of stockholders shall be
held at such date and time as determined by the Board of Directors, the Chairman
of the Board or the President. The bylaws establish an advance notice procedure
for stockholders to make nominations of candidates for directors or bring other
business before an annual meeting of stockholders. Special meetings of
stockholders may be called only by a majority of the Directors then in office
and only matters set forth in the notice of the meeting may be considered and
acted upon at such a meeting.
THE BOARD OF DIRECTORS
Shelbourne's certificate of incorporation provides that the Board of
Directors shall initially consist of seven Directors and thereafter the number
of Directors of Shelbourne may be established by the Board of Directors but may
not be fewer than the minimum number required by the Delaware law nor more than
nine. Subject to the rights, if any, of the holders of any series of Preferred
Stock to elect Directors and to fill vacancies in the Board of Directors
relating thereto, any vacancy will be filled, including any vacancy created by
an increase in the number of Directors, at any regular meeting or at any special
meeting called for the purpose, by a majority of the remaining Directors.
Pursuant to the terms of the certificate of incorporation, the Directors are
divided into three classes. One class will hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2001, another class
will hold office initially for a term expiring at the annual meeting of
stockholders to be held in 2002 and the third class will hold office
77
<PAGE>
initially for a term expiring in 2003. As the term of each class expires,
Directors in that class will be elected for a term of three years and until
their successors are duly elected and qualified. The use of a classified board
may render more difficult a change in control of Shelbourne or removal of
incumbent management. Shelbourne believes, however, that classification of the
Board of Directors will help to assure the continuity and stability of its
business strategies and policies.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Shelbourne's certificate of incorporation generally limits the
liability of Shelbourne's Directors to Shelbourne to the fullest extent
permitted from time to time by Delaware law. The Delaware General Corporation
Law permits, but does not require, a corporation to indemnify its directors,
officers, employees or agents and expressly provides that the indemnification
provided for under the Delaware General Corporation Law shall not be deemed
exclusive of any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The Delaware General Corporation Law
permits indemnification against expenses and some other liabilities arising out
of legal actions brought or threatened against such persons for their conduct on
behalf of a corporation, provided that each such person acted in good faith and
in a manner that he reasonably believed was in or not opposed to such
corporation's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Delaware
General Corporation Law does not allow indemnification of directors in the case
of an action by or in the right of a corporation, including stockholder
derivative suits, unless the directors successfully defend the action or
indemnification is ordered by the court.
The bylaws provide that Directors and officers of Shelbourne shall be,
and, in the discretion of the Board of Directors, non-officer employees may be,
indemnified by Shelbourne to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities, including legal fees, actually and reasonably incurred in
connection with service for or on behalf of Shelbourne. The bylaws also provide
that the right of directors and officers to indemnification shall be a contract
right and shall not be exclusive of any other right now possessed or hereafter
acquired under any bylaw, agreement, vote of stockholders, or otherwise. The
certificate of incorporation contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence or
gross negligence in business combinations, unless the director has breached his
or her duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or a knowing violation of law, paid a dividend or approved a stock
repurchase in violation of the Delaware General Corporation Law or obtained an
improper personal benefit. The provision does not alter a director's liability
under the federal securities laws. In addition, this provision does not affect
the availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling Shelbourne pursuant to the foregoing provisions, Shelbourne has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
BUSINESS COMBINATIONS
Shelbourne is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with some exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (a) the transaction resulting in
a person becoming an interested stockholder, or the business combination, was
approved by the board of directors of the corporation before the consummation of
such
78
<PAGE>
transaction; (b) the interested stockholder owned 85% or more of the
outstanding voting stock of the corporation, excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans, immediately after the transaction in
which it became an interested stockholder; or (c) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined, with some exceptions, as any person who,
together with affiliates and associates, owns or within the prior three years
did own, 15% or more of the corporation's outstanding voting stock.
INDEMNIFICATION AGREEMENTS
Shelbourne has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other things, that Shelbourne indemnify its directors and executive officers to
the fullest extent permitted by law and advance to the directors and executive
officers all related expenses, including legal fees, subject to reimbursement if
it is subsequently determined that indemnification is not permitted. Under these
agreements, Shelbourne must also indemnify and advance all expenses incurred by
directors and executive officers seeking to enforce their rights under the
indemnification agreements and may cover directors and executive officers under
Shelbourne's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides greater assurance to directors and executive
officers that indemnification will be available, because, as a contract, it
cannot be modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights it provides.
FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the Federal income tax considerations
anticipated to be material to prospective stockholders of Shelbourne. The
discussion does not address the tax consequences that may be relevant to
particular stockholders in light of their specific circumstances or to
stockholders who are subject to special treatment under certain Federal income
tax laws, such as dealers in securities, traders in securities that elect to
mark-to-market, banks, insurance companies, tax-exempt organizations (except to
the extent discussed under the heading "-- TAXATION OF TAX-EXEMPT STOCKHOLDERS")
or non-United States persons (except to the extent discussed under the heading
"-- TAXATION OF NON-U.S. STOCKHOLDERS"). This discussion does not address any
tax consequences arising under the laws of any state, local or foreign
jurisdiction.
The information in this discussion and the opinions of Rosenman & Colin
LLP ("Rosenman & Colin") referenced below are based on current provisions of the
Internal Revenue Code (the "Code"), existing, temporary and currently proposed
Treasury Regulations thereunder, the legislative history of the Code, existing
administrative interpretations and practices of the Internal Revenue Service
(the "Service"), and judicial decisions, all of which are subject to change
either prospectively or retroactively. Rosenman & Colin will render an opinion
to the effect that the discussion set forth under this heading, to the extent
that it contains descriptions of applicable Federal income tax law, is correct
in all material respects as of the date hereof. No assurance can be given that
future legislation, Treasury Regulations, administrative interpretations or
judicial decisions will not significantly change the current law or adversely
affect existing interpretations of current law, including the conclusions
reached by Rosenman & Colin. No rulings will be sought in connection with any
aspect of the Federal income tax consequences described below.
79
<PAGE>
YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE
SPECIFIC FEDERAL, STATE, LOCAL AND (IF APPLICABLE) FOREIGN TAX CONSEQUENCES TO
YOU OF THE CONVERSION AND THE OWNERSHIP AND DISPOSITION OF SHARES OF COMMON
STOCK IN LIGHT OF YOUR SPECIFIC TAX AND INVESTMENT SITUATION.
THE CONVERSION
The proposed conversion has been structured in a manner intended to
result in no recognition of taxable income by you. As a condition to the
conversion, Rosenman & Colin will render an opinion to the effect that, under
current Federal income tax law, (1) the conversion will qualify as an exchange
governed by Section 351 of the Code in which your partnership will be treated as
transferring all of its assets to Shelbourne in exchange for common stock and
the assumption by Shelbourne of your partnership's liabilities, followed by your
partnership's distribution of the common stock to the unitholders in complete
liquidation of your partnership, and (2) accordingly, no gain or loss will be
recognized for Federal income tax purposes by your partnership, the unitholders
or Shelbourne as a result of the conversion. A legal opinion is not binding on
the Service or the courts. Although the Service has issued a private letter
ruling confirming these tax consequences in the case of a transaction
substantially similar to the proposed conversion, the letter ruling was not
issued to your partnership and analyzed a transaction that was not identical to
the proposed conversion. Accordingly, there can be no assurance that the Service
will agree with the conclusions reached by Rosenman & Colin in its opinion.
Your aggregate adjusted tax basis in the common stock that you receive
in the conversion will be the same as your aggregate tax basis in your units
immediately before the conversion, reduced by your share of your partnership's
liabilities, if any, assumed by Shelbourne in the conversion. Your holding
period in the common stock generally will include your partnership's holding
period in its assets (other than assets, if any, that are not capital assets or
property described in Section 1231 of the Code).
Shelbourne and its stockholders will be required to comply with certain
reporting requirements set forth in the Treasury Regulations, which will require
the reporting of certain information regarding the conversion. Shelbourne will
provide stockholders with the documentation that they will be required to
furnish with their tax returns for the year of the conversion.
TAXATION OF SHELBOURNE AS A REAL ESTATE INVESTMENT TRUST
General
The sections of the Code and the corresponding Treasury Regulations
relating to the taxation of real estate investment trusts and their stockholders
are highly technical and complex. The following discussion sets forth the
material aspects of the rules that govern the Federal income tax treatment of a
real estate investment trust and its stockholders.
Under Federal income tax law, if certain detailed conditions (discussed
below) imposed by the Code and the related Treasury Regulations are satisfied,
an entity that invests principally in real estate and that would otherwise be
subject to tax as a corporation may elect to be treated as a real estate
investment trust for U.S. Federal income tax purposes. These conditions relate,
in part, to the nature of the entity's assets and income.
Shelbourne intends to elect to be treated for tax purposes as, and to
operate so as to qualify as, a real estate investment trust under Sections 856
through 860 of the Code, commencing with its taxable year
80
<PAGE>
ending on December 31, 2000. No assurance can be given that Shelbourne will
operate in a manner so as to qualify, or remain qualified, as a real estate
investment trust.
As a condition of the conversion, Rosenman & Colin will render an
opinion to the effect that, commencing with Shelbourne's tax year ending on
December 31, 2000, Shelbourne will be organized in conformity with the
requirements for qualification as a real estate investment trust, and
Shelbourne's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a real estate investment trust,
provided that (1) the conversion and certain procedural steps described under
this heading are completed in a timely fashion and (2) Shelbourne and the
operating partnership operate in accordance with various assumptions and factual
representations made by Shelbourne concerning their organization, business,
properties and operations. The opinion will be based upon certain facts,
representations and assumptions as of its date, including assumptions and
factual representations made by your partnership as to its organization,
business, properties and operation prior to the conversion, and will not be
binding on the Service or the courts. Qualification and taxation as a real
estate investment trust will depend upon whether Shelbourne will be able to meet
on an ongoing basis, through its actual annual operating results, its asset
base, distribution levels and diversity of share ownership, various
qualification tests, the results of which will not be reviewed by Rosenman &
Colin. No assurance can be given that the actual results of Shelbourne's
operations for any particular taxable year will satisfy such requirements. See
"-- Failure of Shelbourne to Qualify as a Real Estate Investment Trust."
If Shelbourne qualifies for taxation as a real estate investment trust,
it generally will not be subject to Federal corporate income taxes on its net
income that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (at the corporate and stockholder
levels) that generally results from investment in a regular corporation.
However, Shelbourne will be subject to Federal income tax in the following
circumstances:
(1) Shelbourne (but not its stockholders) will be subject to tax at
regular corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains;
(2) Under certain circumstances, Shelbourne may be subject to the
"alternative minimum tax" on its items of tax preference, if any;
(3) If Shelbourne has (a) net income from the sale or other disposition
of "foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from foreclosure
property, Shelbourne will be subject to tax at the highest corporate rate on
such income;
(4) If Shelbourne has net income from the sale or other disposition of
property, other than foreclosure property, held primarily for sale to customers
in the ordinary course of business (a "prohibited transaction"), such income
will be subject to a 100% tax;
(5) If Shelbourne fails to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but nonetheless has maintained its
qualification as a real estate investment trust because other requirements have
been met, Shelbourne will be subject to a 100% tax on an amount equal to (1) the
gross income attributable to the greater of the amount by which Shelbourne fails
the 75% or 95% test multiplied by (2) a fraction intended to reflect
Shelbourne's profitability;
(6) If Shelbourne fails to distribute during each calendar year at
least the sum of (1) 85% of its ordinary income for such year, (2) 95% of its
capital gains for such year, less any capital gains that it elects
81
<PAGE>
to retain and pay tax on, and (3) any undistributed taxable income from prior
periods, less any capital gains that it elected to retain and pay tax on,
Shelbourne will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed;
(7) If Shelbourne acquires any asset from a corporation that is subject
to full corporate-level taxation in a transaction in which the basis of the
asset in the hands of Shelbourne is determined by reference to the basis of the
asset in the hands of such corporation, and Shelbourne recognizes gain on the
disposition of such asset during the ten-year period beginning on the date on
which such asset was acquired by Shelbourne, then, to the extent of the excess
of (a) the fair market value of such asset over (b) Shelbourne's adjusted basis
in the asset, determined when Shelbourne acquired the asset, such gain will be
subject to tax at the highest regular corporate income tax rate then applicable.
Requirements for Qualification
To qualify as a real estate investment trust, Shelbourne must elect to
be treated as such on its Federal income tax return for its taxable year ending
December 31, 2000, and must meet the requirements discussed below relating to
Shelbourne's organization, sources of income, nature of assets, and
distributions of income.
Organizational Requirements
The outstanding stock of Shelbourne must be held by at least 100
persons and not more than 50% of the value of such stock may be owned, directly
or indirectly, by five or fewer individuals (as specially defined) at any time
during the last half of the taxable year. For these purposes, some entities are
treated as individuals. These stock ownership requirements must be satisfied in
Shelbourne's second taxable year and in each subsequent taxable year. Following
the conversion, Shelbourne expects to have outstanding stock with sufficient
diversity of ownership to enable it to satisfy these requirements. In addition,
the certificate of incorporation provides for certain restrictions regarding the
transfer of Shelbourne's capital stock in order to assist Shelbourne in meeting
the stock ownership requirements, although these restrictions cannot insure that
Shelbourne will always satisfy these stock ownership requirements. See
"DESCRIPTION OF CAPITAL STOCK -- RESTRICTIONS ON TRANSFER."
To monitor Shelbourne's compliance with the stock ownership
requirements, Shelbourne will be required to maintain records regarding the
actual ownership of its stock. To do so, Shelbourne must send a letter to its
stockholders requesting that they disclose to Shelbourne the identity of the
actual owners of the stock (i.e., the persons required to include Shelbourne's
dividends in their income). A list of those persons failing or refusing to
comply with this demand must be maintained as part of Shelbourne's records. A
stockholder who fails or refuses to comply with the demand must submit a
statement with its Federal income tax return disclosing the actual ownership of
the stock and certain other information.
Income Tests
In order to maintain its qualification as a real estate investment
trust, Shelbourne must satisfy two gross income requirements each year:
(1) At least 75% of Shelbourne's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived, directly
or indirectly, from investments relating to real property or mortgages on real
property or from certain types of temporary investments. Income derived from
investments in real property includes "rents from real property" (as defined in
the Code) and gain from the sale or disposition of real property other than
property held primarily for sale to customers in the ordinary course of
business; and
82
<PAGE>
(2) At least 95% of Shelbourne's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived from such
real property investments, dividends, interest, gain from the sale or
disposition of stock or securities or any combination of the foregoing.
Shelbourne will own, directly and indirectly, partnership interests in
the operating partnership. In the case of a real estate investment trust that is
a partner in a partnership, Treasury Regulations provide that the real estate
investment trust will be deemed to own its proportionate share of the assets of
such partnership and will be deemed to be entitled to the income of such
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership retain the same character in the hands of
Shelbourne for purposes of satisfying the gross income tests described above and
the asset tests described below. Shelbourne Properties I GP, LLC, the operating
partnership's general partner, will be a limited liability company wholly-owned
by Shelbourne. For Federal income tax purposes, such entity's assets,
liabilities and items of income, deduction and credit will be treated as assets,
liabilities and items of Shelbourne.
Shelbourne currently anticipates that substantially all of its gross
income will consist of rents paid under leases of properties owned by the
operating partnership. Such rents will qualify as "rents from real property" in
satisfying the 75% and 95% gross income tests described above provided that
several conditions are met:
(1) The amount of rent generally must not be based in whole or in part
on the income or profits of any person. However, rents will not be excluded from
the term "rents from real property" solely by reason of being based on fixed
percentages of receipts or sales. Also, rents received from a tenant based on
the tenant's income from the property may qualify as "rents from real property"
if the tenant derives substantially all of its income with respect to such
property from the leasing or subleasing of such property, provided that the
tenant receives from subtenants only amounts that would be treated as rents from
real property if received directly by a real estate investment trust;
(2) The rent must not be received from a tenant as to which Shelbourne,
or any actual or constructive owner of 10% or more of Shelbourne, directly or
indirectly owns 10% or more in voting power or number of shares of such tenant
(a "Related Party Tenant"). Recently enacted legislation, which applies to rents
received or accrued beginning after December 31, 2000, provides an exception to
this rule for rents received from a "taxable real estate investment trust
subsidiary" under some circumstances;
(3) Any rent attributable to personal property leased in connection
with a lease of real property must not exceed 15% of the total rent received for
the year under the lease;
(4) Shelbourne generally must not operate or manage the property or
furnish or render services to the tenants of such property other than through an
independent contractor who is adequately compensated and from whom Shelbourne
derives no income. Beginning after 2000, services also may be provided to
tenants through a taxable real estate investment trust subsidiary subject to
applicable limitations. A real estate investment trust also may provide basic
services to tenants without having to engage independent contractors if the
services in question are of a limited type that a tax-exempt organization can
provide to its tenants without causing its rental income to be treated as
taxable under the Code, i.e., services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and that are
not considered rendered for the convenience of the occupant of the property.
However, receipts for services, whether or not rendered by an independent
contractor or, for taxable years after 2000, a taxable real estate investment
trust subsidiary, that are not customarily provided to tenants in properties of
a similar class and in the same geographic market as the relevant property is
located will not qualify as "rents from real property."
83
<PAGE>
Shelbourne anticipates that all or substantially all of the operating
partnership's rental income will qualify as "rents from real property" for
purposes of the 75% and the 95% gross income tests. The operating partnership
does not intend to charge rent for any property that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a fixed percentage of receipts or sales, as described above), and does not
intend to derive rents from any persons who, immediately after the conversion,
would be Related Party Tenants as to Shelbourne. The operating partnership does
not intend to derive rent from personal property leased in connection with real
property that exceeds 15% of the total rents under the lease. The operating
partnership intends to provide only services of a type that are customarily
provided to tenants in properties of a similar class in the geographic market in
which the property is located, and all such services will be provided through
independent contractors, except that the operating partnership or the advisor
may provide basic maintenance services of a type that could be provided by a
tax-exempt landlord to its tenants and, after 2000, may also engage taxable real
estate investment trust subsidiaries to provide permitted services to tenants.
Net income realized by Shelbourne from the sale or other disposition of
property will be treated as income from a "prohibited transaction" and, as such,
will not count towards satisfying the 95% and 75% income tests and will be
subject to a 100% penalty tax, if the property was held by the operating
partnership primarily for re-sale. Under existing law, whether property is held
primarily for re-sale is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. Accordingly, although
Shelbourne currently anticipates that the operating partnership's properties
will be held with a view to long-term appreciation and that the operating
partnership will make only such occasional sales of properties as are consistent
with its investment objectives, there can be no assurance that all of
Shelbourne's income from real property sales will be treated as qualifying
income which is not subject to the 100% penalty tax.
The operating partnership may acquire ownership interests in other
partnerships or entities treated as partnerships for income tax purposes. Prior
to acquiring such interests, the operating partnership will examine the income
and assets of such entity, and currently does not intend to acquire partnership
interests in an entity if Shelbourne's indirect share of the income or assets of
the entity after the acquisition would cause Shelbourne to exceed applicable
limits on non-qualifying income or assets.
It is possible that the operating partnership might have some gross
income that is not qualifying income for purposes of one or both of the 75% or
95% gross income tests. However, Shelbourne currently believes that its
aggregate gross income from the operating partnership will satisfy the foregoing
75% and 95% gross income tests for each taxable year commencing with
Shelbourne's first taxable year.
If Shelbourne fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it nevertheless may qualify as a real estate
investment trust for such year if it is entitled to relief under certain
provisions of the Code. These relief provisions will generally be available if:
(1) Shelbourne's failure to meet such tests was due to reasonable cause
and not due to willful neglect;
(2) Shelbourne attaches a schedule of the sources of its income to its
Federal income tax return; and
(3) Any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether Shelbourne
would be entitled to the benefit of these relief provisions in all
circumstances. Also, as discussed above under "TAXATION OF SHELBOURNE AS A REAL
ESTATE
84
<PAGE>
INVESTMENT TRUST -- General," even if these relief provisions apply, a tax would
be imposed with respect to the excess gross income.
Asset Tests
Shelbourne, at the close of each quarter of its taxable year, also must
satisfy the following three tests relating to the nature of its assets:
(1) At least 75% of the value of Shelbourne's total assets must be
represented by real estate assets, which for these purposes will include (a) its
allocable share of real estate assets held by partnerships in which Shelbourne
owns an interest including its allocable share of the real estate assets held by
the operating partnership and (b) stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or long-term (at
least five years) debt offering of Shelbourne, cash, cash items and government
securities;
(2) Not more than 25% of Shelbourne's total assets may be represented
by securities other than those in the 75% asset class; and
(3) Of the investments included in the 25% asset class, the value of
any one issuer's securities owned by Shelbourne directly or through the
operating partnership may not exceed 5% of the value of Shelbourne's total
assets and Shelbourne may not own more than 10% of the outstanding voting
securities of any one issuer, and, after 2000, may not own more than 10% of the
voting power or value of the outstanding securities (including certain debt
securities) of any one issuer other than a qualified real estate investment
trust subsidiary or a partnership or other flow-through entity. However, after
2000, Shelbourne will be permitted to own more than 10% of the securities of
taxable real estate investment trust subsidiaries provided that the total value
of these securities does not exceed 20% of the total value of all of
Shelbourne's assets.
Shelbourne anticipates that, as of the closing of the conversion,
substantially more than 75% of the fair market value of the assets indirectly
owned by Shelbourne through the operating partnership will consist of
non-residential rental real estate owned in fee. Shelbourne also expects that,
at all times, substantially more than 75% of the assets indirectly owned by
Shelbourne through the operating partnership will consist of fee ownership of
real property. The operating partnership currently intends to structure its
acquisition of any direct or indirect ownership interests in any entity taxable
as a corporation for Federal income tax purposes in a manner that Shelbourne
determines will be consistent with Shelbourne's satisfying the asset tests both
at the time of the acquisition and for the quarter in which the acquisition
occurs. Accordingly, Shelbourne believes that it will be able to meet the asset
tests described above at the time of the conversion and on a going forward
basis.
If Shelbourne should fail to satisfy the asset tests at the end of a
quarter, such failure would not cause it to lose its real estate investment
trust status if:
(1) it satisfied all of the asset tests at the close of the preceding
quarter; and
(2) the failure arose solely from changes in the market values of
Shelbourne's assets.
If the condition described in clause (2) of the preceding sentence were not
satisfied, Shelbourne could still avoid disqualification by curing the failure
within 30 days after the close of the quarter in which it arose.
85
<PAGE>
Annual Distribution Requirements
In order to qualify as a real estate investment trust, Shelbourne will
be required to make distributions (other than capital gain dividends) to its
stockholders in an amount at least equal to (1) the sum of (a) 95% (90% for
taxable years after 2000) of Shelbourne's "real estate investment trust taxable
income," defined as taxable income computed without regard to the dividends paid
deduction and excluding net capital gain, and (b) 95% of its net income (after
tax), if any, from foreclosure property, minus (2) the sum of certain items of
noncash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before Shelbourne
timely files its tax return for such year and paid on or before the first
regular dividend payment date after such declaration. Shelbourne intends to make
timely distributions sufficient to satisfy this requirement.
To the extent that Shelbourne does not distribute (or is not treated as
having distributed) all of its net capital gain or distributes (or is treated as
having distributed) at least 95% (90% after 2000), but less than 100%, of its
"real estate investment trust taxable income," as adjusted, it will be subject
to tax thereon at regular corporate tax rates. In addition, if Shelbourne fails
to distribute during each calendar year at least the sum of:
(1) 85% of its ordinary income for such year;
(2) 95% of its capital gain net income for such year less any capital
gains that Shelbourne elects to retain and pay tax on; and
(3) any undistributed taxable income from prior periods, less any
capital gains from such periods that Shelbourne elected to retain and pay tax
on,
Shelbourne will be subject to a 4% excise tax on the excess of the required
distribution over the sum of the amounts actually distributed plus any amounts
on which Shelbourne was taxed for such calendar year.
It is possible that Shelbourne may report taxable income in excess of
cash flow due to timing or other differences between the operating partnership's
inclusion of income and its actual receipt of the related cash, or due to the
operating partnership's payment of non-deductible items, such as principal
amortization or capital expenditures, in excess of non-cash deductions, such as
deductions for depreciation and accrued but unpaid interest. In that event, if
Shelbourne does not have sufficient cash or liquid assets to satisfy the
distribution requirements above, Shelbourne or the operating partnership may
find it necessary to arrange for short-term, or possibly long-term, borrowings,
issue equity or sell assets.
Under certain circumstances, Shelbourne may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year that may be included in Shelbourne's
deduction for dividends paid for the earlier year. Thus, Shelbourne may be able
to avoid being taxed on amounts distributed as deficiency dividends. However,
Shelbourne will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Failure of Shelbourne to Qualify as a Real Estate Investment Trust
If Shelbourne fails to qualify for taxation as a real estate investment
trust in any taxable year, and if certain relief provisions do not apply,
Shelbourne will be subject to tax, including any applicable alternative minimum
tax, on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which Shelbourne fails to qualify as a real estate
investment trust will not be deductible by Shelbourne in computing its taxable
income. As a result, the cash available for distribution by Shelbourne to its
86
<PAGE>
stockholders would be significantly reduced. In addition, if Shelbourne fails to
qualify as a real estate investment trust, all distributions to stockholders
will be subject to tax as ordinary income, to the extent of Shelbourne's current
and accumulated earnings and profits. In that event, subject to applicable
limitations, distributions paid to a corporate distributee may qualify for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, Shelbourne also would be disqualified from being treated as a real
estate investment trust for the four taxable years following the year during
which such qualification was lost. It is not possible to state whether in all
circumstances Shelbourne would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
Distributions by Shelbourne
Distributions not designated as capital gain dividends that are made to
taxable U.S. stockholders will be subject to tax as ordinary income to the
extent of Shelbourne's current and accumulated earnings and profits as
determined for Federal income tax purposes, and will not qualify for the
dividends received deduction in the case of taxable stockholders which are
corporations. Dividends will be taxable to stockholders even if the stockholder
uses the funds to purchase additional shares of common stock. If the amounts
distributed exceed Shelbourne's earnings and profits, the excess will be treated
as a tax-free return of capital to a taxable stockholder that will reduce the
amount of his adjusted tax basis in his common stock, and, once the taxable
stockholder's adjusted tax basis in his common stock has been reduced to zero,
as capital gain assuming that the common stock is held as a capital asset.
Dividends declared by Shelbourne in October, November, or December of
any year and payable to a stockholder of record on a specified date in any such
month are treated as both paid by Shelbourne and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by
Shelbourne on or before January 31 of the following calendar year.
Distributions made by Shelbourne to taxable stockholders that are
properly designated by Shelbourne as long-term capital gain dividends will be
subject to tax as long-term capital gains without regard to the period for which
a stockholder has held his common stock. However, corporate stockholders may be
required to treat up to 20% of such capital gain dividends as ordinary income,
and, for non-corporate stockholders, a 25% Federal income tax rate, rather than
a 20% tax rate, may apply to all or a portion of such capital gain dividends.
Shelbourne may elect to retain its net long-term capital gains rather
than distribute them. In that event, a stockholder would be deemed to receive a
capital gain dividend equal to its share of such retained capital gains, if any,
and would receive a tax credit or refund for his share of the tax paid by
Shelbourne on such undistributed capital gains. The stockholder's tax basis in
his common stock would be increased by his share of the undistributed capital
gains less his share of the tax paid by Shelbourne.
Shelbourne will notify each stockholder after the close of Shelbourne's
taxable year as to the portions of the distributions attributable to that year
which constitute ordinary income, capital gain or a return of capital, and, as
to capital gain distributions, if any, the portion that is taxable for
non-corporate stockholders as a 25% gain distribution and the portion that is
taxable as a 20% gain distribution.
Passive Activity Losses and the Investment Interest Limitation
Distributions made by Shelbourne and gain, if any, from the sale or
exchange of a stockholder's common stock will not be treated as passive activity
income. As a result, taxable stockholders generally will
87
<PAGE>
not be able to apply any "passive activity losses," including any unused passive
activity losses from your partnership, against such income or gain, except that
unused passive activity losses from your partnership generally will be
deductible (subject to any other applicable limitations) in the year a
stockholder sells all his common stock. Dividends from Shelbourne that do not
constitute a capital gain dividend or a return of capital generally will be
treated as investment income for purposes of the investment interest limitation.
However, unless a taxable stockholder elects to pay tax on such gain at ordinary
income rates, net capital gain from the sale or other disposition of shares of
common stock and capital gain dividends from Shelbourne will not be considered
investment income for purposes of the investment interest limitation. See also
"COMPARISON OF YOUR PARTNERSHIP AND SHELBOURNE -- Taxation of Taxable Limited
Partners".
Sale of Common Stock
Upon any sale or other disposition of common stock, a taxable
stockholder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (1) the amount of cash and the fair
market value of any property received on such sale or other disposition and (2)
such taxable stockholder's adjusted basis in such common stock for tax purposes.
Such gain or loss will be capital gain or loss if such taxable stockholder held
such common stock as a capital asset and, if the taxable stockholder is an
individual, estate or trust, such gain will be taxable at a maximum marginal
Federal income tax rate of 20% if such common stock has been held for more than
one year. In general, any loss recognized by a taxable stockholder upon the sale
or other disposition of common stock that has been held for six months or less
(after applying applicable holding period rules) will be treated as a long-term
capital loss to the extent of any distributions received by the taxable
stockholder from Shelbourne that were treated as long-term capital gains.
Backup Withholding
Shelbourne will report to its taxable stockholders and the Service the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any. A taxable stockholder may be subject to backup withholding at
a rate of 31% with respect to dividends unless such taxable stockholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements. A taxable stockholder that does not
provide Shelbourne with his correct taxpayer identification number also may be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the taxable stockholder's Federal income
tax liability. Additional withholding issues may arise for non-U.S.
stockholders. See "-- TAXATION OF NON-U.S. STOCKHOLDERS - Backup Withholding Tax
and Information Reporting."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Based upon a published ruling by the Service, distributions by
Shelbourne to a tax-exempt stockholder will not constitute unrelated business
taxable income, provided that the tax-exempt stockholder does not hold its
common stock as "debt-financed property" within the meaning of the Code and such
common stock is not otherwise used in an unrelated trade or business of the
tax-exempt stockholder. Subject to the same proviso, income from the sale of
common stock will not constitute unrelated business taxable income to a
tax-exempt stockholder. However, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts and qualified group legal
services plans that are exempt from taxation under Sections 501(c)(7), (9), (17)
and (20), respectively, of the Internal Revenue Code are subject to different
rules that generally will require them to treat their income from Shelbourne as
unrelated business
88
<PAGE>
taxable income unless they satisfy applicable set aside and reserve requirements
as to which they should consult their own tax advisors. In addition, a portion
of the dividends paid by Shelbourne may be treated as unrelated business taxable
income to certain U.S. private pension trusts if Shelbourne is treated as a
"pension-held real estate investment trust." Based on stock ownership
restrictions imposed by Shelbourne (see "THE CONVERSION--CONDITIONS TO THE
CONVERSION" and "DESCRIPTION OF CAPITAL STOCK -- RESTRICTIONS ON OWNERSHIP AND
TRANSFER"), Shelbourne does not anticipate that it will be a "pension-held real
estate investment trust." In any event, if Shelbourne were to become a
pension-held real estate investment trust, these rules generally would apply
only to certain U.S. pension trusts that hold more than 10% of Shelbourne's
stock.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing the U.S. Federal income taxation of the ownership
and disposition of common stock by persons that are nonresident alien
individuals, foreign corporations, foreign partnerships or foreign estates or
trusts (collectively, "Non-U.S. Holders") are complex, and no attempt is made
herein to provide more than a brief summary of such rules. Prospective Non-U.S.
Holders should consult their tax advisors to determine the impact of Federal,
state, local and foreign tax laws with regard to an investment in common stock
(including reporting requirements) in light of their individual investment
circumstances.
Distributions by Shelbourne
Distributions received by Non-U.S. Holders that are not attributable to
gain on sales or exchanges by Shelbourne of U.S. real property interests and are
not designated as capital gain dividends generally will be subject to U.S.
withholding tax at the rate of 30% unless reduced by treaty. In cases where the
dividend income from a Non-U.S. Holder's investment in common stock is
effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or
business, the Non-U.S. Holder will generally be subject to U.S. tax at graduated
rates in the same manner as U.S. stockholders, and may also be subject to the
30% branch profits tax in the case of a Non-U.S. Holder that is a foreign
corporation. Distributions in excess of current or accumulated earnings and
profits of Shelbourne to Non-U.S. Holders will not be subject to tax to the
extent that they do not exceed the Non-U.S. Holder's adjusted basis its common
stock, but rather will reduce the adjusted basis of such common stock. To the
extent that such distributions exceed the adjusted basis of a Non-U.S. Holder's
common stock, they will give rise to gain from the sale or exchange of its
common stock, the tax treatment of which is described below.
Shelbourne expects to withhold U.S. income tax at the rate of 30% on
any distribution made to a Non-U.S. Holder unless (a) a lower treaty rate
applies and the required form or certification evidencing eligibility for that
lower rate is filed with Shelbourne or (b) a Non-U.S. Holder files a Federal
Form 4224 with Shelbourne claiming that the distribution is effectively
connected income.
Distributions to a Non-U.S. Holder that are attributable to gain from
sales or exchanges by Shelbourne of United States real property interests will
be taxed under the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, Non-U.S. Holders generally would be subject to
tax on such distributions at the same rates applicable to U.S. stockholders,
subject to a special alternative minimum tax in the case of nonresident alien
individuals. If it is a corporation, a Non-U.S. Holder also may be subject to a
30% branch profits tax. Shelbourne will be required to withhold 35% of any
capital gain distribution. That amount will be creditable against the Non-U.S.
Holder's Federal income tax liability.
89
<PAGE>
Sale of Common Stock
Gain recognized by a Non-U.S. Holder upon the sale or exchange of
common stock generally will not be subject to United States taxation so long as
Shelbourne is a "domestically-controlled real estate investment trust," i.e., a
real estate investment trust in which, at all times during a specified testing
period, less than 50% in value of its stock is held directly and indirectly by
Non-U.S. Holders. Shelbourne currently anticipates that it will be a
"domestically-controlled real estate investment trust," but, because common
stock will be publicly traded, cannot assure this result. If Shelbourne ceases
to be a "domestically-controlled real estate investment trust," gain arising
from the disposition of common stock will not be subject to tax if the Non-U.S.
Holder owned 5% or less of Shelbourne's outstanding stock throughout the
five-year period ending on the date of disposition. Otherwise, the Non-U.S.
Holder would be subject to regular U.S. income tax with respect to such gain in
the same manner as a taxable U.S. stockholder, subject to any 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 a foreign corporation, and the purchaser of common
stock would be required to withhold and remit to the Service, an amount equal to
10% of the purchase price.
Notwithstanding the foregoing, a Non-U.S. Holder will be subject to tax
on gain from the sale or exchange of common stock not otherwise subject to
FIRPTA if the Non-U.S. Holder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year. In such case,
the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
Backup Withholding Tax and Information Reporting
Shelbourne must report annually to the Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
such stockholder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a Non-U.S. Holder resides.
Backup withholding tax (which generally is imposed at the rate of 31%)
generally will not apply to dividends (including any capital gain dividends)
paid on common stock to a Non-U.S. Holder at an address outside the United
States.
The payment of the proceeds from the disposition of common stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of common stock to
or though a non-U.S. office of a non-U.S. broker generally will not be subject
to backup withholding and information reporting.
The backup withholding tax is not an additional tax and may be credited
against a Non-U.S. Holder's Federal income tax liability or refunded to the
extent excess amounts are withheld, provided that the Non-U.S. Holder files an
appropriate claim for refund with the Service.
The Service has issued final Treasury Regulations regarding the backup
withholding rules as applied to Non-U.S. Holders. These final Treasury
Regulations alter the current system of backup withholding compliance and will
be effective for payments made after December 31, 2000. You should consult your
tax advisor regarding the application of the final Treasury Regulations and
their potential effect on your ownership of common stock.
90
<PAGE>
TAX STATUS OF THE OPERATING PARTNERSHIP
Substantially all of Shelbourne's investments will be held through the
operating partnership. Your partnership and Shelbourne each believe that
following the conversion, the operating partnership will be classified as either
(1) a disregarded entity if 100% of its membership interests are held by
Shelbourne directly or indirectly through one or more wholly-owned flow-through
entities (i.e., a limited liability company or a qualified real estate
investment trust subsidiary) or (2) a partnership if, in addition to Shelbourne,
at least one other person who or which is not a disregarded entity of
Shelbourne, owns an interest in the operating partnership. (In this regard,
neither the operating partnership nor any limited liability company through
which Shelbourne owns an interest in the operating partnership will elect to be
classified as an association taxable as a corporation.) Accordingly, Shelbourne
will include in its income its allocable share of operating partnership income
for purposes of the various real estate investment trust income tests and in the
computation of its real estate investment trust taxable income. Moreover, for
purposes of the real estate investment trust asset tests, Shelbourne will
include its proportionate share of assets held through the operating
partnership.
The operating partnership may acquire properties in the future by
accepting contributions of property in exchange for which the property
contributor will receive limited partnership interests in the operating
partnership that are redeemable for cash or, at Shelbourne's option, stock in
Shelbourne. The operating partnership's tax basis in any properties so
contributed generally will be the same as the tax basis of the properties in the
hands of the contributor, which tax basis will likely be less than the fair
market value of the contributed properties. This will cause Shelbourne to be
allocated lower amounts of depreciation deductions for tax purposes with respect
to such properties than would be allocated to Shelbourne if all properties were
to have a tax basis equal to their fair market value. This may result in a
higher portion of Shelbourne's distributions being taxed as dividends than would
have occurred if such properties had a tax basis equal to their fair market
value (as would be the case if they were purchased for cash).
OTHER TAXES
Shelbourne, its subsidiaries or the operating partnership may be
subject to state or local tax in various states or localities in which the
operating partnership owns property. The state or local tax treatment of
Shelbourne and the stockholders in such jurisdictions may differ from the
Federal income tax treatment described above. Consequently, prospective
stockholders should consult their tax advisors regarding the effect of state and
local tax laws upon an investment in common stock in light of their individual
investment circumstances.
TRANSFER TAXES
Transfer taxes may be imposed in certain state and local jurisdictions
in connection with the conversion.
POSSIBLE TAX LAW CHANGES
Shelbourne cannot predict whether one or more provisions affecting real
estate investment trusts or Shelbourne will be enacted, what form any final
legislative language will take if so enacted, or the effective date of any such
legislation. Other changes in the tax law could affect the tax consequences to
you of owning common stock.
91
<PAGE>
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
The discussion under this heading is intended only as a summary of
Federal income tax consequences of the conversion and owning and disposing of
common stock, and is not a substitute for careful tax planning with a tax
professional. Such tax consequences may vary depending on your individual
circumstances. Accordingly, you are urged to consult with your tax advisor about
the Federal, state, local and foreign tax consequences of the conversion and
owning and disposing of common stock.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-4 under the Securities Act of 1933, as amended.
This consent solicitation statement constitutes the prospectus filed as part of
the Registration Statement. This consent solicitation statement does not contain
all of the information included in the Registration Statement. Any statement
that we make in this prospectus concerning the contents of any contract,
agreement or document is not necessarily complete. If we have filed any such
contract, agreement or document as an exhibit to the Registration Statement you
should read the exhibit for a more complete understanding of the document or
matter involved. Each statement regarding a contract, agreement or other
document is qualified in its entirety by reference to the actual document.
Your partnership files periodic reports and other information with the
SEC under the Securities Exchange Act of 1934, as amended. You may read and copy
the Registration Statement, including the attached exhibits, and any reports,
statements or other information that are on file at the SEC's public reference
room in Washington, D.C. You can request copies of these documents, upon payment
of a duplicating fee, by writing the SEC, Public Reference Section, at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC's Internet site
(http://www.sec.gov).
You may also obtain reports and other information concerning your
partnership electronically through a variety of databases, including, among
others, the SEC's Electronic Data Gathering and Retrieval ("EDGAR") program,
Knight-Ridder Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.
We have not authorized any person to give any information or to make
any representation other than those contained in or incorporated by reference
into this consent solicitation statement in connection with our solicitation of
consents or our offering of securities. You must not rely on any other
information or representation as having been authorized by us. Neither the
delivery of this consent solicitation statement nor any distribution of common
stock offered hereby shall create under any circumstances an implication that
there has been no change in the affairs of your partnership or Shelbourne since
the date hereof or that the information set forth or incorporated by reference
herein is correct as of any time subsequent to its date. However, if any
material change occurs while this consent solicitation statement is required to
be delivered, we will amend or supplement this consent solicitation statement
accordingly. This consent solicitation statement does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities, or the
solicitation of a consent, in any jurisdiction in which, or to any person to
whom, it is unlawful to make such offer or solicitation of an offer or consent
solicitation.
We will provide you, upon written or oral request, free of charge, a
copy of any document referred to above that has been incorporated into this
consent solicitation statement by reference, except exhibits to the document.
Please send requests for these documents to Resources Capital Corp., 5 Cambridge
Center, 9th
92
<PAGE>
floor, Cambridge, MA 02142. You should make telephone requests for copies to us
at (617) 234-2000. In order to ensure timely delivery of the documents, we
should receive such requests by _______ __, 2000.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Your partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, which has been filed by your partnership with the SEC
pursuant to the Exchange Act, is incorporated herein by reference.
All documents filed by your partnership pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this consent
solicitation statement shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this consent
solicitation statement to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this consent solicitation statement.
FORWARD-LOOKING STATEMENTS
This consent solicitation statement contains forward-looking statements
about the financial condition, results of operations and business of the
operating partnership and Shelbourne. All statements, other than statements of
historical facts included in this prospectus, that address activities, events or
developments that we believe, intend or anticipate will or may occur in the
future are forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Actual results may differ materially from those
expressed or implied by the forward-looking statements for various reasons,
including those discussed under the "RISK FACTORS" section of this consent
solicitation statement. You are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date of this consent
solicitation statement.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
pursuant to this consent solicitation statement and certain tax matters related
to the Partnership and Shelbourne as described under "FEDERAL INCOME TAX
CONSEQUENCES" will be passed upon by Rosenman & Colin LLP, New York, New York.
93
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Shelbourne Properties I, Inc.
We have audited the accompanying consolidated balance sheet of Shelbourne
Properties I, Inc. and subsidiaries (the "Company") as of April 3, 2000. 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 auditing standards generally accepted
in the United States of America. 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, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company at April 3, 2000 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
April 4, 2000
Boston, Massachusetts
F-1
<PAGE>
SHELBOURNE PROPERTIES I, INC.
CONSOLIDATED BALANCE SHEET
APRIL 3, 2000
ASSETS
Cash $1,000
=====
LIABILITIES AND STOCKHOLDER'S EQUITY
Common Stock, $.01 par value $1
100 shares authorized, 100 issued and outstanding
Additional paid in capital 999
-----
$1,000
=====
NOTES:
1. ORGANIZATION
Shelbourne Properties I, Inc., a Delaware corporation was formed on
February 8, 2000 for the purpose of exchanging common stock of the
Company for the units of limited partnership interest of Integrated
Resources High Equity Partners, Series 85, A California Limited
Partnership (the "Exchange"). The company has two wholly-owned
subsidiaries, Shelbourne Properties I GP, LLC and Shelbourne Properties
I L.P. and all intercompany balances have been eliminated in
consolidation.
2. SUMMARY OF ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and commitments and contingencies at the reporting date.
Actual amounts could differ from those estimates.
Income Taxes
The Company intends to qualify and operate as a real estate investment
trust ("REIT") under the provisions of the Internal Revenue Code. Under
these provisions, the Company is required to distribute at least 95%
(90% for taxable years after 2000) of its REIT taxable income to its
shareholders to maintain the REIT qualification and not be subject to
Federal income taxes for the portion of taxable income distributed. The
Company must also satisfy certain tests concerning the nature of its
assets and income distributed and meet certain record keeping
requirements.
F-2
<PAGE>
APPENDIX A
CONSENT FORM
<PAGE>
APPENDIX A
CONSENT FORM
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
A CALIFORNIA LIMITED PARTNERSHIP
c/o American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: Cynthia Trotman
Dear Limited Partner:
Enclosed is a consent solicitation statement describing the proposed
tax-free conversion of your partnership into a real estate investment trust that
will be listed on the American Stock Exchange-listed real estate investment
trust. Your general partners are proposing the conversion as the final step of a
court-approved class action settlement. Your general partners believe that the
conversion is fair and recommend that you vote "YES" in favor of the conversion.
Your vote is important. Please complete the bottom portion of this consent form
and then return it using the enclosed pre-addressed postage paid envelope or by
facsimile to (718) 236-2641. If you have any questions, please call (888)
448-5554.
Please detach here
- --------------------------------------------------------------------------------
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA PARTNERSHIP
CONSENT SOLICITED BY RESOURCES HIGH EQUITY, INC.
CONSENT EXPIRATION DATE: ________ ___, 2000
The undersigned, a holder of units (the "Units") of limited partnership interest
in Integrated Resources High Equity Partners, Series 85, A California Limited
Partnership (the "Partnership"), hereby acknowledges receipt of the consent
solicitation statement, dated _________ ___, 2000, and votes with respect to the
conversion of the Partnership described therein, including the merger of the
Partnership with and into SHELBOURNE PROPERTIES I L.P. pursuant to the Merger
Agreement as set forth in Appendix B thereto, as follows:
YES NO ABSTAIN
(Approve conversion) (Do not approve conversion) (Same as voting NO)
|_| |-| |-|
--------------------------- Dated: ________, 2000
Signature
---------------------------
Signature (if held jointly)
---------------------------
Title
Please mark here for change of address |_|
IMPORTANT: Please sign exactly as name appears
hereon. When Units are held by joint tenants, both
should sign. When signing as an attorney, as
executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please
sign in corporate name by President or other
authorized officer. If a partnership, please sign in
partnership name. If this card is returned signed but
no vote is indicated, you will be deemed to have
voted "YES" in favor of the conversion.
<PAGE>
APPENDIX B
AGREEMENT
AND
PLAN OF MERGER
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
Merging
Integrated Resources High Equity Partners, Series 85,
A California Limited Partnership
into
Shelbourne Properties I L.P.
AGREEMENT AND PLAN OF MERGER, dated as of _______ ___, 2000 (the
"Agreement"), among Shelbourne Properties I, Inc., a Delaware corporation (the
"Company"), Shelbourne Properties I L.P., a Delaware limited partnership
("Shelbourne L.P.") and Integrated Resources High Equity Partners, Series 85, a
California Limited Partnership ("HEP").
RECITALS:
A. The Company, Shelbourne L.P. and HEP desire that HEP be merged with
and into Shelbourne L.P. pursuant to this Agreement and that each of the
outstanding units of limited partnership interest in HEP ("Units") be converted
into three (3) shares of the Company's common stock, $0.01 par value ("Common
Stock"), as contemplated by the conversion (the "Conversion") described in the
consent solicitation statement/prospectus of the Company and HEP.
B. As of the date of this Agreement, the general partners of HEP are
Resources High Equity Inc. and Presidio AGP Corp., each Delaware corporations
(collectively, the "HEP General Partners"), with an aggregate 5% partnership
interest and there are 400,010 Units outstanding. As of the date of this
Agreement, the Company is the sole limited partner of Shelbourne L.P. with a 99%
partnership interest, and Shelbourne Properties I GP, LLC, a Delaware limited
liability company, the sole member of which is the Company ("Shelbourne GP"), is
the sole general partner of Shelbourne L.P. with a 1% partnership interest.
C. The HEP General Partners and the limited partners of HEP owning a
majority of the outstanding Units have consented to the adoption and
authorization of this Agreement, the transactions contemplated hereby, and the
plan of merger set forth herein. The Company, as the sole limited partner of
Shelbourne L.P., and Shelbourne GP as the sole general partner of Shelbourne
L.P., have consented to the adoption and authorization of this Agreement, the
transactions contemplated hereby and the plan of merger set forth herein. The
adoption and authorization of this Agreement, the transactions contemplated
hereby and the plan of merger set forth herein have been approved by the Board
of Directors of the Company.
Accordingly, in consideration of the promises, and the mutual covenants
and agreements herein contained, the parties hereto agree, subject to the terms
and conditions hereinafter set forth, as follows:
B-1
<PAGE>
ARTICLE 1
THE MERGER
SECTION 1.01 MERGER OF HEP INTO SHELBOURNE L.P. At the Effective
Time (as defined in Section 1.05 hereof), HEP shall merge with and into
Shelbourne L.P. (the "Merger"), and the separate existence of HEP shall cease.
Shelbourne L.P. shall be the surviving entity in the Merger (hereinafter, the
surviving entity is referred to as the "Operating Partnership") and its
existence with all its rights, privileges, powers and franchises, shall continue
unaffected and unimpaired by the Merger.
SECTION 1.02 EFFECT OF THE MERGER. The Merger shall have the
effects provided for in (i) the California Revised Limited Partnership Act
("CRLPA") as applicable to limited partnerships formed and continuing to be
governed under the California Uniform Limited Partnership Act ("CULPA") and (ii)
the Delaware Revised Uniform Limited Partnership Act ("DRULPA").
SECTION 1.03 GENERAL PARTNER. Shelbourne GP shall be the sole
general partner of the Operating Partnership with a 1% partnership interest
therein.
SECTION 1.04 GOVERNING INSTRUMENT OF THE OPERATING PARTNERSHIP.
The Agreement of Limited Partnership of Shelbourne L.P. in effect immediately
prior to the Effective Time, shall be the Agreement of Limited Partnership of
the Operating Partnership.
SECTION 1.05 EFFECTIVE TIME. Promptly after the date hereof, a
certificate of merger evidencing the Merger shall be filed with the Secretary of
State of the State of California pursuant to CRLPA and with the Secretary of
State of the State of Delaware pursuant to DRULPA (the "Certificate of Merger").
The Merger shall become effective upon the latest of (i) the time and date of
the filing of the Certificate of Merger with the Secretary of State of
California and (ii) the time and date of filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, except that, in the event
that the Certificate of Merger specifies in accordance with DRULPA a date and
time subsequent to the date of such filing on or at which the Merger is to
become effective, the Merger shall be effective on and at such subsequent time
(such time and date when the Merger shall become effective is herein referred to
as the "Effective Time").
Article 2
EFFECT ON SECURITIES
SECTION 2.01 HEP GENERAL PARTNER INTERESTS. The general partner
interests in HEP held by the General Partners immediately prior to the Effective
Time shall, by virtue of the Merger and without any further action by the HEP
General Partners, be converted into 63,159 shares of Common Stock.
SECTION 2.02 UNITS. Each Unit that is outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
further action by the holder thereof, be converted into three (3) shares of
Common Stock.
SECTION 2.03 SHELBOURNE L.P. GENERAL PARTNER INTERESTS. The
general partner interest in Shelbourne L.P. held by Shelbourne GP immediately
prior to the Effective Time shall continue as an equal general partner interest
in the Operating Partnership immediately following
B-2
<PAGE>
the Merger, and Shelbourne GP will thereupon continue as the general partner of
the Operating Partnership.
SECTION 2.04 PARTNERSHIP INTEREST IN SHELBOURNE L.P. HELD BY THE
COMPANY. The partnership interest in Shelbourne L.P. held by the Company
immediately prior to the Effective Time shall continue as an equal limited
partner interest in the Operating Partnership immediately following the Merger,
and the Company will thereupon continue as the limited partner of the Operating
Partnership.
SECTION 2.05 COMMON STOCK. Each share of Common Stock outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any further action by the holder thereof, be cancelled and retired,
without consideration.
Article 3
MISCELLANEOUS
SECTION 3.01 TERMINATION AND AMENDMENT. At any time prior to the
filing of the Certificate of Merger pursuant to Section 1.05 hereof, this
Agreement may be terminated by the mutual agreement of the Company and the
General Partners. This Agreement shall not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 3.02 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to each of the parties.
SECTION 3.03 GENERAL PARTNER ACTIONS. Following the Effective
Time, Shelbourne GP, as a general partner of the Operating Partnership, shall be
authorized, at such time as it deems appropriate in its full discretion, to
execute, acknowledge, verify deliver, file and record, for and in the name of
the Operating Partnership, and, to the extent necessary, the general and limited
partners of HEP prior to giving effect to the Merger, any and all documents and
instruments, and shall do and perform any and all acts required by applicable
law or which Shelbourne GP deems necessary or advisable in order to effectuate
the Merger.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the date first above written.
SHELBOURNE PROPERTIES I, INC.
By: _________________________
Title:
INTEGRATED RESOURCES HIGH EQUITY
PARTNERS, SERIES 85, A CALIFORNIA
LIMITED PARTNERSHIP
By: RESOURCES HIGH EQUITY, INC.
managing general partner
By: _______________________
Title:
SHELBOURNE PROPERTIES I, L.P.
By: SHELBOURNE PROPERTIES I GP, LLC
general partner
By: SHELBOURNE PROPERTIES I, INC.,
sole member
By: _______________________
Title:
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Shelbourne's certificate of incorporation, as amended, and Bylaws
provide certain limitations on the liability of Shelbourne's directors and
officers for monetary damages to Shelbourne. The certificate of incorporation
and Bylaws obligate Shelbourne to indemnify its directors and officers, and
permit Shelbourne to indemnify its employees and other agents, against certain
liabilities incurred in connection with their service in such capacities. These
provisions could reduce the legal remedies available to Shelbourne and the
stockholders against these individuals. See "CERTAIN PROVISIONS OF DELAWARE LAW
AND SHELBOURNE'S CERTIFICATE AND BYLAWS--Limitation of Liability and
Indemnification."
Shelbourne's certificate of incorporation limits the liability of
Shelbourne's directors and officers to Shelbourne to the fullest extent
permitted from time to time by Delaware law. The DGCL permits, but does not
require, a corporation to indemnify its directors, officers, employees or agents
and expressly provides that the indemnification provided for under the DGCL
shall not be deemed exclusive of any indemnification right under any bylaw, vote
of stockholders or disinterested directors, or otherwise. The DGCL permits
indemnification against expenses, legal fees and certain other liabilities
arising out of legal actions brought or threatened against such persons for
their conduct on behalf of the corporation, provided that each person acted in
good faith and in a manner that be reasonably believed was in or not opposed to
Shelbourne's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The DGCL does not
allow indemnification of directors in the case of an action by or in the right
of the corporation (including stockholder derivative suits) unless the directors
successfully defend the actions or indemnification is ordered by the court.
Shelbourne has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other matters, that Shelbourne indemnify its directors and officers to the
fullest extent permitted by law and advance to the directors and officers all
related expenses including legal fees, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, Shelbourne must also indemnify and advance all expenses including
legal fees incurred by directors and officers seeking the enforce their rights
under the indemnification agreements and may cover directors and officers under
Shelbourne's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides additional assurance to directors and officers that
indemnification will be available because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or the Stockholders to
eliminate the rights it provides. It is the position of the SEC that
indemnification of directors and officers for liabilities under the Securities
Act of 1933, as amended (the "Securities Act") is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Registration
Statement:
Exhibit # Description
2.1 Form of Merger Agreement (included as Appendix B to the Consent
Solicitation Statement/Prospectus included as Part I of this
Registration Statement).
3.1 Form of Amended and Restated Certificate of Incorporation of
Shelbourne
3.2* Form of Amended and Restated Bylaws of Shelbourne
4.1 Form of Shareholders Rights Agreement
4.2 Certificate of Designations, Preferences and Rights of Series A
Preferred Stock
4.3 Form of Temporary Stock Certificate
5.1 Opinion of Rosenman & Colin LLP regarding legality of the shares of
the Common Stock issued
8.1 Opinion of Rosenman & Colin LLP regarding tax matters
10.1 Form of Agreement of Limited Partnership of the Operating Partnership
10.2 Form of Indemnification Agreement between Shelbourne and each of its
directors and executive officers
10.3 Form of Advisory Agreement
23.1 Consent of Rosenman & Colin LLP
23.2 Consent of Independent Accountants
24.1* Power of Attorney
99.1 Form of Consent Form (included as Appendix A to the Consent
Solicitation Statement/Prospectus included as Part I of this
Registration Statement).
99.2 Final Judgment and Order of Dismissal With Prejudice of Superior
Court of the State of California.
* Previously filed
(b) Financial Statement Schedules
The financial statement schedules are incorporated by reference to the
Integrated Resources High Equity Partners, Series 85, A California Limited
Partnership Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
II-2
<PAGE>
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;"
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report, to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the prospectus
to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been informed 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
II-3
<PAGE>
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
(e) (1) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately proceeding, or (ii) that
purports to meet the requirements of Section 10(a) (3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof."
(f) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York on April 7, 2000.
Shelbourne Properties I, Inc.
By: /s/ Michael L. Ashner
-------------------------
Michael L. Ashner
President and Chairman of the Board
-----------------
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement on Form S-4 of Shelbourne Properties
I, Inc. has been signed by the following persons in the capacities and on the
dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Michael L. Ashner
- ---------------------
Michael L. Ashner President April 7, 2000
/s/ Peter Braverman *
- ---------------------
Peter Braverman Vice President and Director April 7, 2000
/s/ David T. Hamamoto *
- -----------------------
David T. Hamamoto Director April 7, 2000
/s/ David G. King , Jr.*
- ------------------------
David G. King, Jr. Vice President and Director April 7, 2000
/s/ Robert Martin *
- ------------------------
Robert Martin Director April 7, 2000
/s/ W. Edward Scheetz *
- -----------------------
W. Edward Scheetz Director April 7, 2000
/s/ Steven Stuart *
- -----------------------
Steven Stuart Director April 7, 2000
/s/ Carolyn Tiffany *
- -----------------------
Carolyn Tiffany Vice President and Treasurer April 7, 2000
- ---------------
* By Michael L. Ashner, Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit # Description Page
- --------- ----------- ----
2.1 Form of Merger Agreement (included as Appendix B to
the Consent Solicitation Statement/Prospectus included as
Part I of this Registration Statement).
3.1 Form of Amended and Restated Certificate of Incorporation
of Shelbourne
3.2* Form of Amended and Restated Bylaws of Shelbourne
4.1 Form of Shareholders Rights Agreement
4.2 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock
4.3 Form of Temporary Stock Certificate
5.1 Form of Opinion of Rosenman & Colin LLP regarding legality of the
shares of the Common Stock issued
8.1 Form of Opinion of Rosenman & Colin LLP regarding tax matters
10.1 Form of Agreement of Limited Partnership of the Operating
Partnership
10.2 Form of Indemnification Agreement between Shelbourne and
each of its directors and executive officers
10.3 Form of Advisory Agreement
23.1 Consent of Rosenman & Colin LLP
23.2 Consent of Independent Accountants
24.1* Power of Attorney
99.1 Form of Consent Form (included as Appendix A to the
Consent Solicitation Statement/Prospectus included as
Part I of this Registration Statement).
99.2 Final Judgment and Order of Dismissal With Prejudice of
Superior Court of the State of California.
* Previously filed
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SHELBOURNE PROPERTIES I, INC.
Shelbourne Properties I, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is Shelbourne Properties
I, Inc. The date of the filing of its original
Certificate of Incorporation with the Secretary of
State of the State of Delaware was February 8, 2000
(the "Original Certificate of Incorporation").
2. This Amended and Restated Certificate of
Incorporation (the "Certificate"), which amends,
restates and integrates the provisions of the
Original Certificate of Incorporation, was duly
adopted by the Board of Directors of the Corporation
in accordance with the provisions of Sections 141(f),
242 and 245 of the General Corporation Law of the
State of Delaware, as amended from time to time (the
"DGCL"), and was duly adopted by the written consent
of the stockholders of the Corporation in accordance
with the applicable provisions of Sections 242 and
245 of the DGCL.
3. The text of the Original Certificate of
Incorporation, as amended to date, is hereby amended
and restated in its entirety to provide as herein set
forth in full.
ARTICLE I
NAME
The name of the corporation is Shelbourne Properties I, Inc.
(the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
1
<PAGE>
ARTICLE III
PURPOSES
The nature of business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 4,500,000 shares, of
which (a) 2,500,000 shares shall be common stock, par value $.01 per share (the
"Common Stock"), (b) 1,500,000 shares shall be excess stock, par value $.01 per
share (the "Excess Stock"), and (c) 500,000 shares shall be preferred stock, par
value $.01 per share (the "Preferred Stock"). As set forth in this Article IV,
the Board of Directors is authorized from time to time to establish and
designate one or more series of Preferred Stock, to fix and determine the
variations in the relative rights and preferences as between the different
series of Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designations thereof to the extent permitted by law. The rights, preferences,
voting powers and the qualifications, limitations and restrictions of the
authorized stock shall be as follows:
A. Common Stock.
Subject to all of the rights, powers and preferences of the Preferred
Stock and except as provided by law or in this Article IV (or in any certificate
of designation of any series of Preferred Stock):
1. The holders of shares of Common Stock shall be entitled to
vote for the election of directors and on all other matters requiring
stockholder action, and each holder of shares of Common Stock shall be entitled
to one vote for each share of Common Stock held by such stockholder.
2. Holders of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the Corporation
as may be declared and paid or set apart for payment upon the Common Stock and,
if any Excess Stock is then outstanding, the Excess Stock, out of any assets or
funds of the Corporation legally available therefor, but only when and as
declared by the Board of Directors or any authorized committee thereof from time
to time, and shall share ratably with the holders of Excess Stock in any such
dividend or distribution.
3. Upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation available
for distribution to the holders of Common Stock, and, if any Excess Stock is
then outstanding, Excess Stock, shall be distributed pro rata to such holders in
proportion to the number of shares of Common Stock and Excess Stock held by
each.
2
<PAGE>
B. Preferred Stock.
1. Subject to any limitations prescribed by law, the Board of
Directors is expressly authorized to provide for the issuance of the shares of
Preferred Stock in one or more series of such stock, and by filing a certificate
pursuant to applicable law of the State of Delaware, to establish or change from
time to time the number of shares to be included in each such series, and to fix
the designations, powers, preferences and the relative, participating, optional
or other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof. Any action by the Board of Directors under
this Section (B)(1) of Article IV shall require the affirmative vote of a
majority of the directors then in office (or, if a committee shall be acting on
behalf of the Board of Directors, a majority of the members of such committee
then in office, which committee was established by the affirmative vote of a
majority of the directors then in office). The Board of Directors shall have the
right to determine or fix one or more of the following with respect to each
series of Preferred Stock to the extent permitted by law:
(a) The annual or other periodic dividend rate or amount of
dividends to be paid on the shares of such series, the dividend payment dates,
the date from which dividends on all shares of such series issued shall be
cumulative, if applicable, and the extent of participation and other rights, if
any;
(b) Whether the shares of such series shall be redeemable and,
if so, the redemption price or prices, if any, for such series and other terms
and conditions on which such series may be retired and redeemed;
(c) The distinctive serial designation and maximum number of
shares of such series issuable;
(d) The right to vote, if any, with holders of shares of any
other class or series, either generally or as a condition to specified corporate
action;
(e) The amount payable upon shares of such series and the
preferences applicable thereto in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) The rights, if any, of the holders of shares of such
series to convert such shares into other classes of stock of the Corporation or
into any other securities, or to exchange such shares for other securities, and,
if so, the conversion price or prices, or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be made
and any other terms and conditions of any such conversion or exchange;
(g) The price or other consideration for which the shares of
such series shall be issued;
(h) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock (or series thereof) and whether such shares may be reissued as shares of
the same or any other class or series of stock; and
3
<PAGE>
(i) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors may deem
advisable and as are not prohibited by law.
All shares of Preferred Stock of any one series shall be
identical with each other in all respects except, if so determined by the Board
of Directors, as to the dates from which dividends thereon shall be cumulative;
and all shares of Preferred Stock shall be of equal rank with each other,
regardless of series, and shall be identical with each other in all respects
except as provided herein or in the resolution or resolutions providing for the
issue of a particular series. In the event that dividends on all shares of
Preferred Stock for any regular dividend period are not paid in full, all such
shares shall participate ratably in any partial payment of dividends for such
period in proportion to the full amounts of dividends for such period to which
they are respectively entitled.
C. Restrictions On Ownership And Transfer Of Equity Stock.
1. Definitions. For purposes of this Article IV, the following
terms shall have the meanings set forth below:
"Beneficial Ownership," when used with respect to ownership of
shares of Equity Stock by any Person, shall mean all shares of Equity Stock
which are (i) directly owned by such Person, (ii) indirectly owned by such
Person taking into account the constructive ownership rules of Section 544 of
the Code, as modified by Section 856(h) of the Code (except as expressly
provided otherwise), or (iii) beneficially owned by such Person pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended, PROVIDED THAT (x)
in determining the number of shares Beneficially Owned by a Person or group, no
share shall be counted more than once although applicable to two or more of
clauses (i), (ii) and (iii) of this definition or (in the case of a group)
although Beneficially Owned by more than one Person in such group, (y) when
applying this definition of Beneficial Ownership to a Related Party, clause
(iii) of this definition and clause (b) of the definition of "Person" shall be
disregarded and (z) for purposes of applying clause (iii) of this definition,
the Beneficial Ownership of shares of Common Stock of the Company owned by a
"group" as that term is used for purposes of Section 13(d)(3) of the Exchange
Act shall in no event include any such shares Beneficially Owned by any Related
Party who is a member of such "group." The terms "Beneficial Owner,"
"Beneficially Owns," and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or
more organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named by
the Corporation as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of Section (D)(4) of this Article IV.
"Change in Law" shall mean any change in the Code or in the
regulations promulgated thereunder that would require a reduction in the number
of votes represented by the NP Stock in order to maintain the Corporation's
status as a REIT.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
4
<PAGE>
"Constructive Ownership" shall mean ownership of shares of
Equity Stock by a Person who is or would be treated as a direct or indirect
owner of such shares of Equity Stock through the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "constructively owns" and "constructively owned" shall have correlative
meanings.
"Conversion" shall mean the conversion authorized pursuant to
that certain consent solicitation statement of the Corporation and Integrated
Resources High Equity Partners, Series 85, A California Limited Partnership
dated as of ___________ ___, 2000.
"Conversion Date" shall mean the effective date of the
Conversion.
"Equity Stock" shall mean the Common Stock and the Preferred
Stock of the Corporation.
"Market Price" of Equity Stock on any date shall mean the
average of the Closing Price for shares of such Equity Stock for the five
consecutive Trading Days ending on such date. The "Closing Price" on any date
shall mean the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the American
Stock Exchange or, if the shares of Equity Stock are not listed or admitted to
trading on the American Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Equity Stock
are listed or admitted to trading or, if the shares of Equity Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock Market,
Inc. or, if such system is no longer in use, the principal other automated
quotation system that may then be in use or, if the shares of Equity Stock are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker selected by the Board of
Directors making a market in the shares of Equity Stock.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause an increase in the percentage of any
Person's Beneficial Ownership of the outstanding shares of Equity Stock.
"Operating Partnership" shall mean Shelbourne Properties I,
L.P., a Delaware limited partnership.
"Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 8% of the number of outstanding shares of such Equity
Stock.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation,
partnership, estate, trust, association, private foundation, joint stock company
or any other entity and (b) a "group" as that term is used for purposes of
Section 13(d)(3) of the Exchange Act; but shall not include an
5
<PAGE>
underwriter that participates in a public offering of Equity Stock for a period
of 90 days following purchase by such underwriter of such Equity Stock.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who is prevented from becoming or
remaining the owner of record title to shares of Equity Stock by the provisions
of Section (D)(1) of this Article IV.
"REIT" shall mean a real estate investment trust under
Sections 856 through 860 of the Code.
"Related Limit" shall have the meaning ascribed to such term
in Section (C)(2)(a)(I) of this Article IV.
"Related Party" shall mean each of (i) the Operating
Partnership and its affiliates (including any entity which it controls) and (ii)
NorthStar Capital Investment Corp., and any of its officers, directors, and
affiliates (including any entity which it controls) and any members, officers or
directors of any such affiliates.
"Restriction Termination Date" shall mean the first day on
which the Board of Directors determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to, qualify under the
Code as a REIT.
"Taxable REIT Subsidiary" shall mean a corporation in which
the Company owns stock as to which an election under Section 856(l) of the Code
has been validly made (and not revoked).
"Trading Day" shall mean a day on which the principal national
securities exchange on which any of the shares of Equity Stock are listed or
admitted to trading is open for the transaction of business or, if none of the
shares of Equity Stock are listed or admitted to trading on any national
securities exchange, 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.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of shares (or of Beneficial Ownership of
shares) of Equity Stock, whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or otherwise.
"Transfer" (as a verb) shall have the correlative meaning.
"Trust" shall mean any separate trust created and administered
in accordance with the terms of Section (D) of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity, unaffiliated with
both the Corporation and any Prohibited Owner (and, if different than the
Prohibited Owner, the Person who would have had Beneficial Ownership of the
Shares that would have been owned of record by the Prohibited Owner), designated
by the Corporation to act as trustee of any Trust, or any successor trustee
thereof.
6
<PAGE>
2. Restriction On Ownership And Transfer.
(a) Except as provided in Section (C)(4) of this Article IV,
from and after the Conversion Date and until the Restriction Termination Date;
(I) No Person (other than a Related Party) shall Beneficially
Own shares of Equity Stock in excess of the Ownership Limit and (ii) no Related
Party shall Beneficially Own shares of Equity Stock in excess of the Ownership
Limit to the extent that ownership in excess of such limit by such Related
Party, if effective, would result in the Corporation being "closely held" within
the meaning of Section 856(h) of the Code or that the Board of Directors
determines would otherwise jeopardize the Corporation's status as a REIT for
Federal income tax purposes (the "Related Limit");
(II) Any purported Transfer (whether or not the result of a
transaction entered into through the facilities of the American Stock Exchange
or any other national securities exchange or the Nasdaq Stock Market, Inc. or
any other automated quotation system) that, if effective, would result in any
Person (other than a Related Party) Beneficially Owning shares of Equity Stock
in excess of the Ownership Limit shall be void AB INITIO as to the Transfer of
that number of shares of Equity Stock which would be otherwise Beneficially
Owned by such Person in excess of the Ownership Limit, and the intended
transferee shall acquire no rights in such shares of Equity Stock; and
(III) Any purported Transfer (whether or not the result of a
transaction entered into through the facilities of the American Stock Exchange
or any other national securities exchange or the Nasdaq Stock Market, Inc. or
any other automated quotation system) that, if effective, would result in any
Related Party Beneficially Owning shares of Equity Stock in excess of the
Related Limit shall be void AB INITIO as to the Transfer of that number of
shares of Equity Stock which would be otherwise Beneficially Owned by such
Related Party in excess of the Related Limit, and the intended transferee
Related Party shall acquire no rights in such shares of Equity Stock.
(b) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) of shares of Equity Stock that, if effective, would result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code shall be void AB INITIO as to the Transfer of that number of shares of
Equity Stock that would cause the Corporation to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee shall acquire
no rights in such shares of Equity Stock.
(c) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) of shares of Equity Stock that, if effective, would cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of the Corporation or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of the Corporation (a "Subsidiary") (other
7
<PAGE>
than a Taxable REIT Subsidiary, if the requirements of 856(d)(8) are satisfied)
within the meaning of Section 856(d)(2)(B) of the Code, shall be void AB INITIO
as to the Transfer of that number of shares of Equity Stock that would cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of the Corporation or a Subsidiary (other than a
Taxable REIT Subsidiary) within the meaning of Section 856(d)(2)(B) of the Code,
and the intended transferee shall acquire no rights in such shares of Equity
Stock.
(d) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would result in shares of Equity Stock being
beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code shall be void AB INITIO and the intended transferee shall
acquire no rights in such shares of Equity Stock.
(e) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would result in the Corporation being a "pension
held REIT" within the meaning of Section 856(h)(3)(D) of the Code shall be void
AB INITIO and the intended transferee shall acquire no rights in such shares of
Equity Stock.
(f) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would result in the Corporation failing to be a
"domestically controlled REIT" within the meaning of Section 897(h)(4)(B) of the
Code shall be void AB INITIO and the intended transferee shall acquire no rights
in such shares of Equity Stock.
(g) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the American Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would cause the Corporation to fail to qualify as a
REIT shall be void AB INITIO and the intended transferee shall acquire no rights
in such shares of Equity Stock.
3. Owners Required To Provide Information. Until the
Restriction Termination Date:
(a) Every Beneficial Owner of more than 5%, or such lower
percentages as are then required pursuant to regulations under the Code, of the
outstanding shares of any class or series of Equity Stock of the Corporation
shall, within 30 days after January 1 of each year, provide to the Corporation a
written statement or affidavit stating the name and address of such Beneficial
Owner, the number of shares of Equity Stock Beneficially Owned by such
Beneficial Owner, and a description of how such shares are held. Each such
Beneficial Owner shall provide to the Corporation such additional information as
the Corporation may request in order to
8
<PAGE>
determine the effect, if any, of such Beneficial Ownership on the Corporation's
status as a REIT and to ensure compliance with the Ownership Limit.
(b) Each Person who is a Beneficial Owner of shares of Equity
Stock and each Person (including the stockholder of record) who is holding
shares of Equity Stock for a Beneficial Owner shall provide to the Corporation a
written statement or affidavit stating such information as the Corporation may
request in order to determine the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit.
4. Exception. The Board of Directors, upon receipt of a ruling
from the Internal Revenue Service or an opinion of counsel or other evidence or
undertakings acceptable to it, may, in its sole discretion, waive the
application of the Ownership Limit or the Related Limit to a Person subject, as
the case may be, to any such limit, provided that (A) the Board of Directors
obtains such representations and undertakings from such Person as are reasonably
necessary to ascertain that such Person's Beneficial Ownership or Constructive
Ownership of shares of Equity Stock will now and in the future (i) not result in
the Corporation being "closely held" within the meaning of Section 856(h) of the
Code, (ii) not cause the Corporation to Constructively Own 10% or more of the
ownership interests of a tenant of the Corporation or a Subsidiary (other than a
Taxable REIT Subsidiary, if the requirements of Section 856(d)(8) are satisfied)
within the meaning of Section 856(d)(2)(B) of the Code and to violate the 95%
gross income test of Section 856(c)(2) of the Code, (iii) not result in the
shares of Equity Stock of the Corporation being beneficially owned by fewer than
100 persons within the meaning of Section 856(a)(5) of the Code, (iv) not result
in the Corporation being a "pension held REIT" within the meaning of Section
856(h)(3)(D), (v) not cause the Corporation to fail to be a "domestically
controlled REIT" within the meaning of Section 856(h)(4)(B) of the Code and (vi)
not cause the Corporation to fail to qualify as a REIT and (B) such Person
agrees in writing that any violation or attempted violation of (x) such other
limitation as the Board of Directors may establish at the time of such waiver
with respect to such Person or (y) such other restrictions and conditions as the
Board of Directors may in its sole discretion impose at the time of such waiver
with respect to such Person, will result, as of the time of such violation even
if discovered after such violation, in the conversion of such shares in excess
of the original limit applicable to such Person into shares of Excess Stock
pursuant to Section (D)(1) of this Article IV.
5. American Stock Exchange Transactions. Notwithstanding any
provision contained herein to the contrary, nothing in this Certificate shall
preclude the settlement of any transaction entered into through the facilities
of the American Stock Exchange or any other national securities exchange or the
Nasdaq Stock Market, Inc. or any other automated quotation system. In no event
shall the existence or application of the preceding sentence have the effect of
deterring or preventing the conversion of Equity Stock into Excess Stock as
contemplated herein.
D. Excess Stock.
1. Conversion Into Excess Stock.
(a) If, notwithstanding the other provisions contained in this
Article IV, from and after the Conversion Date and prior to the Restriction
Termination Date, there is a purported
9
<PAGE>
Transfer or Non-Transfer Event such that any Person (other than a Related Party)
would Beneficially Own shares of Equity Stock in excess of the Ownership Limit,
or such that any Person that is a Related Party would Beneficially Own shares of
Equity Stock in excess of the Related Limit, then, (i) except as otherwise
provided in Section (C)(4) of this Article IV, the purported transferee shall be
deemed to be a Prohibited Owner and shall acquire no right or interest (or, in
the case of a Non-Transfer Event, the Person holding record title to the shares
of Equity Stock Beneficially Owned by such Beneficial Owner shall cease to own
any right or interest) in such number of shares of Equity Stock which would
cause such Beneficial Owner to Beneficially Own shares of Equity Stock in excess
of the Ownership Limit or the Related Limit, as the case may be, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit or the Related
Limit, as the case may be, (rounded up to the nearest whole share) shall be
automatically converted into an equal number of shares of Excess Stock and
transferred to a Trust in accordance with Section (D)(4) of this Article IV and
(iii) the Prohibited Owner shall submit the certificates representing such
number of shares of Equity Stock to the Corporation, accompanied by all
requisite and duly executed assignments of transfer thereof, for registration in
the name of the Trustee of the Trust. Such conversion into Excess Stock and
transfer to a Trust shall be effective as of the close of trading on the Trading
Day prior to the date of the purported Transfer or Non-Transfer Event, as the
case may be, even though the certificates representing the shares of Equity
Stock so converted may be submitted to the Corporation at a later date.
(b) If, notwithstanding the other provisions contained in this
Article IV, prior to the Restriction Termination Date there is a purported
Transfer or Non-Transfer Event that, if effective, would now or in the future
(i) result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code, (ii) cause the Corporation to Constructively Own 10% or more
of the ownership interest in a tenant of the Corporation's or a Subsidiary's
real property within the meaning of Section 856(d)(2)(B) of the Code, (iii)
result in the shares of Equity Stock being beneficially owned by fewer than 100
persons within the meaning of Section 856(a)(5) of the Code, (iv) cause the
Corporation to be a "pension held REIT" within the meaning of Section
856(h)(3)(D) of the Code, (v) cause the Corporation to fail to be a
"domestically controlled REIT" within the meaning of Section 856(h)(4)(B) of the
Code, or (vi) cause the Corporation to fail to qualify as a REIT, then (x) the
purported transferee shall be deemed to be a Prohibited Owner and shall acquire
no right or interest (or, in the case of a Non-Transfer Event, the Person
holding record title of the shares of Equity Stock with respect to which such
Non-Transfer Event occurred shall cease to own any right or interest) in such
number of shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code, (B) cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or a Subsidiary's real property within the meaning
of Section 856(d)(2)(B) of the Code, (C) result in the shares of Equity Stock
being beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, (D) result in the Corporation being a "pension held REIT"
within the meaning of Section 856(h)(3)(D) of the Code, (E) cause the
Corporation to fail to be a "domestically controlled REIT" within the meaning of
Section 856(h)(4)(B) of the Code or (F) cause the Corporation to fail to qualify
as a REIT, (y) such number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust in accordance with Section (D)(4) of
this Article IV and (z) the Prohibited Owner shall submit such number of shares
of Equity Stock to the Corporation, accompanied by all requisite and duly
10
<PAGE>
executed assignments of transfer thereof, for registration in the name of the
Trustee of the Trust. Such conversion into Excess Stock and transfer to a Trust
shall be effective as of the close of trading on the Trading Day prior to the
date of the purported Transfer or Non-Transfer Event, as the case may be, even
though the certificates representing the shares of Equity Stock so converted may
be submitted to the Corporation at a later date.
(c) Upon the occurrence of such a conversion of shares of
Equity Stock into an equal number of shares of Excess Stock, such shares of
Equity Stock shall be automatically retired and canceled, without any action
required by the Board of Directors of the Corporation, and shall thereupon be
restored to the status of authorized but unissued shares of the particular class
or series of Equity Stock from which such Excess Stock was converted and may be
reissued by the Corporation as that particular class or series of Equity Stock.
2. Remedies For Breach. If the Corporation, or its designees,
shall at any time determine in good faith that a Transfer has taken place in
violation of Section (C)(2) of this Article IV or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section (C)(2) of this
Article IV, the Corporation shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer or acquisition, including,
but not limited to, refusing to give effect to such Transfer on the stock
transfer books of the Corporation or instituting proceedings to enjoin such
Transfer or acquisition, but the failure to take any such action shall not
affect the automatic conversion of shares of Equity Stock into Excess Stock and
their transfer to a Trust in accordance with Section (D)(1) of the Article IV.
3. Notice Of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of Equity Stock in violation of Section (C)(2) of
this Article IV, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV, shall immediately give written
notice to the Corporation of such event and shall provide to the Corporation
such other information as the Corporation may request in order to determine the
effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on
the Corporation's status as a REIT.
4. Ownership In Trust. Upon any purported Transfer or
Non-Transfer Event that results in Excess Stock pursuant to Section (D)(1) of
this Article IV, (i) the Corporation shall create, or cause to be created, a
Trust, and shall designate a Trustee and name a Beneficiary thereof and (ii)
such Excess Stock shall be automatically transferred to such Trust to be held
for the exclusive benefit of the Beneficiary. Any conversion of shares of Equity
Stock into shares of Excess Stock and transfer to a Trust shall be effective as
of the close of trading on the Trading Day prior to the date of the purported
Transfer or Non-Transfer Event that results in the conversion. Shares of Excess
Stock so held in trust shall remain issued and outstanding shares of stock of
the Corporation.
5. Dividend Rights. Each share of Excess Stock shall be
entitled to the same dividends and distributions, if any, (as to both timing and
amount) as may be declared by the Board of Directors with respect to each share
of Equity Stock which was converted into such Excess Stock. The Trustee, as
record holder of the shares of Excess Stock, shall be entitled to receive all
dividends and distributions and shall hold all such dividends or distributions
in trust
11
<PAGE>
for the benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any dividends or
distributions received by it (i) that are attributable to any shares of Equity
Stock that have been converted into shares of Excess Stock and (ii) the record
date of which was on or after the date that such shares were converted into
shares of Excess Stock. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock Beneficially Owned by the Person who, but for the provisions of this
Article IV, would Constructively Own or Beneficially Own the shares of Equity
Stock that were converted into shares of Excess Stock; and, as soon as
reasonably practicable following the Corporation's receipt or withholding
thereof, shall pay over to the Trust for the benefit of the Beneficiary the
dividends so received or withheld, as the case may be.
6. Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation of, or winding up of, or any distribution of the assets
of, the Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of share of the same class and
series of Equity Stock which was converted into such Excess Stock, that portion
of the assets of the Corporation that is available for distribution to the
holders of the same class and series of Equity Stock which was converted into
such Excess Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding up, or
distribution; PROVIDED, HOWEVER, that the Prohibited Owner shall not be entitled
to receive amounts in excess of, in the case of a purported Transfer in which
the Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in the conversion of the shares into shares of Excess Stock, the
product of (x) the price per share, if any, such Prohibited Owner paid for the
shares of Equity Stock and (y) the number of shares of Equity Stock which were
so converted into Excess Stock, and, in the case of a Non-Transfer Event or
purported Transfer in which the Prohibited Owner did not give value for such
shares (e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or purported Transfer, as the case may be, resulted in the
conversion of the shares into shares of Excess Stock, the product of (x) the
price per share equal to the Market Price on the date of such Non-Transfer Event
or purported Transfer and (y) the number of shares of Equity Stock which were so
converted into Excess Stock. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the
holder to no voting rights other than those voting rights which accompany a
class of capital stock under Delaware law. The Trustee, as record holder of the
Excess Stock, shall be entitled to vote all shares of Excess Stock. Any vote by
a Prohibited Owner as a purported holder of shares of Equity Stock prior to the
discovery by the Corporation that such shares of Equity Stock have been
converted into shares of Excess Stock shall, subject to applicable law, be
rescinded and shall be void AB INITIO with respect to such shares of Excess
Stock.
8. Designation Of Permitted Transferee.
(a) As soon as practicable after the Trustee acquires Excess
Stock, but in an orderly fashion so as not to materially adversely affect the
trading price of the same class and series of Equity Stock from which such
Equity Stock was converted, the Trustee shall designate
12
<PAGE>
one or more Persons as Permitted Transferees and sell to such Permitted
Transferees any shares of Excess Stock held by the Trustee; PROVIDED, HOWEVER,
that (i) any Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
and (ii) any Permitted Transferee so designated may acquire such shares of
Excess Stock without violating any of the restrictions set forth in Section
(C)(2) of this Article IV and without such acquisition resulting in the
conversion of the shares of Equity Stock so acquired into shares of Excess Stock
and the transfer of such shares to a Trust pursuant to Sections (D)(1) and
(D)(4) of this Article IV. The Trustee shall have the exclusive and absolute
right to designate Permitted Transferees of any and all shares of Excess Stock.
Prior to any transfer by the Trustee of shares of Excess Stock to a Permitted
Transferee, the Trustee shall give not less than five Trading Days prior written
notice to the Corporation of such intended transfer and the Corporation must
have waived in writing its purchase rights under Section (D)(10) of this Article
IV.
(b) Upon the designation by the Trustee of a Permitted
Transferee in accordance with the provisions of this Section (D)(8), the Trustee
shall cause to be transferred to the Permitted Transferee shares of Excess Stock
acquired by the Trustee pursuant to Section (D)(4) of this Article IV. Upon such
transfer of shares of Excess Stock to the Permitted Transferee, such shares of
Excess Stock shall be automatically converted into an equal number of shares of
Equity Stock of the same class and series from which such Excess Stock was
converted. Upon the occurrence of such a conversion of shares of Excess Stock
into an equal number of shares of Equity Stock, such shares of Excess Stock
shall be automatically retired and canceled, without any action required by the
Board of Directors of the Corporation, and shall thereupon be restored to the
status of authorized but unissued shares of Excess Stock and may be reissued by
the Corporation as Excess Stock. The Trustee shall (i) cause to be recorded on
the stock transfer books of the Corporation that the Permitted Transferee is the
holder of record of such number of shares of Equity Stock, and (ii) distribute
to the Beneficiary any and all amounts held with respect to such shares of
Excess Stock after making payment to the Prohibited Owner pursuant to Section
(D)(9) of this Article IV.
(c) If the Transfer of shares of Excess Stock to a purported
Permitted Transferee would or does violate any of the transfer restrictions set
forth in Section (C)(2) of this Article IV, such Transfer shall be void AB
INITIO as to that number of shares of Excess Stock that cause the violation of
any such restriction when such shares are converted into shares of Equity Stock
(as described in clause (b) above) and the purported Permitted Transferee shall
be deemed to be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock or Equity Stock. Such shares of Equity Stock shall be automatically
re-converted into Excess Stock and transferred to the Trust from which they were
originally Transferred. Such conversion and transfer to the Trust shall be
effective as of the close of trading on the Trading Day prior to the date of the
Transfer to the purported Permitted Transferee and the provisions of this
Article IV shall apply to such shares, including, without limitation, the
provisions of Sections (D)(8) through (D)(10) with respect to any future
Transfer of such shares by the Trust.
9. Compensation To Record Holder Of Shares Of Equity Stock
That Are Converted Into Shares Of Excess Stock. Any Prohibited Owner shall be
entitled (following acquisition of the shares of Excess Stock and subsequent
designation of and sale of Excess Stock to a Permitted Transferee in accordance
with Section (D)(8) of this Article IV or following the
13
<PAGE>
acceptance of the offer to purchase such shares in accordance with Section
(D)(10) of this Article IV) to receive from the Trustee following the sale or
other disposition of such shares of Excess Stock the lesser of (i) (a) in the
case of a purported Transfer in which the Prohibited Owner gave value for shares
of Equity Stock and which Transfer resulted in the conversion of such shares
into shares of Excess Stock, the product of (x) the price per share, if any,
such Prohibited Owner paid for the shares of Equity Stock and (y) the number of
shares of Equity Stock which were so converted into Excess Stock and (b) in the
case of a Non-Transfer Event or purported Transfer in which the Prohibited Owner
did not give value for such shares (e.g., if the shares were received through a
gift or devise) and which Non-Transfer Event or purported Transfer, as the case
may be, resulted in the conversion of such shares into shares of Excess Stock,
the product of (x) the price per share equal to the Market Price on the date of
such Non-Transfer Event or purported Transfer and (y) the number of shares of
Equity Stock which were so converted into Excess Stock or (ii) the proceeds
received by the Trustee from the sale or other disposition of such shares of
Excess Stock in accordance with Section (D)(8) or Section (D)(10) of this
Article IV. Any amounts received by the Trustee in respect of such shares of
Excess Stock and in excess of such amounts to be paid to the Prohibited Owner
pursuant to this Section (D)(9) shall be distributed to the Beneficiary in
accordance with the provisions of Section (D)(8) of this Article IV. The Trustee
and the Trust shall have no liability for, and each Beneficiary and Prohibited
Owner shall be deemed to have irrevocably waived any and all claims that it may
have against the Trustee and the Trust arising out of the disposition of shares
of Excess Stock, except for claims arising out of the gross negligence or
willful misconduct of, or any failure to make payments in accordance with this
Section (D) of this Article IV by such Trustee.
10. Purchase Right In Excess Stock. Shares of Excess Stock
shall be deemed to have been offered for sale to the Corporation or its
designee, at a price per share equal to the lesser of (i) the price per share in
the transaction that created such shares of Excess Stock (or, in the case of a
Non-Transfer Event or Transfer in which the Prohibited Owner did not give value
for the shares (e.g., if the shares were received through a gift or devise), the
Market Price on the date of such Non-Transfer Event or Transfer in which the
Prohibited Owner did not give value for the shares) or (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer for a period of 90 days following the
later of (a) the date of the Non-Transfer Event or purported Transfer which
results in such shares of Excess Stock or (b) the date the Board of Directors
first determined that a Transfer or Non-Transfer Event resulting in shares of
Excess Stock has occurred, if the Corporation does not receive a notice of such
Transfer or Non-Transfer Event pursuant to Section (D)(3) of this Article IV.
F. Preemptive Rights. No holder of shares of any class or series of
capital stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital stock
of the Corporation, whether now or hereafter authorized, (ii) any warrants,
rights or options to purchase any such capital stock or (iii) any obligations
convertible into any such capital stock or into warrants, rights or options to
purchase any such capital stock.
G. Remedies Not Limited. Except as set forth in Section (C)(5) of this
Article IV, nothing contained in this Article IV shall limit the authority of
the Corporation to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its
14
<PAGE>
stockholders by preservation of the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit and/or the Related Limit.
H. Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it, and any such determination made in
good faith shall be binding on all holders of shares of stock of the
Corporation..
I. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Shelbourne Properties I, Inc. (the
"Corporation") represented by this certificate are subject to
restrictions set forth in the Corporation's Certificate of
Incorporation which prohibit in general (a) any Person (other
than a Related Party) from Beneficially Owning shares of
Equity Stock in excess of the Ownership Limit, (b) any Related
Party from Beneficially Owning shares of Equity Stock in
excess of the Related Limit and (c) any Person from acquiring
or maintaining any ownership interest in the stock of the
Corporation that is inconsistent with (i) the requirements of
the Code pertaining to real estate investment trusts or (ii)
the Certificate of Incorporation of the Corporation, and the
holder of this certificate by his acceptance hereof consents
to be bound by such restrictions. Any purported Transfer of
Equity Stock in violation of such restrictions shall be void
AB INITIO and the Equity Stock violating such restriction,
whether as a result of a Transfer or a Non-Transfer Event,
shall automatically be converted into shares of Excess Stock
and transferred to a Trust for disposition as provided in the
Corporation's Certificate of Incorporation. Capitalized terms
used in this paragraph and not defined herein are defined in
the Certificate of Incorporation. The Corporation will furnish
without charge, to each stockholder who so requests, a copy of
the relevant provisions of the Certificate of Incorporation
and By-laws of the Corporation, a copy of the provisions
setting forth the designations, preferences, privileges and
rights of each class of stock or series thereof that the
Corporation is authorized to issue and the qualifications,
limitations and restrictions of such preferences and/or
rights. Any such request shall be addressed to the Secretary
of the Corporation or to the transfer agent named on the face
hereof."
J. Severability. Each provision of this Article IV shall be severable
and an adverse determination as to any such provision shall in no way affect the
validity of any other provision.
15
<PAGE>
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
DIRECTORS
A. General Powers; Action By Committee. The property, affairs and
business of the Corporation shall be managed by or under the direction of the
Board of Directors and, except as otherwise expressly provided by law, the
By-laws or this Certificate, all of the powers of the Corporation shall be
vested in such Board. Any action which the Board of Directors is empowered to
take may be taken on behalf of the Board of Directors by a duly authorized
committee thereof except (i) to the extent limited by Delaware law, this
Certificate or the By-laws and (ii) for any action which requires the
affirmative vote or approval of a majority or a supermajority of the Directors
then in office (unless, in such case, this Certificate or the By-laws
specifically provides that a duly authorized Committee can take such action on
behalf of the Board of Directors). A majority of the Board of Directors shall
constitute a quorum and, except as otherwise provided by the By-laws of the
Corporation or this Certificate, the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
B. Election Of Directors. Election of directors need not be by written
ballot unless the By-laws of the Corporation shall so provide.
C. Number And Terms Of Directors. The Corporation shall have a Board of
Directors initially consisting of seven (7) directors. Thereafter, the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors; PROVIDED, HOWEVER, that in no event shall the number of
directors exceed nine (9) or be less than the minimum number required by the
DGCL. A director need not be a stockholder of the Corporation.
The directors shall be classified, with respect to the term for
which they severally hold office, into three classes, as nearly equal in number
as possible. The initial Class I Directors of the Corporation shall be Steven
Stuart and Peter Braverman; the initial Class II Directors of the Corporation
shall be Michael L. Ashner and Robert Martin; and the initial Class III
Directors of the Corporation shall be David Hamamoto, David King and W. Edward
Scheetz. The initial Class I Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 2001; the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2002; and the initial Class III Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 2003. At each
annual meeting of
16
<PAGE>
stockholders, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at such meeting and entitled to
vote on the election of directors, and shall hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. The directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions
of Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or together
with holders of other such series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate and any certificates of designation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Section
(C).
During any period when the holders of any series of Preferred Stock
have the right to elect additional directors as provided for or fixed pursuant
to the provisions of Article IV of this Certificate, then upon commencement and
for the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each such
additional director shall serve until such director's successor shall have been
duly elected and qualified, or until such director's right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject to
such director's earlier death, disqualification, resignation or removal. Except
as otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
directors, shall forthwith terminate and the total authorized number of
directors of the Corporation shall be reduced accordingly.
D. Removal Of Directors. Subject to the rights, if any, of the holders
of any series of Preferred Stock to elect directors and to remove any director
whom such holders have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be removed
from office (a) only with cause and (b) only by the affirmative vote of the
holders of at least 2/3 of the shares then entitled to vote at a meeting of the
stockholders called for that purpose. At least 30 days prior to any meeting of
stockholders at which it is proposed that any director be removed from office,
written notice of such proposed removal shall be sent to the director whose
removal will be considered at the meeting. For purposes of this Certificate,
"cause," with respect to the removal of any director, shall mean only (i)
conviction of a felony, (ii) declaration of unsound mind by order of a court,
(iii) gross dereliction of duty, (iv) commission of any act involving moral
turpitude or (v) commission of an act that constitutes intentional misconduct or
a knowing violation of law if such action in either event results both in an
improper substantial personal benefit to such director and a material injury to
the Corporation.
17
<PAGE>
E. Vacancies. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect directors and to fill vacancies in the Board
of Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; PROVIDED, HOWEVER, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
ARTICLE VII
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person who has served as a director prior to, or is then
serving as a director at the time of, such repeal or modification.
ARTICLE VIII
MAINTENANCE OF REIT STATUS
Until the Board of Directors deems the maintenance of REIT status to no
longer be in the best interests of the Corporation, which determination shall
require an affirmative vote of at least two-thirds of the Directors of the
Corporation then in office, the Corporation shall seek to satisfy the
requirements for qualification as a REIT under the Code, including, but not
limited to, the
18
<PAGE>
ownership of its outstanding stock, the nature of its assets, the sources of its
income, and the amount and timing of its distributions to its stockholders.
ARTICLE IX
AMENDMENT OF BYLAWS
A. Amendment By Directors. Except as otherwise provided by law, the
By-laws of the Corporation may be amended or repealed by the Board of Directors
by the affirmative vote of a majority of the directors then in office.
B. Amendment By Stockholders. The By-laws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or at any special
meeting of stockholders called for such purpose, by the affirmative vote of at
least 2/3 of the outstanding shares of capital stock of the Corporation entitled
to vote on such amendment or repeal, voting together as a single class;
PROVIDED, HOWEVER, that if the Board of Directors recommends that stockholders
approve such amendment or repeal at such meeting of stockholders, such amendment
or repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
ARTICLE X
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this
Certificate in the manner now or hereafter prescribed by statute and this
Certificate, and all rights conferred upon stockholders herein are granted
subject to this reservation.
No amendment or repeal of this Certificate shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, then in addition to any other
vote of the holders of voting stock that is required by this Certificate or by
law, the affirmative vote of two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote on such amendment or repeal, voting
together as a single class, and the affirmative vote of two-thirds of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of this Certificate (except that in
each case only a majority rather than two-thirds shall be needed if the Board of
Directors recommends that stockholders approve such amendment or repeal);
PROVIDED, HOWEVER, that the affirmative vote of not less than 2/3 of the
outstanding shares entitled to vote on such amendment or repeal, voting together
as a single class, and the affirmative vote of not less than 2/3 of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any of the provisions of Article V, Article VI,
Article VII, Article VIII, Article IX or Article X of this Certificate.
19
<PAGE>
I, _________________________, Vice President and Secretary of the
Corporation, do make this certificate, hereby declaring that this is my act and
deed on behalf of the Corporation the _________ day of ________________, 2000.
SHELBOURNE PROPERTIES I, INC.
By: __________________________________
<PAGE>
Exhibit 4.1
SHAREHOLDER RIGHTS AGREEMENT
SHELBOURNE PROPERTIES I, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
AS RIGHTS AGENT
Dated as of ______ ___, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Certain Definitions.:...........................................................................1
Section 2. Appointment of Rights Agent.....................................................................6
Section 3. Issue of Right Certificates.....................................................................6
Section 4. Form of Right Certificates......................................................................8
Section 5. Countersignature and Registration...............................................................9
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates.........................................9
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights..................................10
Section 8. Cancellation and Destruction of Right Certificates.............................................12
Section 9. Reservation and Availability of Preferred Stock................................................13
Section 10. Preferred Stock Record Date....................................................................14
Section 11. Adjustment of Exercise Price, Number and Kind of Shares
or Number of Rights............................................................................14
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.....................................22
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...........................22
Section 14. Fractional Rights and Fractional Shares........................................................25
Section 15. Rights of Action...............................................................................25
Section 16. Agreement of Right Holders.....................................................................25
Section 17. Right Certificate Holder Not Deemed a Shareholder..............................................26
Section 18. Concerning the Rights Agent....................................................................26
Section 19. Merger or Consolidation or Change of Name of Rights Agent......................................27
Section 20. Duties of Rights Agent.........................................................................27
Section 21. Change of Rights Agent.........................................................................29
Section 22. Issuance of New Right Certificates.............................................................30
Section 23. Redemption.....................................................................................31
Section 24. Exchange.......................................................................................31
Section 25. Notice of Certain Events.......................................................................33
Section 26. Notices........................................................................................34
Section 27. Supplements and Amendments.....................................................................34
Section 28. Successors.....................................................................................35
Section 29. Determinations and Actions by the Board of Directors...........................................35
Section 30. Benefits of this Agreement.....................................................................35
Section 31. Severability...................................................................................36
Section 32. Governing Law..................................................................................36
Section 33. Counterparts...................................................................................36
Section 34. Descriptive Headings...........................................................................36
Exhibit A -- Certificate of Designation of Series A Junior
Participating Cumulative Preferred Stock.....................................................38
Exhibit B -- Form of Right Certificate......................................................................45
</TABLE>
(i)
<PAGE>
SHAREHOLDER RIGHTS AGREEMENT
Agreement, dated as of ______ ____, 2000, between Shelbourne
Properties I, Inc., a Delaware corporation (the "Company"), and American Stock
Transfer & Trust Company (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company desires to
provide shareholders of the Company with the opportunity to benefit from the
long-term prospects and value of the Company and to ensure that shareholders of
the Company receive fair and equal treatment in the event of any proposed
takeover of the Company; and
WHEREAS, on ______ ___, 2000, the Board of Directors of the
Company authorized and declared a dividend distribution of one Right (as such
term is hereinafter defined) for each outstanding share of Common Stock, par
value $0.01 per share, of the Company outstanding as of the close of business on
______ ___, 2000 (the "Record Date"), and contemplates the issuance of one Right
for each share of Common Stock of the Company issued (whether originally issued
(including upon the conversion of Excess Stock (as such term is defined in the
Company's Certificate of Incorporation, as amended), into Common Stock) or sold
from the Company's treasury) between the Record Date and the earlier of the
Distribution Date or the Expiration Date (as such terms are hereinafter
defined), each Right initially representing the right to purchase one one-
thousandth of a share of Series A Junior Participating Cumulative Preferred
Stock of the Company having the rights, powers and preferences set forth on
Exhibit A hereto, upon the terms and subject to the conditions hereinafter set
forth (the "Rights"); and
WHEREAS, the Company desires to appoint the Rights Agent to
act as rights agent hereunder, in accordance with the terms and conditions
hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of more than 15% of the Common Shares (as such term is hereinafter defined) then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary (as such
term is hereinafter defined) of the Company, (iii) any Related Party (as such
term is hereinafter defined), (iv) any employee benefit plan or compensation
arrangement of the Company or any Subsidiary of the Company or (v) any Person
holding shares of Common Stock of the Company organized, appointed or
established by the Company or any Subsidiary of the Company for or pursuant to
the terms of any such employee benefit plan or compensation
1
<PAGE>
arrangement (the Persons described in clauses (i) through (v) above are referred
to herein as "Exempt Persons").
Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition by the Company of Common
Shares which, by reducing the number of Common Shares outstanding, increases the
proportionate number of Common Shares beneficially owned by such Person to more
than 15% of the Common Shares then outstanding; provided, however, that if a
Person shall become the Beneficial Owner of more than 15% of the Common Shares
then outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional shares (other than pursuant to a stock split, stock dividend or
similar transaction) of Common Shares and immediately thereafter be the
Beneficial Owner of more than 15% of the Common Shares then outstanding, then
such Person shall be deemed to be an "Acquiring Person." In addition,
notwithstanding the foregoing, a Person shall not be an "Acquiring Person" if
the Board of Directors of the Company determines that a Person who would
otherwise be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this Section 1(a), has become such inadvertently, and such Person
divests as promptly as practicable (or within such period of time as the Board
of Directors determines is reasonable) a sufficient number of shares of Common
Stock of the Company so that such person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this Section 1(a).
(b) "Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations (the
"Rules") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement; provided, however, that no
Person who is a director or officer of the Company shall be deemed an Affiliate
or an Associate of any other director or officer of the Company solely as a
result of his or her position as director or officer of the Company.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, beneficially owns (as determined pursuant to
Rule 13d-3 of the Rules under the Exchange Act, as in effect on the date of this
Agreement);
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has:
(A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time or upon the satisfaction of any conditions or
both) pursuant to any agreement, arrangement or understanding (whether or not in
writing) (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
or upon the exercise of conversion rights, exchange rights, rights (other than
the Rights), warrants or options, or otherwise; provided, however, that a Person
2
<PAGE>
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (1)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; (2) securities
issuable upon exercise of these Rights at any time prior to the occurrence of a
Triggering Event; or (3) securities issuable upon exercise of Rights from and
after the occurrence of a Triggering Event, which Rights were acquired by such
Person or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Sections 3(a), 11(i) or 22 hereof; or (B) the
right to vote pursuant to any agreement, arrangement or understanding (whether
or not in writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this clause
(B) if the agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the Rules of the
Exchange Act and (2) is not also then reportable by such person on Schedule 13D
under the Exchange Act (or any comparable or successor report); or (C) the right
to dispose of pursuant to any agreement, arrangement or understanding (whether
or not in writing) (other than customary arrangements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such Person
or any of such Person's Affiliates or Associates has any agreement, arrangement
or understanding (whether or not in writing) (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in clause (B) of
Section 1(d)(ii) hereof) or disposing of any securities of the Company;
provided, however, that (1) no Person engaged in business as an underwriter of
securities shall be deemed the Beneficial Owner of any securities acquired
through such Person's participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of forty (40) days after the date
of such acquisition, (2) no Person who is a director or an officer of the
Company or a partner of the Operating Partnership shall be deemed, as a result
of his or her position as a director or officer of the Company or a partner of
the Operating Partnership or as a result of any action taken in any such
capacity, the Beneficial Owner of any securities of the Company that are
beneficially owned by any other director or officer of the Company or any other
partner of the Operating Partnership, and (3) the Beneficial Ownership of
securities of the Company owned by a Group shall in no event include any such
securities Beneficially Owned by Related Parties who are members of such Group.
(e) "Business Day" shall mean any day other than a Saturday, Sunday, or
a day on which banking institutions in the City of New York, New York are
authorized or obligated by law or executive order to close.
(f) "Certificate" shall mean the Company's Amended and Restated
Certificate of Incorporation as in effect at the effective time of the
Conversion.
(g) "Close of Business" on any given date shall mean 5:00 P.M., New
York, New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York, New York time, on the next
succeeding Business Day.
3
<PAGE>
(h) "Common Shares" shall mean shares of Common Stock of the Company
and shares of Excess Stock which are issued upon the conversion of shares of
Common Stock of the Company into Excess Stock.
(i) "Common Stock" when used in reference to the Company shall mean the
common stock, par value $0.01 per share, of the Company or any other shares of
capital stock of the Company into which such stock shall be reclassified or
changed. "Common Stock" when used with reference to any Person other than the
Company organized in corporate form shall mean (i) the capital stock or other
equity interest of such Person with the greatest voting power or (ii) the equity
securities or other equity interest having power to control or direct the
management of such Person or, if such Person is a Subsidiary of another Person,
the Person orPersons which ultimately control such first-mentioned Person and
which have issued any such outstanding capital stock, equity securities or
equity interest. "Common Stock" when used with reference to any Person not
organized in corporate form shall mean units of beneficial interest which shall
be entitled to exercise the greatest voting power of such Person or, in the case
of a limited partnership, shall have the power to remove or otherwise replace
the general partner or partners.
(j) "Conversion" shall have the meaning ascribed thereto in the
Certificate.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning defined in Section3(a)
hereof.
(m) "Exercise Price" shall have the meaning defined in Section 4(a)
hereof.
(n) "Expiration Date" and "Final Expiration Date" shall have the
meanings set forth in Section 7(a) hereof.
(o) "Fair Market Value" of any securities or other property shall be as
determined in accordance with Section 11(d) hereof.
(p) "Group" shall have the meaning ascribed thereto in clause (b) of
the definition of "Person."
(q) "Operating Partnership" shall mean Shelbourne Properties I L.P., a
Delaware limited partnership, and any successor thereto, and "Operating
Partnership Agreement" shall mean the Agreement of Limited Partnership of the
Operating Partnership.
(r) "Person" (a) shall mean an individual, a corporation, a
partnership, an association, a joint stock company, a trust, a business trust, a
government or political subdivision, any unincorporated organization, or any
other association or entity, and (b) a "group" as that term is used for purposes
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (any such
group under this clause (b), a "Group").
(s) "Preferred Stock" shall mean shares of Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share, of the
Company having the rights and preferences set forth in the form of Certificate
of Designation attached hereto as Exhibit A.
4
<PAGE>
(t) "Preferred Stock Equivalents" shall have the meaning set forth in
Section 11(b) hereof.
(u) "Principal Party" shall have the meaning defined in Section 13(b)
hereof.
(v) "Redemption Price" shall have the meaning defined in Section 23
hereof.
(w) "Related Party" shall have the meaning ascribed thereto in the
Certificate.
(x) "Right Certificate" shall have the meaning set forth in Section
3(a).
(y) "Section 11(a)(ii) Event" shall have the meaning set forth in
Section 11(a)(ii) hereof.
(z) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(aa) "Section 13 Event" shall mean any event described in clauses (x),
(y) or (z) of Section 13(a) hereof.
(bb) "Section 24(a)(i) Exchange Ratio" shall have the meaning set forth
in Section 24(a)(i) hereof.
(cc) "Section 24(a)(ii) Exchange Ratio" shall have the meaning set
forth in Section 24(a)(ii) hereof.
(dd) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(ee) "Stock Acquisition Date" shall mean the date of the first public
announcement (which for purposes of this definition shall include, without
limitation, the issuance of a press release or the filing of a publicly-
available report or other document with the Securities and Exchange Commission
or any other governmental agency) by the Company or an Acquiring Person that an
Acquiring Person has become such.
(ff) "Subsidiary" shall mean, with reference to any Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions of such corporation or other entity are at the time directly or
indirectly beneficially owned or otherwise controlled by such Person either
alone or together with one or more Affiliates of such Person.
(gg) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(hh) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
5
<PAGE>
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date (as
hereinafter defined in Section 3(a)) also be the holders of the Common Stock of
the Company) in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time to time appoint
such Co-Rights Agents as it may deem necessary or desirable. In the event the
Company appoints one or more Co-Rights Agents, the respective duties of the
Rights Agent and any Co-Rights Agents shall be as the Company shall determine.
The Company shall give ten (10) days prior written notice to the Rights Agent of
the appointment of one or more Co-Rights Agents and the respective duties of the
Rights Agent and any such Co-Rights Agents. The Rights Agent shall have no duty
to supervise, and shall in no event be liable for, the acts or omissions of any
such Co-Rights Agent.
Section 3. Issue of Right Certificates.
(a) From the date hereof until the earlier of (i) the Close of
Business on the tenth calendar day after the Stock Acquisition Date or (ii) the
Close of Business on the tenth Business Day (or such other calendar day, if any,
as the Board of Directors may determine in its sole discretion) after the date a
tender or exchange offer by any Person, other than an Exempt Person, is first
published or sent or given within the meaning of Rule 14d-4(a) of the Exchange
Act, or any successor rule, if, upon consummation thereof, such Person would be
the Beneficial Owner of more than 15% of the Common Shares then outstanding
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights) (the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for the Common Stock of
the Company registered in the names of the holders of the Common Stock of the
Company (which certificates for Common Stock of the Company shall be deemed also
to be certificates for Rights) and not by separate certificates, and (y) the
Rights will be transferable only in connection with the transfer of the
underlying shares of Common Stock of the Company. As soon as practicable after
the Distribution Date, the Rights Agent will, at the Company's expense, send, by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock of the Company as of the Close of Business on the Distribution Date, at
the address of such holder shown on the records of the Company, one or more
certificates, in substantially the form of Exhibit B hereto (the "Right
Certificates"), evidencing one Right for each share of Common Stock of the
Company so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of Common Stock of the Company has
been made pursuant to Section 11(o) hereof, the Company may make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
at the time of distribution of the Right Certificates, so that Right
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Close of Business
on the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) With respect to certificates for the Common Stock of the
Company issued prior to the Close of Business on the Record Date, the Rights
will be evidenced by such certificates for the Common Stock of the Company on or
until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), and the registered holders of the Common Stock of
the Company also shall be the registered holders of the associated Rights.
6
<PAGE>
Until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), the transfer of any of the certificates for the
Common Stock of the Company outstanding prior to the date of this Agreement
shall also constitute the transfer of the Rights associated with the Common
Stock of the Company represented by such certificate.
(c) Certificates for the Common Stock of the Company issued
after the Record Date, but prior to the earlier of the Distribution Date or the
redemption, expiration or termination of the Rights, shall be deemed also to be
certificates for Rights, and shall bear a legend, substantially in the form set
forth below:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Shareholder Rights Agreement
between Shelbourne Properties I, Inc. and American Stock Transfer &
Trust Company, as Rights Agent, dated as of ______ ___, 2000, as
amended, restated, renewed or extended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
Shelbourne Properties I, Inc. and the stock transfer administration
office of the Rights Agent. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
Shelbourne Properties I, Inc. may redeem the Rights at a redemption
price of $0.001 per Right, subject to adjustment, under the terms of
the Rights Agreement.
Shelbourne Properties I, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances, Rights issued to or held by
Acquiring Persons or any Affiliates or Associates thereof (as defined
in the Rights Agreement), and any subsequent holder of such Rights, may
become null and void. The Rights shall not be exercisable, and shall be
void so long as held, by a holder in any jurisdiction where the
requisite qualification, if any, to the issuance to such holder, or the
exercise by such holder, of the Rights in such jurisdiction shall not
have been obtained or be obtainable. With respect to such certificates
containing the foregoing legend, the Rights associated with the Common
Stock of the Company represented by such certificates shall be
evidenced by such certificates alone until the Distribution Date (or
the earlier redemption, expiration or termination of the Rights), and
the transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the Common Stock of the Company
represented by such certificates. In the event that the Company
purchases or acquires any shares of Common Stock of the Company after
the Record Date but prior to the Distribution Date, any Rights
associated with such Common Stock of the Company shall be deemed
canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the shares of Common Stock of the
Company which are no longer outstanding. The failure to print the
foregoing legend on any such certificate representing Common Stock of
the Company or any defect therein shall not affect in any manner
whatsoever the application or interpretation of the provisions of
Section 7(e) hereof.
7
<PAGE>
(d) Notwithstanding anything in this Agreement to the
contrary, in the event that prior to the earlier of the Distribution Date or the
redemption, expiration or termination of the Rights, any shares of Common Stock
are retired and canceled in connection with the conversion of such shares to
Excess Stock pursuant to Article IV(D) of the Company's Certificate of
Incorporation, as amended, then the associated Rights shall be deemed to be
similarly retired and canceled.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to
purchase shares and of assignment and certificate to be printed on the reverse
thereof) shall each be substantially in the form of Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law, rule or regulation or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to customary usage. The Right Certificates shall be in a
machine printable format and in a form reasonably satisfactory to the Rights
Agent. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates, whenever distributed, shall be dated as of the Record Date, shall
show the date of countersignature, and on their face shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price set forth therein (the
"Exercise Price"), but the number of such shares and the Exercise Price shall be
subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person)
who becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding (whether or not in writing)
regarding the transferred Rights, the shares of Common Stock of the Company
associated with such Rights or the Company or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of Section
7(e) hereof, and any Right Certificate issued pursuant to Section 6, Section 11
or Section 22 upon transfer, exchange, replacement or adjustment of any other
Right Certificate referred to in this sentence, shall have deleted therefrom the
second sentence of the existing legend on such Right Certificate and in
substitution therefor shall contain the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or an Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). This Right Certificate and the Rights
represented hereby may become null and void under certain circumstances
as specified in Section 7(e) of
8
<PAGE>
the Rights Agreement. The Company shall give notice to the Rights Agent
promptly after it becomes aware of the existence and identity of any
Acquiring Person or any Associate or Affiliate thereof. The Company
shall instruct the Rights Agent in writing of the Rights which should
be so legended. The failure to print the foregoing legend on any such
Right Certificate or any defect therein shall not affect in any manner
whatsoever the application or interpretation of the provisions of
Section 7(e) hereof.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board of Directors, or its President or any Vice
President and by its Treasurer or any Assistant Treasurer, or by its Secretary
or any Assistant Secretary, either manually or by facsimile signature, and shall
have affixed thereto the Company's seal or a facsimile thereof which shall be
attested to by the Secretary or any Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by an authorized signatory of the Rights Agent and shall not be
valid for any purpose unless so countersigned, and such countersignature upon
any Right Certificate shall be conclusive evidence, and the only evidence, that
such Right Certificate has been duly countersigned as required hereunder. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent, and issued and delivered by the Company with the
same force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Company; and any Right Certificates may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at one of its offices designated as the appropriate
place for surrender of Right Certificates upon exercise or transfer, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the Expiration
Date, any Right Certificate or Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Certificates, entitling
the registered holder to purchase a like number of one one-thousandths of a
share of Preferred Stock (or following a Triggering Event, preferred stock,
cash, property, debt securities, Common Stock of the Company or any combination
thereof) as the Right Certificate or Certificates surrendered then entitled such
holder to purchase and at the same Exercise Price. Any registered holder
9
<PAGE>
desiring to transfer, split up, combine or exchange any Right Certificate shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Certificates to be transferred, split up, combined or
exchanged, with the form of assignment and certificate duly executed, at the
office or offices of the Rights Agent designated for such purpose. Neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Right Certificate or Certificates, as the case may be, as so
requested. The Company may require payment by the registered holder of a Right
Certificate, of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate, if mutilated, the
Company will execute and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of
any Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate Exercise
Price for the total number of one one-thousandths of a share of Preferred Stock
(or other securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercised, at or prior to the earlier of (i) the
Close of Business on the tenth anniversary of the date of this Agreement (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof (the earliest of (i), (ii) or (iii)
being herein referred to as the "Expiration Date"). Except as set forth in
Section 7(e) hereof and notwithstanding any other provision of this Agreement,
any Person who prior to the Distribution Date becomes a record holder of shares
of Common Stock of the Company may exercise all of the rights of a registered
holder of a Right Certificate with respect to the Rights associated with such
shares of Common Stock of the Company in accordance with the provisions of this
Agreement, as of the date such Person becomes a record holder of shares of
Common Stock of the Company.
10
<PAGE>
(b) The Exercise Price for each one one-thousandth of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be
eighty-six and 29/100 dollars ($86.29), shall be subject to adjustment from time
to time as provided in Section 11 and Section 13 hereof and shall be payable in
lawful money of the United States of America in accordance with Section 7(c)
below.
(c) As promptly as practicable following the Distribution
Date, the Company shall deposit with a corporation, trust, bank or similar
institution in good standing organized under the laws of the United States or
any State of the United States, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by a federal or state authority (such institution is hereinafter
referred to as the "Depositary Agent"), certificates representing the shares of
Preferred Stock that may be acquired upon exercise of the Rights and the Company
shall cause such Depositary Agent to enter into an agreement pursuant to which
the Depositary Agent shall issue receipts representing interests in the shares
of Preferred Stock so deposited. Upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase and the
certificate on the reverse side thereof duly executed, accompanied by payment of
the Exercise Price for the shares to be purchased and an amount equal to any
applicable transfer tax (as determined by the Rights Agent) in cash, or by
certified check or bank draft payable to the order of the Company, the Rights
Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) requisition
from the Depositary Agent (or make available, if the Rights Agent is the
Depository Agent) depository receipts or certificates for the number of one
one-thousandths of a share of Preferred Stock to be purchased and the Company
hereby irrevocably authorizes the Depositary Agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the amount of
cash, if any, to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash or distribute other
property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash or other property are
available for distribution by the Rights Agent, if and when appropriate. The
payment of the Exercise Price may be made in cash or by certified or bank check
payable to the order of the Company, or by wire transfer of immediately
available funds to the account of the Company (provided that notice of such wire
transfer shall be given by the holder of the related Right to the Rights Agent).
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary,from and after the first occurrence of a Section 11(a)(ii) Event or
Section 13 Event, any Rights beneficially owned by (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee
11
<PAGE>
of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person)
who becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any Associate or Affiliate of an
Acquiring Person) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights, the shares of Common Stock of the Company
associated with such Rights or the Company, or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall be null and void without any further action and no holder of
such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Right Certificates or other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or any Affiliates or
Associates of an Acquiring Person or any transferee of any of them hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of Rights upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company.
12
<PAGE>
Section 9. Reservation and Availability of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any authorized and issued shares of Preferred Stock held in
its treasury, the number of shares of Preferred Stock that will be sufficient to
permit the exercise in full of all outstanding and exercisable Rights. Upon the
occurrence of any events resulting in an increase in the aggregate number of
shares of Preferred Stock issuable upon exercise of all outstanding Rights in
excess of the number then reserved, the Company shall make appropriate increases
in the number of shares so reserved.
(b) The Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares of Preferred Stock
issued or reserved for issuance to be listed, upon official notice of issuance,
upon the principal national securities exchange, if any, upon which the Common
Stock of the Company is listed or, if the principal market for the Common Stock
of the Company is not on any national securities exchange, to be eligible for
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any successor thereto or other comparable quotation system.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing and (iii) cause such registration statement to remain
effective (with a prospectus that at all times meets the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities or (B) the Expiration Date. The Company
will also take such action as may be appropriate under, and which will ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed ninety (90) days after the date
determined in accordance with the provisions of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon such suspension,
the Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect, in each case with prompt
written notice to the Rights Agent. Notwithstanding any such provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all shares of Preferred Stock
delivered upon the exercise of the Rights shall, at the time of delivery of the
certificates or depositary receipts for such shares (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable.
13
<PAGE>
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any certificates for shares of Preferred Stock upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or in respect of the issuance or
delivery of securities in a name other than that of, the registered holder of
the Right Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for securities in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Right Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for Preferred Stock (including any fraction of a share of Preferred
Stock) is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of the shares of Preferred Stock represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise Price (and any applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
transfer books of the Company are open; and further provided, however, that if
delivery of shares of Preferred Stock is delayed pursuant to Section 9(c), such
Person shall be deemed to have become the record holder of such shares of
Preferred Stock only when such shares first become deliverable. Prior to the
exercise of the Right evidenced thereby, the holder of a Right Certificate shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or
Number of Rights. The Exercise Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)
(i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
14
<PAGE>
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of a Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of a Right. If an
event occurs which would require an adjustment under both Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
(ii) Subject to the provisions of Section 24 hereof,
in the event any Person, alone or together with its Affiliates and Associates,
shall become an Acquiring Person (a "Section 11(a)(ii) Event"), then promptly
following any such occurrence, proper provision shall be made so that each
holder of a Right, except as provided in Section 7(e) hereof, shall thereafter
have a right to receive, upon exercise thereof at the then current Exercise
Price in accordance with the terms of this Agreement, such number of shares of
Preferred Stock of the Company as shall equal the result obtained by (x)
multiplying the then current Exercise Price by the then number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, whether
or not such Right was then exercisable, and dividing that product by (y) 50% of
the Fair Market Value per one one-thousandth of a share of the Preferred Stock
(determined pursuant to Section 11(d)) on the date of the occurrence of a
Section 11(a)(ii) Event (such number of shares being referred to as the
"Adjustment Shares").
(iii) In lieu of issuing any shares of Preferred
Stock in accordance with Section 11(a)(ii) hereof, the Company, acting by or
pursuant to resolution of the Board of Directors, may, and in the event that the
number of shares of Preferred Stock which are authorized by the Company's
Certificate of Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights is not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii) of this Section 11(a), the Company, acting by or pursuant to resolution of
the Board of Directors, shall: (A) determine the excess of (X) the Fair Market
Value of the Adjustment Shares issuable upon the exercise of a Right (the
"Current Value") over (Y) the Exercise Price attributable to each Right (such
excess being referred to as the "Spread") and (B) with respect to all or a
portion of each Right (subject to Section 7(e) hereof), make adequate provision
to substitute for the Adjustment Shares, upon payment of the applicable Exercise
Price, (1) cash, (2) a reduction in the Exercise Price, (3) Preferred Stock
Equivalents which the Board of Directors has deemed to have the same value as
shares of Common Stock of the Company, (4) debt securities of the Company, (5)
other assets of the Company or (6) any combination of the foregoing which, when
added to any shares of Preferred Stock issued upon such exercise, has an
aggregate value equal to the Current Value, where such aggregate value has been
determined by the Board of Directors based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors; provided,
however, that if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within thirty (30) days following the later
of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on
which the Company's right of redemption pursuant to Section 23(a) expires (the
later of (x) and (y) being referred to herein as the "Section
15
<PAGE>
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Exercise Price, shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. If the Board of Directors shall determine in good faith that it is
likely that sufficient additional shares of Preferred Stock could be authorized
for issuance upon exercise in full of the Rights, the 30-day period set forth
above may be extended to the extent necessary, but not more than ninety (90)
days after the Section 11(a)(ii) Trigger Date, in order that the Company may
seek stockholder approval for the authorization of such additional shares (such
period, as it may be extended, being referred to herein as the "Substitution
Period"). To the extent that the Company determines that some action need be
taken pursuant to the first and/or second sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended and a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Preferred Stock shall be the Fair Market Value (as determined
pursuant to Section 11(d) hereof) per share of the Preferred Stock on the
Section 11(a)(ii) Trigger Date and the value of any Preferred Stock Equivalent
shall be deemed to have the same value as the Preferred Stock on such date.
(b) If the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within forty-five (45) calendar days after such record
date) to subscribe for or purchase Preferred Stock (or securities having the
same or more favorable rights, privileges and preferences as the shares of
Preferred Stock ("Preferred Stock Equivalents")) or securities convertible into
Preferred Stock or Preferred Stock Equivalents at a price per share of Preferred
Stock or per share of Preferred Stock Equivalents (or having a conversion price
per share, if a security convertible into Preferred Stock or Preferred Stock
Equivalents) less than the Fair Market Value (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock which the aggregate offering price of the total number of shares of
Preferred Stock and/or Preferred Stock Equivalents to be offered (and the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Fair Market Value and the denominator of which
shall be the number of shares of Preferred Stock outstanding on such record
date, plus the number of additional shares of Preferred Stock and Preferred
Stock Equivalents to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon the exercise
of a Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of a Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be the Fair Market Value
thereof determined in accordance with Section 11(d) hereof. Shares of Preferred
Stock owned by or held for the account of the Company shall
16
<PAGE>
not be deemed outstanding for the purpose of any such computation. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall be adjusted to be the Exercise Price which would then be in effect if such
record date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), of evidences of indebtedness, cash (other
than a regular periodic cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
convertible securities, subscription rights or warrants (excluding those
referred to in Section 11(b)), the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per one one-thousandth of a share of Preferred Stock on such record date, less
the Fair Market Value (as determined pursuant to Section 11(d) hereof) of the
portion of the cash, assets or evidences of indebtedness so to be distributed or
of such convertible securities, subscription rights or warrants applicable to
one one-thousandth of a share of Preferred Stock and the denominator of which
shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per one one-thousandth of a share of Preferred Stock; provided, however, that in
no event shall the consideration to be paid upon the exercise of a Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of a Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to be the Exercise Price
which would be in effect if such record date had not been fixed.
(d) For the purpose of this Agreement, the "Fair Market Value"
of any share of Preferred Stock, Common Stock or any other stock or any Right or
other security or any other property shall be determined as provided in this
Section 11(d).
(i) In the case of a publicly-traded stock or other
security, the Fair Market Value on any date shall be deemed to be the average of
the daily closing prices per share of such stock or per unit of such other
security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that in the event
that the Fair Market Value per share of any share of stock is determined during
a period following the announcement by the issuer of such stock of (x) a
dividend or distribution on such stock payable in shares of such stock or
securities convertible into shares of such stock or (y) any subdivision,
combination or reclassification of such stock, and prior to the expiration of
the 30 Trading Day period after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the Fair Market Value shall be
properly adjusted to take into account ex-dividend trading. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting
17
<PAGE>
system with respect to securities listed or admitted to trading on the American
Stock Exchange or, if the securities are not listed or admitted to trading on
the American Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading; or, if not listed or admitted to trading on any national securities
exchange, the last quoted price (or, if not so quoted, the average of the last
quoted high bid and low asked prices) in the over-the-counter market, as
reported by NASDAQ or such other system then in use; or, if on any such date no
bids for such security are quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such security selected by the Board of Directors of the Company. If
on any such date no market maker is making a market in such security, the Fair
Market Value of such security on such date shall be determined reasonably and
with utmost good faith to the holders of the Rights by the Board of Directors of
the Company, provided, however, that if at the time of such determination there
is an Acquiring Person, the Fair Market Value of such security on such date
shall be determined by a nationally recognized investment banking firm selected
by the Board of Directors, which determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business or, if such security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) If a security is not publicly held or not so
listed or traded, "Fair Market Value" shall mean the fair value per share of
stock or per other unit of such security, determined reasonably and with utmost
good faith to the holders of the Rights by the Board of Directors of the
Company, provided, however, that if at the time of such determination there is
an Acquiring Person, the Fair Market Value of such security on such date shall
be determined by a nationally recognized investment banking firm selected by the
Board of Directors, which determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the holders
of the Rights; provided, however, that for the purposes of making any any
adjustment provided for by Section 11(a)(ii) hereof, the Fair Market Value of a
share of Preferred Stock shall not be less than the product of the then Fair
Market Value of a share of Common Stock multiplied by the higher of the then
Dividend Multiple or Vote Multiple (as both of such terms are defined in the
Certificate of Designation attached as Exhibit A hereto) applicable to the
Preferred Stock and shall not exceed 105% of the product of the then Fair Market
Value of a share of Common Stock multiplied by the higher of the then Dividend
Multiple or Vote Multiple applicable to the Preferred Stock.
(iii) In the case of property other than securities,
the Fair Market Value thereof shall be determined reasonably and with utmost
good faith to the holders of Rights by the Board of Directors of the Company,
provided, however, that if at the time of such determination there is an
Acquiring Person, the Fair Market Value of such property on such date shall be
determined by a nationally recognized investment banking firm selected by the
Board of Directors, which determination shall be described in a statement filed
with the Rights Agent and shall be binding upon the Rights Agent and the holders
of the Rights.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in
18
<PAGE>
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest hundred-thousandth of a share of Common
Stock of the Company or ten-millionth of a share of Preferred Stock, as the case
may be, or to such other figure as the Board of Directors may deem appropriate.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment or
(ii) the Expiration Date.
(f) If as a result of any provision of Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Section 11(a), (b), (c), (d), (e),
(g) through (k) and (m), inclusive, and the provisions of Sections 7, 9, 10, 13
and 14 hereof with respect to the Preferred Stock shall apply on like terms to
any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one one-thousandths of a
share of Preferred Stock (or other securities or amount of cash or combination
thereof) purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of one
one-thousandths of a share of Preferred Stock (calculated to the nearest one
ten-millionth) as the Board of Directors reasonably determines is appropriate to
preserve the economic value of the Rights, including, by way of example, that
number obtained by (i) multiplying (x) the number of one one-thousandths of a
share of Preferred Stock for which a Right may be exercisable immediately prior
to this adjustment by (y) the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment of the Exercise
Price.
(i) The Company may elect on or after the date of any
adjustment of the Exercise Price to adjust the number of Rights, in substitution
for any adjustment in the number of shares of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one one-thousandths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one hundred-thousandth) obtained by dividing the Exercise Price in
effect immediately prior to adjustment of the Exercise Price by the Exercise
Price in effect immediately after adjustment of the Exercise Price. The Company
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Exercise Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten (10) days later than
19
<PAGE>
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Exercise Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Exercise
Price or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Exercise Price per share and the
number of shares which were expressed in the initial Right Certificates issued
hereunder without prejudice to any adjustment or change.
(k) Before taking any action that would cause an adjustment
reducing the Exercise Price below the then stated value, if any, of the number
of one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Preferred Stock at such
adjusted Exercise Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock or other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Exercise Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment a majority of
the Board of Directors shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Stock, issuance wholly for cash of
any shares of Preferred Stock at less than the Fair Market Value, issuance
wholly for cash of shares of Preferred Stock or securities which by their terms
are convertible into or exchangeable for shares of Preferred Stock, stock
dividends or issuance of rights, options or warrants referred to hereinabove in
this
20
<PAGE>
Section 11, hereafter made by the Company to holders of its Preferred Stock,
shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date and so long as the Rights have not been
redeemed pursuant to Section 23 hereof or exchanged pursuant to Section 24
hereof, (i) consolidate with (other than a Subsidiary of the Company in a
transaction which complies with the proviso at the end of this sentence), (ii)
merge with or into, or (iii) sell or transfer (or permit any Subsidiary to sell
or transfer), in one transaction or a series of related transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries taken as a whole, to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with the proviso at the end of this
sentence) if (x) at the time of or immediately after such consolidation, merger
or sale there are any rights, warrants or other instruments outstanding or
agreements or arrangements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale the shareholders of a Person who constitutes, or would constitute, the
"Principal Party" for the purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates; provided, however, that this Section 11(n) shall not affect the
ability of any Subsidiary of the Company to consolidate with, merge with or
into, or sell or transfer assets or earning power to, any other Subsidiary of
the Company. The Company further covenants and agrees that after the
Distribution Date it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights.
(o) Notwithstanding anything in this Agreement to the
contrary, in the event the Company shall at any time after the date of this
Agreement and prior to the Distribution Date (i) declare or pay any dividend on
the outstanding Common Stock of the Company payable in shares of Common Stock of
the Company or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock of the Company (by reclassification or
otherwise than by payment of dividends in shares of Common Stock of the Company)
into a greater or lesser number of shares of Common Stock of the Company, then
in any such case (A) the number of one one-thousandths of a share of Preferred
Stock purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of one one-thousandths of a share of
Preferred Stock so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock of the Company
outstanding immediately prior to such event and the denominator of which is the
number of shares of Common Stock of the Company outstanding immediately after
such event, and (B) each share of Common Stock of the Company outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each share of Common Stock of the Company outstanding immediately
prior to such event had issued with respect to it. The adjustments provided for
in this Section 11(o) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
(p) The exercise of Rights under Section 11(a)(ii) shall only
result in the loss of rights under Section 11(a)(ii) to the extent so exercised
and shall not otherwise affect the rights
21
<PAGE>
of holders of Right Certificates under this Rights Agreement, including rights
to purchase securities of the Principal Party following a Section 13 Event which
has occurred or may thereafter occur, as set forth in Section 13 hereof. Upon
exercise of a Right Certificate under Section 11(a)(ii), the Rights Agent shall
return such Right Certificate duly marked to indicate that such exercise has
occurred.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Stock and the Common Stock of the Company a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment contained therein and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which is not prohibited by Section 11(n) hereof), and the Company
shall not be the continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in a transaction
which is not prohibited by the proviso at the end of the first sentence of
Section 11(n) hereof) shall consolidate with the Company, or merge with and into
the Company and the Company shall be the continuing or surviving corporation of
such merger and, in connection with such merger, all or part of the shares of
Common Stock of the Company shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, or (z) the
Company shall sell, mortgage or otherwise transfer (or one or more of its
Subsidiaries shall sell, mortgage or otherwise transfer), in one transaction or
a series of related transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any other Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions, each of which is not
prohibited by the proviso at the end of the first sentence of Section 11(n)
hereof), then, and in each such case, proper provision shall be made so that:
(i) each holder of a Right, except as provided in Section 7(e) hereof, shall
have the right to receive, upon the exercise thereof at the then current
Exercise Price in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid and nonassessable shares of freely
tradeable Common Stock of the Principal Party (as hereinafter defined in Section
13(b)), free and clear of rights of call or first refusal, liens, encumbrances,
transfer restrictions or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Exercise Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event, and dividing
that product by (2) 50% of the Fair Market Value (determined pursuant to Section
11(d) hereof) per share of the Common Stock of such Principal Party on the date
of consummation of such consolidation, merger, sale or transfer; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale, mortgage or transfer, all the obligations and
duties of the Company
22
<PAGE>
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply to such Principal Party; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock to permit
exercise of all outstanding Rights in accordance with this Section 13(a) and the
making of payments in cash and/or other securities in accordance with Section
11(a)(iii) hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean (i) in the case of any
transaction described in clause (x) or (y) of the first sentence of Section
13(a), the Person that is the issuer of any securities into which shares of
Common Stock of the Company are converted in such merger or consolidation, or,
if there is more than one such issuer, the issuer of Common Stock that has the
highest aggregate Fair Market Value (determined pursuant to Section 11(d)), and
if no securities are so issued, the Person that is the other party to the merger
or consolidation, or, if there is more than one such Person, the Person the
Common Stock of which has the highest aggregate Fair Market Value (determined
pursuant to Section 11(d)); and (ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a party
to such transaction or transactions receives the same portion of the assets or
earning power transferred pursuant to such transaction or transactions or if the
Person receiving the largest portion of the assets or earning power cannot be
determined, whichever Person the Common Stock of which has the highest aggregate
Fair Market Value (determined pursuant to Section 11(d)); provided, however,
that in any such case, (1) if the Common Stock of such Person is not at such
time and has not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act ("Registered Common Stock") or such Person
is not a corporation, and such Person is a direct or indirect Subsidiary or
Affiliate of another Person who has Registered Common Stock outstanding,
"Principal Party" shall refer to such other Person; (2) if the Common Stock of
such Person is not Registered Common Stock or such Person is not a corporation,
and such Person is a direct or indirect Subsidiary of another Person but is not
a direct or indirect Subsidiary of another Person which has Registered Common
Stock outstanding, "Principal Party" shall refer to the ultimate parent entity
of such first-mentioned Person; (3) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is
directly or indirectly controlled by more than one Person, and one or more of
such other Persons has Registered Common Stock outstanding, "Principal Party"
shall refer to whichever of such other Persons is the issuer of the Registered
Common Stock having the highest aggregate Fair Market Value (determined pursuant
to Section 11(d)); and (4) if the Common Stock of such Person is not Registered
Common Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
has Registered Common Stock outstanding, "Principal Party" shall refer to
whichever ultimate parent entity is the corporation having the greatest
stockholders' equity or, if no such ultimate parent entity is a corporation,
"Principal Party" shall refer to whichever ultimate parent entity is the entity
having the greatest net assets.
23
<PAGE>
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless prior thereto (x) the Principal Party shall have
a sufficient number of authorized shares of its Common Stock, which have not
been issued or reserved for issuance, to permit the exercise in full of the
Rights in accordance with this Section 13, and (y) the Company and each
Principal Party and each other Person who may become a Principal Party as a
result of such consolidation, merger, sale or transfer shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in Section 13(a) and (b) and further providing that, as soon as
practicable after the date of any consolidation, merger, sale or transfer of
assets mentioned in Section 13(a), the Principal Party at its own expense will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its reasonable best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its reasonable best efforts to cause such
registration statement to remain effective (with a prospectus that at all times
meets the requirements of the Securities Act) until the Expiration Date;
(ii) use its reasonable best efforts to qualify or
register the Rights and the securities purchasable upon exercise of the Rights
under the blue sky laws of such jurisdictions as may be necessary or
appropriate;
(iii) use its reasonable best efforts to list (or
continue the listing of) the Rights and the securities purchasable upon exercise
of the Rights on a national securities exchange or to meet the eligibility
requirements for quotation on NASDAQ; and
(iv) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then current Fair Market
Value (determined pursuant to Section 11(d)) or securities exercisable for, or
convertible into, Common Stock of such Principal Party at less than such Fair
Market Value, or (ii) providing for any special payment, tax or similar
provisions in connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of this Section 13, then, in such event, the
Company shall not consummate any such transaction unless prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such
Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction. The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other transfers.
24
<PAGE>
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(o) hereof, or to distribute Right
Certificates which evidence fractional Rights. If the Company elects not to
issue such fractional Rights, the Company shall pay, in lieu of such fractional
Rights, to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the Fair Market Value of a whole Right, as determined
pursuant to Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
the Company may pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the Fair Market Value of one one-thousandth of a share of Preferred
Stock. For purposes of this Section 14(b), the Fair Market Value of one one-
thousandth of a share of Preferred Stock shall be determined pursuant to Section
11(d) hereof for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent pursuant to
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (or, prior to the Distribution Date, the registered
holders of the Common Stock of the Company); and any registered holder of any
Right Certificate (or, prior to the Distribution Date, of the Common Stock of
the Company), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of the Common Stock
of the Company), may, in such registered holder's own behalf and for such
registered holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Right evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement. Holders of Rights shall be entitled to recover the reasonable costs
and expenses, including attorneys' fees, incurred by them in any action to
enforce the provisions of this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
25
<PAGE>
(a) prior to the Distribution Date, each Right will be
transferable only simultaneously and together with the transfer of shares of
Common Stock of the Company;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer;
(c) subject to Sections 6(a) and 7(f), the Company and the
Rights Agent may deem and treat the person in whose name a Right Certificate
(or, prior to the Distribution Date, the associated certificate representing
Common Stock of the Company) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate representing
Common Stock of the Company made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and, subject to the last sentence of Section
7(e), neither the Company nor the Rights Agent shall be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as the result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligations; provided, however, that the Company must use
its best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to pay
to the Rights Agent such compensation as shall be agreed to in writing between
the Company and the Rights Agent for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this
26
<PAGE>
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly. The provisions of this
Section 18(a) shall survive the expiration of the Rights and the termination of
this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate representing Common Stock of the Company, Preferred
Stock, or other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it in good faith
and without negligence to be genuine and to be signed and executed by the proper
Person or Persons.
(c) The Rights Agent shall not be liable for consequential
damages under any provision of this Agreement or for any consequential damages
arising out of any act or failure to act hereunder.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or shareholder services business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
27
<PAGE>
(a) The Rights Agent may consult with legal counsel selected
by it (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "Fair Market Value") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof shall be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by a person believed by the Rights Agent to be the Chairman
of the Board of Directors, a Vice Chairman of the Board of Directors, the
President, a Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company and delivered to the Rights
Agent. Any such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof) or any
adjustment required under the provisions of Sections 11, 13 or 23(c) hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after receipt of a certificate describing any such adjustment furnished in
accordance with Section 12 hereof), nor shall it be responsible for any
determination by the Board of Directors of the Company of the Fair Market Value
of the Rights or Preferred Stock pursuant to the provisions of Section 14
hereof; nor shall it by any act hereunder be deemed to make any representation
or warranty as to the authorization or reservation of any shares of Common Stock
of the Company or Preferred Stock to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of Common Stock of the Company or
Preferred Stock will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts,
28
<PAGE>
instruments and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of this
Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from any person believed
by the Rights Agent to be the Chairman of the Board of Directors, any Vice
Chairman of the Board of Directors, the President, a Vice President, the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of
the Company, and is authorized to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause (1) or clause
(2) thereof, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice
29
<PAGE>
in writing mailed to the Company by first class mail. The Company may remove the
Rights Agent or any successor Rights Agent (with or without cause) upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock of the
Company and Preferred Stock by registered or certified mail, and to the holders
of the Right Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the incumbent Rights Agent or the registered
holder of any Right Certificate may apply to any court of competent jurisdiction
for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of the State
of New York (or of any other state of the United States so long as such
corporation is authorized to do business as a banking institution in the State
of New York), in good standing, which is authorized under such laws to exercise
stock transfer or corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an Affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock of the Company and the Preferred Stock, and mail a notice
thereof in writing to the registered holders of the Right Certificates. Failure
to give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price per share and the number or kind or class of shares of
stock or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock of the Company
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock of the
Company so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange of
securities hereafter issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Right Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax
30
<PAGE>
consequences to the Company or the person to whom such Right Certificate would
be issued, and (ii) no such Right Certificate shall be issued if, and to the
extent that, appropriate adjustments shall otherwise have been made in lieu of
the issuance thereof.
Section 23. Redemption. (a) The Board of Directors of the Company may,
at its option, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.001 per Right, appropriately adjusted to reflect any
dividend declared or paid on the Common Stock of the Company in shares of Common
Stock of the Company or any subdivision or combination of the outstanding shares
of Common Stock of the Company or similar event occurring after the date of this
Agreement (such redemption price, as adjusted from time to time, being
hereinafter referred to as the "Redemption Price"). The Rights may be redeemed
only until the earlier to occur of (i) 5:00 P.M., New York, New York time, on
the tenth calendar day after the Stock Acquisition Date or (ii) the Final
Expiration Date.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to the Rights Agent and to all such holders at
their last addresses as they appear upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the Transfer Agent
for the Common Stock of the Company. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than that specifically set forth in this Section 23
or Section 24 hereof or in connection with the purchase of shares of Common
Stock of the Company prior to the Distribution Date.
(c) The Company may, at its option, pay the Redemption Price
in cash, shares of Common Stock of the Company (based on the Fair Market Value
of the Common Stock of the Company as of the time of redemption) or any other
form of consideration deemed appropriate by the Board of Directors.
Section 24. Exchange. (a) (i) The Board of Directors of the Company
may, at its option, at any time on or after the Distribution Date, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock of the Company at an exchange ratio of one share of
Common Stock of the Company per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Section
24(a)(i) Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after any Person
(other than an Exempt Person), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the Common Stock of
the Company.
31
<PAGE>
(ii) Notwithstanding the foregoing, the Board of
Directors of the Company may, at its option, at any time on or after the
Distribution Date, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for shares of Common Stock of the Company at
an exchange ratio specified in the following sentence, as appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date of this Agreement. Subject to the adjustment described in the
foregoing sentence, each Right may be exchanged for that number of shares of
Common Stock of the Company obtained by dividing the Spread (as defined in
Section 11(a)(iii)) by the then Fair Market Value per one one-thousandth of a
share of Preferred Stock on the earlier of (x) the date on which any person
becomes an Acquiring Person or (y) the date on which a tender or exchange offer
by any Person (other than an Exempt Person) is first published or sent or given
within the meaning of Rule 14d-4(a) of the Exchange Act or any successor rule,
if upon consummation thereof such Person would be the Beneficial Owner of more
than 15% of the shares of Common Stock of the Company then outstanding (such
exchange ratio being referred to herein as the "Section 24(a)(ii) Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other than an
Exempt Person), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Stock of the Company.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
of the Company equal to the number of such Rights held by such holder multiplied
by the Section 24(a)(i) Exchange Ratio or the Section 24(a)(ii) Exchange Ratio,
as applicable. The Company shall promptly give notice of any such exchange in
accordance with Section 26 hereof and shall promptly mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common
Stock of the Company for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Stock (or Preferred Stock Equivalent, as
such term is defined in Section 11(b) hereof) for Common Stock of the Company
exchangeable for Rights, at the initial rate of one one-thousandth of a share of
Preferred Stock (or Preferred Stock Equivalent) for each share of Common Stock
of the Company, as appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Stock pursuant to the terms thereof, so that the
fraction of a share of Preferred Stock delivered in lieu of each share of Common
Stock of the Company shall have the same voting rights as one share of Common
Stock of the Company.
32
<PAGE>
(d) In the event that there shall not be sufficient shares of
Common Stock of the Company or Preferred Stock (or Preferred Stock Equivalent)
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional shares of
Common Stock of the Company or Preferred Stock (or Preferred Stock Equivalent)
for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
Common Stock of the Company or to distribute certificates which evidence
fractional shares of Common Stock of the Company. If the Company elects not to
issue such fractional shares of Common Stock of the Company, the Company shall
pay, in lieu of such fractional shares of Common Stock of the Company, to the
registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock of the Company would otherwise be issuable, an
amount in cash equal to the same fraction of the Fair Market Value of a whole
share of Common Stock of the Company. For the purposes of this paragraph (e),
the Fair Market Value of a whole share of Common Stock of the Company shall be
the closing price of a share of Common Stock of the Company (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
periodic cash dividend out of earnings or retained earnings of the Company), or
(ii) to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares of Preferred Stock or shares of stock
of any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding shares of Preferred Stock), or (iv) to
effect any consolidation or merger into or with, or to effect any sale, mortgage
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale, mortgage or other transfer), in one transaction or a series of related
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person (other than a
Subsidiary of the Company in one or more transactions each of which is not
prohibited by the proviso at the end of the first sentence of Section 11(n)
hereof), (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Stock of the
Company payable in Common Stock of the Company or to effect a subdivision,
combination or consolidation of the Common Stock of the Company (by
reclassification or otherwise than by payment of dividends in Common Stock of
the Company) then in each such case, the Company shall give to each holder of a
Right Certificate and to the Rights Agent, in accordance with Section 26 hereof,
a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
33
<PAGE>
participation therein by the holders of the shares of Common Stock of the
Company and/or Preferred Stock, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii) above
at least twenty (20) days prior to the record date for determining holders of
the shares of Preferred Stock for purposes of such action, and in the case of
any such other action, at least twenty (20) days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
the shares of Common Stock of the Company and/or Preferred Stock, whichever
shall be the earlier; provided, however, no such notice shall be required
pursuant to this Section 25 as a result of any Subsidiary of the Company
effecting a consolidation or merger with or into, or effecting a sale or other
transfer of assets or earnings power to, any other Subsidiary of the Company in
a manner not inconsistent with the provisions of this Agreement.
(b) In case any Section 11(a)(ii) Event shall occur, then, in
any such case, the Company shall as soon as practicable thereafter give to each
registered holder of a Right Certificate and to the Rights Agent, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, by facsimile transmission or by nationally recognized
overnight courier addressed (until another address is filed in writing with the
Rights Agent) as follows:
Shelbourne Properties I, Inc.
5 Cambridge Center
9th Floor
Cambridge, MA 02142
Attention: President
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, by facsimile transmission or by
nationally-recognized overnight courier addressed (until another address is
filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Cynthia Trotman
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate (or, prior to
the Distribution Date, to the holder of any certificate representing shares of
Common Stock of the Company) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement as the Company may deem necessary or
desirable without the approval of any holders of certificates representing
shares of Common Stock of the Company. From and after the Distribution Date, the
Company and the Rights Agent shall, if the Company
34
<PAGE>
so directs, supplement or amend this Agreement without the approval of any
holder of Right Certificates in order (i) to cure any ambiguity, (ii) to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to change or supplement the provisions hereof in
any manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Right Certificates (other than
an Acquiring Person or any Affiliate or Associate of an Acquiring Person);
provided, however, that from and after the Distribution Date this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and the benefits to, the holders of Rights (other than an Acquiring
Person or any Affiliate or Associate of an Acquiring Person). Upon the delivery
of such certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Prior
to the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock of the Company.
Notwithstanding any other provision hereof, the Rights Agent's consent must be
obtained regarding any amendment or supplement pursuant to this Section 27 which
alters the Rights Agent's rights or duties.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock of the Company outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of the Company of which any Person is the Beneficial Owner, shall
be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the Rules
under the Exchange Act as in effect on the date hereof. The Board of Directors
of the Company shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board of Directors in
good faith shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject any
member of the Board of Directors to any liability to the holders of the Rights
or to any other person.
Section 30. Benefits of this Agreement. Nothing in this Agreement.
shall be construed to give to any person or corporation other than the Company,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Stock of the Company) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
35
<PAGE>
registered holders of the Right Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock of the Company).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from the Agreement would adversely affect the purpose or effect
of the Agreement, the right of redemption set forth in Section 23 hereof shall
be reinstated and shall not expire until the Close of Business on the tenth day
following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and to be performed entirely within such state. The courts of the State
of Delaware and of the United States of America located in the State of Delaware
(the "Delaware Courts") shall have exclusive jurisdiction over any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby, and any Person commencing or otherwise involved in any such litigation
shall waive any objection to the laying of venue of such litigation in the
Delaware Courts and shall not plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
[Remainder of page intentionally left blank.]
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as an instrument under seal and attested, all as of the day and
year first above written.
ATTEST; SHELBOURNE PROPERTIES I, INC.
By: By:
---------------------------
Name:
Title:
ATTEST: AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: By:
---------------------------
Name:
Title:
37
<PAGE>
Exhibit A
VOTE OF DIRECTORS ESTABLISHING SERIES A JUNIOR PARTICIPATING CUMULATIVE
PREFERRED STOCK OF SHELBOURNE PROPERTIES I, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware:
VOTED, that pursuant to the authority conferred upon and vested in the
Board of Directors by the Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") of Shelbourne Properties I, Inc. (the
"Corporation") the Board of Directors hereby establishes and designates a series
of Preferred Stock of the Corporation, and hereby fixes and determines the
relative rights and preferences of the shares of such series, in addition to
those set forth in the Certificate of Incorporation, as follows:
Section 1. Designation and Amount. The shares of such series
be designated as "Series A Junior Participating Cumulative Preferred Stock," par
value $.01 per share (hereinafter called "Series A Preferred Stock"), and the
number of shares initially constituting such series shall be __________. Such
number of shares may be increased or decreased by resolution of the Board of
Directors and by the filing of a certificate pursuant to the provisions of the
General Corporation Law of the State of Delaware stating that such increase or
reduction has been so authorized; provided, however, that no decrease reduce the
number of shares of Series A Preferred Stock to a number less than that of the
shares then outstanding plus the number of shares of Series A Preferred Stock
issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions. (A) (i) Subject to the
rights of the holders of any shares of any series of preferred stock (or any
similar stock) ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of shares of common stock and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b) subject to the provisions for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of common stock or
subdivision of the outstanding shares of common stock (by reclassification or
otherwise), declared on the shares of common stock since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. The multiple of cash and
non-cash dividends declared on the shares of common stock to which holders of
the Series A Preferred Stock are entitled, which shall be 1,000 initially but
which shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the Corporation
shall at any time after ______ ___, 2000 (the "Rights Declaration Date") (i)
A-1
<PAGE>
declare or pay any dividend on the shares of common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than by
payment of a dividend in shares of common stock) into a greater or lesser number
of shares of common stock, then in each such case the Dividend Multiple
thereafter applicable to the determination of the amount of dividends which
holders of shares of Series A Preferred Stock shall be entitled to receive shall
be the Dividend Multiple applicable immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
(ii) Notwithstanding anything else contained in this
paragraph (A), the Corporation shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series A Preferred Stock as
provided in this paragraph (A) immediately after it declares a dividend or
distribution on the shares of common stock (other than a dividend payable in
shares of common stock); provided that, in the event no dividend or distribution
shall have been declared on the shares of common stock during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(B) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix in accordance with applicable law a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than such number of days prior to the date fixed for the
payment thereof as may be allowed by applicable law.
Section 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. The number of votes which a holder of a share of Series A Preferred
Stock is entitled to cast, which shall initially be 1,000 but which may be
adjusted from time to time as hereinafter provided, is hereinafter referred to
as the "Vote
A-2
<PAGE>
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of common stock
and the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on
any shares of Series A Preferred Stock shall be in arrears in an amount equal to
at least two full quarter dividends (whether or not declared and whether or not
consecutive), the holders of record of the outstanding shares of Series A
Preferred Stock shall have the exclusive right, voting separately as a single
class, to elect two directors of the Corporation at a special meeting of
shareholders of the Corporation or at the Corporation's next annual meeting of
shareholders, and at each subsequent annual meeting of stockholders, as provided
below. At elections for such directors, each Series A Preferred Share shall
entitle the holder thereof to 1,000 votes in such elections.
(ii) Upon the vesting of such right of the holders of
shares of Series A Preferred Stock, the maximum authorized number of members of
the Board of Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of the outstanding
shares of Series A Preferred Stock as hereinafter set forth. A special meeting
of the stockholders of the Corporation then entitled to vote shall be called by
the Chairman of the Board of Directors or the President or the Secretary of the
Corporation, if requested in writing by the holders of record of not less than
10% of the shares of Series A Preferred Stock then outstanding. At such special
meeting, or, if no such special meeting shall have been called, then at the next
annual meeting of shareholders of the Corporation, the holders of the shares of
Series A Preferred Stock shall elect, voting as above provided, two directors of
the Corporation to fill the aforesaid vacancies created by the automatic
increase in the number of members of the Board of Directors. At any and all such
meetings for such election, the holders of a majority of the outstanding shares
of Series A Preferred Stock shall be necessary to constitute a quorum for such
election, whether present in person or proxy, and such two directors shall be
elected by the vote of at least a majority of the shares of Series A Preferred
Stock held by such shareholders present or represented at the meeting. Any
director elected by holders of shares of Series A Preferred Stock pursuant to
this Section may be removed at any annual or special meeting, by vote of a
majority of the shareholders voting as a class who elected such director, with
or without cause. In case any vacancy shall occur among the directors elected by
the holders of shares of Series A Preferred Stock pursuant to this Section, such
vacancy may be filled by the remaining director so elected, or his successor
then in office, and the director so elected to fill
A-3
<PAGE>
such vacancy shall serve until the next meeting of shareholders for the election
of directors. After the holders of shares of Series A Preferred Stock shall have
exercised their right to elect directors in any default period and during the
continuance of such period, the number of directors shall not be further
increased or decreased except by vote of the holders of shares of Series A
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Preferred Stock.
(iii) The right of the holders of shares of Series A
Preferred Stock, voting separately as a class, to elect two members of the Board
of Directors of the Corporation as aforesaid shall continue until, and only
until, such time as all arrears in dividends (whether or not declared) on the
Series A Preferred Stock shall have been paid or declared and set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided subject to revesting in the event of each and every
subsequent default of the character above-mentioned. Upon any termination of the
right of the holders of the Series A Preferred Stock as a class to vote for
directors as herein provided, the term of office of all directors then in office
elected by the holders of shares of Series A Preferred Stock pursuant to this
Section shall terminate immediately. Whenever the term of office of the
directors elected by the holders of shares of Series A Preferred Stock pursuant
to this Section shall terminate and the special voting powers vested in the
holders of the Series A Preferred Stock pursuant to this Section shall have
expired, the maximum number of members of this Board of Directors of the
Corporation shall be such number as may be provided for in the By-laws of the
Corporation, irrespective of any increase made pursuant to the provisions of
this Section.
(A) Except as otherwise required by applicable law or as set
forth herein, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of shares of common stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) except as permitted in subsection 4(A)(iv)
below, redeem, purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
A-4
<PAGE>
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of common stock, or (y) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time after the Rights Declaration Date
(i) declare or pay any dividend on shares of common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than by
payment of a dividend in shares of common stock) into a greater or lesser number
of shares of common stock, then in each such case the aggregate amount per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (x) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of common stock outstanding
A-5
<PAGE>
immediately after such event and the denominator of which is the number of
shares of common stock that were outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation with or
into any other corporation or corporations, nor the sale or other transfer of
all or substantially all of the assets of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series A
Preferred Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
Section 8. Redemption The shares of Series A Preferred Stock shall not
be redeemable; provided, however, that the foregoing shall not limit the ability
of the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
Section 9. Ranking. Unless otherwise provided in the Certificate of
Incorporation or a Certificate of Vote of Directors Establishing a Class of
Stock relating to a subsequently-designated series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to any other series
of the Corporation's preferred stock subsequently issued, as to the payment of
dividends and the distribution of assets on liquidation, dissolution or winding
up and shall rank senior to the common stock.
Section 10. Amendment. The Certificate of Incorporation and this
Certificate of Vote of Directors shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Shares of Series A Preferred Stock may
be issued in whole shares or in any fraction of a share that is one
one-thousandth (1/1,000th) of a share or any integral multiple of such fraction,
which shall entitle the holder, in proportion to such holder's
A-6
<PAGE>
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of shares
of Series A Preferred Stock. In lieu of fractional shares, the Corporation may
elect to make a cash payment as provided in the Rights Agreement for fractions
of a share other than one one-thousandth (1/1,000th) of a share or any integral
multiple thereof.
A-7
<PAGE>
Exhibit B
[Form of Right Certificate]
Certificate No. Rights
NOT EXERCISABLE AFTER ______________, 200_ OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF SHELBOURNE
PROPERTIES I, INC., AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE
SHAREHOLDER RIGHTS AGREEMENT BETWEEN SHELBOURNE PROPERTIES I, INC. AND AMERICAN
STOCK TRANSFER & TRUST COMPANY, AS RIGHTS AGENT, DATED AS OF ______________,
2000 (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN SECTION
7(e) OF THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON
OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID.
Right Certificate
SHELBOURNE PROPERTIES I, INC.
This certifies that _________________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Shareholder Rights Agreement dated as of _____________, 2000
(the "Rights Agreement") between SHELBOURNE PROPERTIES I, INC. (the "Company")
and American Stock Transfer & Trust Company, as Rights Agent (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to the close of
business on ____________, 200_ at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, non-assessable share of Series A Junior
Participating Cumulative Preferred Stock (the "Preferred Stock") of the Company,
at a purchase price of $_______ per one one-thousandth of a share (the "Exercise
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase and the related Certificate duly executed. The number of
Rights evidenced by this Right Certificate (and the number of shares which may
be purchased upon exercise thereof) set forth above, and the Exercise Price per
share set forth above, are the number and Exercise Price as of _______________,
based on the shares of Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Right
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a Person who, after such transfer, became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
B-1
<PAGE>
As provided in the Rights Agreement, the Exercise Price and the number
of shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal office of the
Company and the designated office of the Rights Agent and are also available
upon written request to the Company or the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or offices of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Certificates like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exercised. If this Right
Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii)
of the Rights Agreement, the holder shall be entitled to receive this Right
Certificate duly marked to indicate that such exercise has occurred as set forth
in the Rights Agreement.
Under certain circumstances, subject to the provisions of the Rights
Agreement, the Board of Directors of the Company at its option may exchange all
or any part of the Rights evidenced by this Certificate for shares of the
Company's Common Stock or Preferred Stock at an exchange ratio (subject to
adjustment) of one share of Common Stock or one one-thousandth of a share of
Preferred Stock per Right.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Board of Directors of the Company at
its option at a redemption price of $0.01 per Right (payable in cash, Common
Stock or other consideration deemed appropriate by the Board of Directors).
The Company is not obligated to issue fractional shares of stock upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depositary receipts).
If the Company elects not to issue such fractional shares, in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock, Common Stock or any other securities of the Company which may
at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the
B-2
<PAGE>
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by an authorized signatory of the Rights
Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
<TABLE>
<S> <C>
[Corporate Seal] SHELBOURNE PROPERTIES I, INC.
Attested: By:
----------------------------------------------
Name:
----------------------------------------------
Title: [Chairman, Vice Chairman, President
[Secretary or Assistant Secretary] or
Vice President]
</TABLE>
Countersigned:
-----------------------------------
as Rights Agent
- -----------------------------
Authorized Signatory
Date of countersignature:
B-4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and
transfers unto __________________________ (Please print name and address of
transferee) __________________________ this Right Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint _____________ Attorney, to transfer the within Right Certificate on the
books of the within-named Company, with full power of substitution.
Dated:
------------------------------------------
Signature
- ------------------------------------
Signature Guaranteed:
B-5
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate ________
are ________ are not being transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Person (as such
terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned ___ did ____ did not directly or indirectly acquire
the Rights evidenced by this Right Certificate from any Person who is, was or
became an Acquiring Person or an Affiliate or Associate of any such Person.
Dated:
------------------------------------------
Signature
B-6
<PAGE>
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-7
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To SHELBOURNE PROPERTIES I, INC.:
The undersigned hereby irrevocably elects to exercise
___________ Rights represented by this Right Certificate to purchase the shares
of Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying taxpayer number:
- --------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate or if the Rights are being exercised pursuant to
Section 11(a)(ii) of the Rights Agreement, a new Right Certificate for the
balance of such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying taxpayer number:
- --------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
Dated:
---------------------------------------------
Signature
- ----------------------------------
Signature Guaranteed:
B-8
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate ________
are ________ are not being exercised by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Person (as such
terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned ___ did ____ did not directly or indirectly acquire
the Rights evidenced by this Right Certificate from any Person who is, was or
became an Acquiring Person or an Affiliate or Associate of any such Person.
Dated:
--------------------------------------
Signature
B-9
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-10
<PAGE>
Exhibit 4.2
Form of Certificate of Designation, Preferences
and Rights of a Series of Preferred Stock
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A
PREFERRED STOCK
OF
SHELBOURNE PROPERTIES I, INC.
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
SHELBOURNE PROPERTIES I, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby certify:
That, pursuant to authority conferred upon the Board of
Directors by the Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") of said Corporation, and pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, by a unanimous written consent, dated as of
____________ ___, 2000, adopted a resolution providing for the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets, and
conversion or exchange, of a Series of Preferred Stock, which resolution is as
follows:
See attached pages 2A-8A
1
<PAGE>
VOTE OF DIRECTORS ESTABLISHING
SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK
OF
SHELBOURNE PROPERTIES I, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware:
VOTED, that pursuant to the authority conferred upon and
vested in the Board of Directors by the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") of Shelbourne Properties I,
Inc. (the "Corporation") the Board of Directors hereby establishes and
designates a series of Preferred Stock of the Corporation, and hereby fixes and
determines the relative rights and preferences of the shares of such series, in
addition to those set forth in the Certificate of Incorporation, as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Cumulative Preferred Stock," par
value $.01 per share (hereinafter called "Series A Preferred Stock"), and the
number of shares initially constituting such series shall be 200,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors and by the filing of a certificate pursuant to the provisions of the
General Corporation Law of the State of Delaware stating that such increase or
reduction has been so authorized; provided, however, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
that of the shares then outstanding plus the number of shares of Series A
Preferred Stock issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions. (A) (i) Subject to the rights
of the holders of any shares of any series of preferred stock (or any similar
stock) ranking prior and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock, in preference
to the holders of shares of common stock and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provisions for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of common stock or a
subdivision of the outstanding shares of common stock (by reclassification or
otherwise), declared on the shares of common stock since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. The multiple of cash and
non-cash dividends declared on the shares of common stock to which holders of
the Series A Preferred Stock are entitled, which shall be 1,000 initially but
which shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the Corporation
shall at any time after __________ ___, 2000 (the "Rights Declaration Date") (i)
2
<PAGE>
declare or pay any dividend on the shares of common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than by
payment of a dividend in shares of common stock) into a greater or lesser number
of shares of common stock, then in each such case the Dividend Multiple
thereafter applicable to the determination of the amount of dividends which
holders of shares of Series A Preferred Stock shall be entitled to receive shall
be the Dividend Multiple applicable immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
(ii) Notwithstanding anything else contained in this
paragraph (A), the Corporation shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series A Preferred Stock as
provided in this paragraph (A) immediately after it declares a dividend or
distribution on the shares of common stock (other than a dividend payable in
shares of common stock); provided that, in the event no dividend or distribution
shall have been declared on the shares of common stock during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(B) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix in accordance with applicable law a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than such number of days prior to the date fixed for the
payment thereof as may be allowed by applicable law.
Section 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. The number of votes which a holder of a share of Series A Preferred
Stock is entitled to cast, which shall initially be 1,000 but which may be
adjusted from time to time as hereinafter provided, is hereinafter referred to
as the "Vote
3
<PAGE>
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of common stock
and the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on
any shares of Series A Preferred Stock shall be in arrears in an amount equal to
at least two full quarter dividends (whether or not declared and whether or not
consecutive), the holders of record of the outstanding shares of Series A
Preferred Stock shall have the exclusive right, voting separately as a single
class, to elect two directors of the Corporation at a special meeting of
shareholders of the Corporation or at the Corporation's next annual meeting of
shareholders, and at each subsequent annual meeting of stockholders, as provided
below. At elections for such directors, each Series A Preferred Share shall
entitle the holder thereof to 1,000 votes in such elections.
(ii) Upon the vesting of such right of the holders of
shares of Series A Preferred Stock, the maximum authorized number of members of
the Board of Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of the outstanding
shares of Series A Preferred Stock as hereinafter set forth. A special meeting
of the stockholders of the Corporation then entitled to vote shall be called by
the Chairman of the Board of Directors or the President or the Secretary of the
Corporation, if requested in writing by the holders of record of not less than
10% of the shares of Series A Preferred Stock then outstanding. At such special
meeting, or, if no such special meeting shall have been called, then at the next
annual meeting of shareholders of the Corporation, the holders of the shares of
Series A Preferred Stock shall elect, voting as above provided, two directors of
the Corporation to fill the aforesaid vacancies created by the automatic
increase in the number of members of the Board of Directors. At any and all such
meetings for such election, the holders of a majority of the outstanding shares
of Series A Preferred Stock shall be necessary to constitute a quorum for such
election, whether present in person or proxy, and such two directors shall be
elected by the vote of at least a majority of the shares of Series A Preferred
Stock held by such shareholders present or represented at the meeting. Any
director elected by holders of shares of Series A Preferred Stock pursuant to
this Section may be removed at any annual or special meeting, by vote of a
majority of the shareholders voting as a class who elected such director, with
or without cause. In case any vacancy shall occur among the directors elected by
the holders of shares of Series A Preferred Stock pursuant to this Section, such
vacancy may be filled by the remaining director so elected, or his successor
then in office, and the director so elected to fill
4
<PAGE>
such vacancy shall serve until the next meeting of shareholders for the election
of directors. After the holders of shares of Series A Preferred Stock shall have
exercised their right to elect directors in any default period and during the
continuance of such period, the number of directors shall not be further
increased or decreased except by vote of the holders of shares of Series A
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Preferred Stock.
(iii) The right of the holders of shares of Series A
Preferred Stock, voting separately as a class, to elect two members of the Board
of Directors of the Corporation as aforesaid shall continue until, and only
until, such time as all arrears in dividends (whether or not declared) on the
Series A Preferred Stock shall have been paid or declared and set apart for
payment, at which time such right shall terminate, except as herein or by law
expressly provided subject to revesting in the event of each and every
subsequent default of the character above-mentioned. Upon any termination of the
right of the holders of the Series A Preferred Stock as a class to vote for
directors as herein provided, the term of office of all directors then in office
elected by the holders of shares of Series A Preferred Stock pursuant to this
Section shall terminate immediately. Whenever the term of office of the
directors elected by the holders of shares of Series A Preferred Stock pursuant
to this Section shall terminate and the special voting powers vested in the
holders of the Series A Preferred Stock pursuant to this Section shall have
expired, the maximum number of members of this Board of Directors of the
Corporation shall be such number as may be provided for in the By-laws of the
Corporation, irrespective of any increase made pursuant to the provisions of
this Section.
(A) Except as otherwise required by applicable law or as set
forth herein, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of shares of common stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares stock ranking junior (either as to dividends or upon liquidation, or
winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any of stock ranking on a parity (either as to dividends or
upon, dissolution or winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) except as permitted in subsection 4(A)(iv) below,
redeem, purchase or otherwise acquire for consideration shares of any stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of
5
<PAGE>
any such parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective Series And classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(A) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of common stock, or (y) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time after the Rights Declaration Date
(i) declare or pay any dividend on shares of common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than by
payment of a dividend in shares of common stock) into a greater or lesser number
of shares of common stock, then in each such case the aggregate amount per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (x) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of common stock outstanding
6
<PAGE>
immediately after such event and the denominator of which is the number of
shares of common stock that were outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation
with or into any other corporation or corporations, nor the sale or other
transfer of all or substantially all of the assets of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series A
Preferred Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
Section 8. Redemption. The shares of Series A Preferred Stock shall not
be redeemable; provided, however, that the foregoing shall not limit the ability
of the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
Section 9. Ranking. Unless otherwise provided in the Certificate of
Incorporation or a Certificate of Vote of Directors Establishing a Class of
Stock relating to a subsequently-designated series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to any other series
of the Corporation's preferred stock subsequently issued, as to the payment of
dividends and the distribution of assets on liquidation, dissolution or winding
up and shall rank senior to the common stock.
Section 10. Amendment. The Certificate of Incorporation and this
Certificate of Vote of Directors shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Shares of Series A Preferred Stock may
be issued in whole shares or in any fraction of a share that is one
one-thousandth (1/1,000th) of a share or any integral multiple of such fraction,
which shall entitle the holder, in proportion to such holder's
7
<PAGE>
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of shares
of Series A Preferred Stock. In lieu of fractional shares, the Corporation may
elect to make a cash payment as provided in the Rights Agreement for fractions
of a share other than one one-thousandth (1/1,000th) of a share or any integral
multiple thereof.
I, ____________, _____________________ of the Corporation, do
make this certificate, hereby declaring and certifying that this is my act and
deed on behalf of the Corporation this ____ day of _____________, 2000.
SHELBOURNE PROPERTIES I, INC.
By:
----------------------------------
8
<PAGE>
EXHIBIT 4.3
TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN READY FOR DELIVERY
COMMON STOCK COMMON STOCK
- --------------- ----------------
SHELBOURNE PROPERTIES I, INC.
- --------------- ----------------
$0.01 PAR VALUE $0.01 PAR VALUE
Incorporated under the laws of the State of Delaware CUSIP _____________
TRANSFERABLE IN THE CITY OF NEW YORK, NY SEE REVERSE FOR
CERTAIN DEFINITIONS
AND RESTRICTIONS
---------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
---------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
SHELBOURNE PROPERTIES I, INC. transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the
Certificate of Incorporation and By-Laws of the Corporation, each as from time
to time amended, to all of which the holder by acceptance hereof assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.
DATED:
(SEAL OF SHELBOURNE PROPERTIES I, INC.)
<TABLE>
<S> <C>
- ----------------------------------- ----------------------------------
TREASURER PRESIDENT
----------------------------------
Countersigned and Registered: American Stock Transfer & Trust Company Transfer Agent
and Registrar
----------------------------------
Authorized Signature
</TABLE>
<PAGE>
SHELBOURNE PROPERTIES I, INC.
The shares of Shelbourne Properties I, Inc. (the "Corporation")
represented by this Certificate are subject to restrictions set forth in the
Corporation's Certificate of Incorporation which prohibit in general (a) any
Person (other than a Related Party) from Beneficially Owning shares of Equity
Stock in excess of the Ownership Limit, (b) any Related Party from Beneficially
Owning shares of Equity Stock in excess of the Related Limit and (c) any Person
from acquiring or maintaining any ownership interest in the stock of the
Corporation that is inconsistent with (i) the requirements of the Code
pertaining to real estate investment trusts or (ii) the Certificate of
Incorporation of the Corporation, and the holder of this certificate by his
acceptance hereof consents to be bound by such restrictions. Any purported
Transfer of Equity Stock in violation of such restrictions shall be void AB
INITIO and the Equity Stock violating such restriction, whether as a result of a
Transfer or Non-Transfer Event, shall automatically be converted into shares of
Excess Stock and transferred to a Trust for disposition as provided in the
Corporation's Certificate of Incorporation. Capitalized terms used in this
paragraph and not defined herein are defined in the Corporation's Certificate of
Incorporation.
The Corporation will furnish without charge, to each stockholder who so
requests, a copy of the relevant provisions of the Certificate of Incorporation
and By-laws of the Corporation, a copy of the provisions setting forth the
designations, preferences, privileges and rights of each class of stock or
series thereof that the Corporation is authorized to issue and the
qualifications, limitations and restrictions of such preferences and/or rights.
Any such request may be addressed to the Secretary of the Corporation or to the
transfer agent named on the face hereof.
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Shareholder Rights Agreement between the
Corporation and American Stock Transfer & Trust Company, as Rights Agent, dated
as of ________ __, 2000, as amended, restated, renewed or extended from time to
time (the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal offices of the
Corporation and the stock transfer administration office of the Rights Agent.
Under certain circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be evidenced by
this certificate. The Corporation may redeem the Rights at a redemption price of
$0.001 per Right, subject to adjustment, under the terms of the Rights
Agreement. The Corporation will mail to the holder of this certificate a copy of
the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances, Rights issued held by Acquiring Persons or any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any subsequent
holder of such Rights, may become null and void. The Rights shall not be
exercisable, and shall be void so long as held, by a holder in any jurisdiction
where the requisite qualification to the issuance to such holder, or the
exercise by such holder, of the Rights in such jurisdiction shall not have been
obtained or be obtainable.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT_______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to
Minors Act
--------------------------------
JT TEN - as joint tenants with right (State)
of survivorship and not as
Tenants in common
</TABLE>
<PAGE>
Additional abbreviations may also be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
[________________________________________]______________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE.
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises
Dated______________
Signature(s) ________________________________
Signature Guaranteed by: NOTICE; The signature(s) to this assignment
must correspond with the name as written upon
the face of the Certificate, in every
particular, without alteration or enlargement
or any change whatever
- -----------------------------------
<PAGE>
EXHIBIT 5.1
Rosenman & Colin LLP
_____ __, 2000
Shelbourne Properties I, Inc.
5 Cambridge Center
9th Floor
Cambridge, Massachusetts 02142
Gentlemen:
We have acted as counsel to Shelbourne Properties I, Inc., a Delaware
corporation (the "Company"), in connection with the offer and sale by the
Company of 1,263,189 shares of common stock, par value $.01 per share ("Common
Stock"), of the Company. This opinion is being delivered in connection with the
Company's Registration Statement on Form S-4 (No. 333-30206) (the "Registration
Statement") relating to the registration of the offering and sale of the Shares
under the Securities Act of 1933, as amended. Pursuant to the transactions
contemplated by the Registration Statement, 1,263,189 shares of Common Stock
will be offered to the partners of Integrated Resources High Equity Partners,
Series 85, A California Limited Partnership (the "Partners").
As the basis for the opinion hereinafter expressed, we have examined
such statutes, regulations, corporate records and documents, certificates of
public officials and other instruments as we have deemed necessary or advisable
for the purposes of this opinion. In such examination, we have assumed the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that the shares of Common Stock to be sold by
the Company to the Partners as described in the Registration Statement have been
duly authorized and, upon delivery of such shares and payment therefor as
described in the Registration Statement, will be validly issued, fully paid and
non- assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
Rosenman & Colin LLP
By:___________________________
A Partner
<PAGE>
Exhibit 8.1
[ROSENMAN & COLIN LLP LETTERHEAD]
______, 2000
Shelbourne Properties I, Inc.
5 Cambridge Center
9th Floor
Cambridge, MA 02142
Re: Registration Statement
Gentlemen:
We have acted as your counsel in connection with the registration on the
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended, of 1,263,189 shares of common stock of
Shelbourne Properties I, Inc. ("Shelbourne"), a recently formed Delaware
corporation, to be issued to the general partners and holders of units
(collectively "unitholders") in Integrated Resources High Equity Partners,
Series 85, A California Limited Partnership (the "Partnership"). The shares of
Shelbourne common stock will be issued pursuant to a transaction (the
"conversion") in which the Partnership will be merged into Shelbourne Properties
I L.P. (the "operating partnership"), a limited partnership wholly-owned by
Shelbourne (directly and indirectly through a "disregarded entity" of
Shelbourne). As part of the merger, the interests of unitholders in the
Partnership will be converted into shares of Shelbourne common stock, which
shares will be listed for trading on the American Stock Exchange. Shelbourne
intends to elect to be treated for Federal income tax purposes as a real estate
investment trust for its taxable year ending December 31, 2000.
In rendering this opinion, we have examined (i) the Registration Statement, as
amended, (ii) the Agreement of Limited Partnership of the operating partnership,
(iii) the Agreement and Plan of Merger, and (iv) the certificate provided to us
by Shelbourne, dated the date hereof (the "Shelbourne Certificate", and together
with the documents in (i) through (iii), the "Operative Documents"). In
addition, we have examined such other documents and materials that we have
deemed necessary or appropriate to review for purposes of our opinion, and have
made such investigations of law as we have deemed appropriate as a basis for the
opinions expressed below.
In our examination, we have assumed, without independent investigation: the
legal capacity of all individuals; the due and proper execution of all documents
referenced herein; the genuineness of all signatures; the enforceability of all
documents in accordance with their terms; the authenticity of all documents
submitted to us as originals; the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies; that the transactions will be
consummated in accordance with the Operative Documents; the accuracy of all
facts, statements, representations
<PAGE>
Shelbourne Properties I
[______, 2000]
Page 2
and assumptions set forth below and in the documents referenced herein; and that
the parties to the conversion will report the Federal income tax consequences
thereof consistent with the Operative Documents and the opinions expressed
below.
Our opinion is based upon the U.S. Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations promulgated thereunder, and administrative
and judicial interpretations thereof, all as of the date hereof and all of which
are subject to change, possibly on a retroactive basis. In rendering this
opinion we are expressing our views only as to the Federal income tax laws of
the United States of America.
It is our opinion that, under current Federal income tax law and assuming that
Shelbourne and the operating partnership are operated in accordance with the
statements and representations set forth in the Registration Statement and the
Shelbourne Certificate and that the conversion and certain procedural steps
described in the Registration Statement, including Shelbourne's election to be
taxed as a real estate investment trust, are completed in a timely fashion in
accordance with the Operative Documents:
(1) The conversion will be treated as an exchange governed by Section 351 of the
Code in which the Partnership will be treated as transferring all of its assets
to Shelbourne in exchange for common stock and the assumption by Shelbourne of
the Partnership's liabilities, followed by the Partnership's distribution of
common stock to the unitholders in complete liquidation of the Partnership.
Accordingly, no gain or loss will be recognized for Federal income tax purposes
by the Partnership, the unitholders or Shelbourne as a result of the conversion.
(2) Commencing with its taxable year ending December 31, 2000, Shelbourne will
be organized in conformity with the requirements for qualification as a real
estate investment trust under the Code, and its proposed method of operation
will enable it to satisfy the requirements for qualification and taxation as a
real estate investment trust.
(3) The discussion relating to tax matters under the heading "Federal Income Tax
Consequences" in the Consent Solicitation Statement/Prospectus contained in the
Registration Statement, to the extent that such discussion contains descriptions
of applicable Federal income tax law, is correct in all material respects as of
the date hereof.
Shelbourne's qualification as a REIT will depend upon its continuing
satisfaction of the requirements of the Code relating to qualification for REIT
status, which requirements include those that are dependent upon actual
operating results, distribution levels, diversity of stock ownership, asset
composition, source of income and record keeping. No assurance can be given that
the actual results of Shelbourne's operations for any one taxable year will
satisfy all such requirements. We do not undertake to monitor whether Shelbourne
actually will satisfy the various REIT qualification tests, and we express no
opinion concerning whether Shelbourne actually will satisfy these various REIT
qualification tests.
We hereby consent to the filing with the Securities and Exchange Commission of
this letter as an exhibit to the Registration Statement and the reference to
this letter and to us therein under the
<PAGE>
Shelbourne Properties I
[______, 2000]
Page 3
heading "Federal Income Tax Consequences" in the Consent Solicitation/Prospectus
contained in the Registration Statement. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
ROSENMAN & COLIN LLP
By: __________________________
A Partner
<PAGE>
Exhibit 10.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELBOURNE PROPERTIES I L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF Shelbourne Properties
I L.P., dated as of ______ __, 2000, is entered into by and among Shelbourne
Properties I GP, LLC (the "General Partner"), a Delaware limited liability
company, as the general partner of the Partnership and Shelbourne Properties I,
Inc. (the "Company"), a Delaware corporation as the limited partner of the
Partnership.
WHEREAS, the Partnership was formed on April 3, 2000 for the
purposes of facilitating a conversion of Integrated Resources High Equity
Partners, Series 85, A California Limited Partnership ("HEP").
WHEREAS, the conversion (the "Conversion") is being
effected pursuant to a merger agreement between HEP, the Partnership and the
Company pursuant to which HEP is being merged into the Partnership and the
partnership interests in HEP are being converted into shares of common stock of
the Company in exchange for their partnership interests in HEP;
WHEREAS, pursuant to a Consent Solicitation
Statement/Prospectus a majority of the limited partners of HEP consented to the
Conversion of the Partnership, including the adoption of this Second Amended and
Restated Agreement of Limited Partnership; and
WHEREAS, pursuant to the Conversion, the Company proposes
to qualify as a real estate investment trust.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and for other good and valuable consideration, the parties hereby
agreed as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Sections 4.2 and 12.2 hereof and
who is shown as such on the books and records of the Partnership.
<PAGE>
"Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each Partnership taxable year (i)
increased by any amounts which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership taxable year.
"Adjusted Property" means any property, the Carrying Value of
which has been adjusted pursuant to Exhibit B hereof.
"Advisor" means Shelbourne Management, LLC.
"Advisory Agreement" means the Advisory Agreement among the
General Partner, the Company and the Advisor dated the date of this Agreement.
"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person; (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreed Value" means (i) in the case of any Contributed
Property as of the time of its contribution to the Partnership, the 704(c) Value
of such property, reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when contributed,
(ii) in the case of any Adjusted Property, its fair market value (as determined
under Exhibit B hereto) on the date of adjustment and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it
may be amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more OP Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
2
<PAGE>
"Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit B hereof.
"Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes to the Partnership pursuant to Section 4.1, 4.2, or 4.3
hereof.
"Carrying Value" means (i) with respect to a Contributed
Property, the 704(c) Value of such property, and with respect to an Adjusted
Property, the Agreed Value of such property, reduced in either case (but not
below zero) by all Depreciation with respect to such Contributed Property or
Adjusted Property, as the case may be, charged to the Partners' Capital Accounts
following the contribution of or adjustment with respect to such property, and
(ii) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereof, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash Amount" means an amount of cash per OP Unit equal to the
Value on the Specific Redemption Date of the REIT Shares Amount.
"Certificate of Incorporation" means the Certificate of
Incorporation or other organizational document governing the Company, as amended
or restated from time to time.
"Certificate of Limited Partnership" means the Certificate of
Limited Partnership relating to the Partnership filed in the office of the
Delaware Secretary of State, as amended from time to time in accordance with the
terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent" means the consent or approval of a proposed action
by a Partner given in accordance with Section 14.2 hereof.
3
<PAGE>
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act (but excluding cash), contributed to
the Partnership, including all properties of HEP. Once the Carrying Value of a
Contributed Property is adjusted pursuant to Exhibit B hereof, such property
shall no longer constitute a Contributed Property for purposes of Exhibit B
hereof, but shall be deemed an Adjusted Property for such purposes.
"Conversion" has the meaning set forth in the second
WHEREAS clause hereof.
"Conversion Factor" means 3.0, 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 purpose 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 the record date for such dividend,
distribution, subdivision 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, if a
Notice of Redemption is given prior to such a record date and the Specified
Redemption Date is after such a record date, then the adjustment to the
Conversion Factor shall, with respect to such redeeming Partner, be retroactive
to the date of such Notice of Redemption). It is intended that adjustments to
the Conversion Factor are to be made in order to avoid unintended dilution or
anti-dilution as a result of transactions in which REIT Shares are issued,
redeemed or exchanged without a corresponding issuance, redemption or exchange
of OP Units. If, prior to a Specified Redemption Date, Rights (other than Rights
issued pursuant to an employee benefit plan or other compensation arrangement)
were issued and have expired, and such Rights were issued with an exercise price
that, together with the purchase price for such Rights, was below fair market
value in relation to the security or other property to be acquired upon the
exercise of such Rights, and such Rights were issued to all holders of
outstanding REIT Shares or the General Partner cannot in good faith represent
that the issuance of such Rights benefited the Limited Partners, then the
Conversion Factor applicable upon a Notice of Redemption shall be equitably
adjusted in a manner consistent with antidilution provisions in warrants and
other instruments in the case of such a below market issuance or exercise price.
A similar equitable adjustment to protect the value of OP Units shall be made in
all events if any Rights issued under a "Shareholder Rights Plan" became
exercisable and expired prior to a Specified Redemption Date.
"Depreciation" means, for each taxable year, an amount equal
to the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
4
<PAGE>
"Disregarded Entity" means a limited liability company or
other unincorporated entity which is wholly owned by the General Partner or the
Company and whose existence is disregarded for federal income tax purposes under
Treasury Regulation Section 1.7701-3.
"Effective Date" means the date of closing of the
Conversion.
"Extraordinary Transaction" shall mean, with respect to the
Company, the occurrence of one or more of the following events: (i) a merger
(including a triangular merger), consolidation or other combination with or into
another Person; (ii) the direct or indirect sale, lease, exchange or other
transfer of all or substantially all of its assets in one transaction or a
series of related transactions; or (iii) any reclassification, recapitalization
or change of its outstanding equity interests (other than a change in par value,
or from par value to no par value, or as a result of a split, dividend or
similar subdivision).
"General Partner" means Shelbourne Properties I GP, LLC, in
its capacity as the general partner of the Partnership, or its successors as
general partner of the Partnership.
"General Partner Interest" means a Partnership Interest held
by the General Partner, in its capacity as general partner. A General Partner
Interest may be expressed as a number of OP Units.
"Immediate Family" means, with respect to any natural Person,
such natural Person's estate or heirs or current spouse, parents,
parents-in-law, children, siblings and grandchildren (in each case whether by
adoption or not) and any trust or estate, all of the beneficiaries of which
consist of such Person or such Person's spouse, parents, parents-in-law,
children, siblings or grandchildren.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him incompetent to manage his or her Person
or estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership or limited liability
company which is a Partner, the dissolution and commencement of winding up of
the partnership or limited liability company; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation,
5
<PAGE>
reorganization or other relief of or against such Partner under any bankruptcy,
insolvency or other similar law now or hereafter in effect has not been
dismissed within one hundred twenty (120) days after the commencement thereof;
(g) the appointment without the Partner's consent or acquiescence of a trustee,
receiver or liquidator has not been vacated or stayed within ninety (90) days of
such appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of (A) his or its status as the General Partner, or as a director,
officer, shareholder or member of the Partnership or the General Partner, or (B)
his or its liabilities, pursuant to a loan guarantee or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken assets subject to); and (ii) such other
Persons (including Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time (whether before or after the
event giving rise to potential liability), in its sole and absolute discretion.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Limited Partner" means any Person (including the Company)
named as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be
amended from time to time, or any Substituted Limited Partner or Additional
Limited Partner, in such Person's capacity as a Limited Partner of the
Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled, as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed as
a number of OP Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means, for any taxable period, the excess, if
any, of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
"Net Loss" means, for any taxable period, the excess, if any,
of the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
6
<PAGE>
"New Securities" has the meaning set forth in Section 4.3.
"Nonrecourse Built-in Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Partners pursuant to Section 2.B of Exhibit C if
such properties were disposed of in a taxable transaction in full satisfaction
of such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
substantially in the form of Exhibit D to this Agreement.
"OP Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of OP Units outstanding and the Percentage Interest in the
Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of OP
Units shall be evidenced by such form of certificate for units as the General
Partner adopts from time to time unless the General Partner determines that the
OP Units shall be uncertificated securities.
"Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and pursuant to this Agreement, as it may be amended and/or restated, and
any successor thereto.
"Partnership Interest" means an ownership interest in the
Partnership representing a Capital Contribution by either a Limited Partner or
the General Partner and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this
7
<PAGE>
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Partnership Interest may be expressed as a
number of OP Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in a Partnership Minimum Gain, for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner for a distribution pursuant to Section 5.1 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 Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in
the Partnership as determined by dividing the OP Units owned by such Partner by
the total number of OP Units then outstanding and as specified in Exhibit A
attached hereto, as such Exhibit may be amended from time to time.
"Person" means an individual or a corporation, partnership,
trust, unincorporated organization, association or other entity.
"Proxy/Prospectus" has the meaning set forth in the third
WHEREAS clause hereof.
"Publicly Traded" means listed or admitted to trading on the
New York Stock Exchange, the American Stock Exchange or another national
securities exchange or designated for quotation on the NASDAQ National Market,
or any successor to any of the foregoing.
"Qualified REIT Subsidiary" means an entity which is wholly
owned by a real estate investment trust and whose existence is disregarded for
federal income tax purposes under Section 856(i) of the Code.
"Recapture Income" means any gain recognized by the
Partnership upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.7
hereof.
"Redemption Right" has the meaning set forth in Section 8.7
hereof.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
8
<PAGE>
"REIT" means a real estate investment trust under Sections 856
through 860 of the Code.
"REIT Share" shall mean a share of common stock, par value
$.01 per share, of the Company.
"REIT Shares Amount" shall mean a number of REIT Shares equal
to the product of the number of OP Units owned by a Redeeming Partner,
multiplied by the Conversion Factor in effect on the date of receipt by the
General Partner of a Notice of Redemption, 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,
"Rights"), and the Rights have not expired at the Specified Redemption Date,
then the REIT Shares Amount shall also include the Rights that were issuable to
a holder of the REIT Shares Amount of REIT Shares on the applicable record date
relating to the issuance of such Rights.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate
Book-Tax Disparities.
"Rights" shall have the meaning set forth in the definition of
"REIT Shares Amount."
"Sale or Disposition" means any of the following Partnership
transactions: sales, exchanges, or other dispositions of real or personal
property, condemnations or any recovery or damage awards, and insurance proceeds
(other than business or rental interruption insurance proceeds).
"704(c) Value" of any Contributed Property means the fair
market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt. Subject to Exhibit B hereof, the General Partner
shall, in its sole and absolute discretion, use such method as it deems
reasonable and appropriate to allocate the aggregate of the 704(c) Values of
Contributed Properties in a single or integrated transaction among the separate
properties on a basis proportional to their respective fair market values.
"Specified Redemption Date" means the sixty-first (61st) day
after receipt by the General Partner of a Notice of Redemption or, if such date
is not a Business Day, the first Business Day thereafter; provided that no
Specified Redemption Date shall occur before that date that is 12 months after
the issuance of the applicable OP Units, and provided further that if the
Company combines its outstanding REIT Shares into a smaller number of REIT
Shares, no Specified Redemption Date shall occur after the record date of such
combination of REIT Shares and prior to the effective date of such combination.
9
<PAGE>
"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.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
"Taxable REIT Subsidiary" means an entity in which the REIT
owns stock and which elects to be treated as such under Section 856(l) of the
Code.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Transfer" has the meaning set forth in Section 11.1.
"Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit B hereof) as of
such date over (ii) the Carrying Value of such property (prior to any adjustment
to be made pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
Carrying Value of such property (prior to any adjustment to be made pursuant to
Exhibit B hereof) as of such date over (ii) the fair market value of such
property (as determined under Exhibit B hereof) as of such date.
"Value" means, with respect to a REIT Share, the average of
the daily market price for the ten (10) consecutive trading days immediately
preceding the Specified Redemption Date. The market price for each such trading
day shall be: (i) if the REIT Shares are listed or admitted to trading on any
securities exchange or the Nasdaq National Market System, the closing price on
such day, or if no such sale takes place on such day, the average of the closing
bid and asked prices on such day; (ii) if the REIT Shares are not listed or
admitted to trading on any securities exchange or the Nasdaq National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner; or
(iii) if the REIT Shares are not listed or admitted to trading on any securities
exchange or the Nasdaq National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than ten (10) 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 (10) 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
10
<PAGE>
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, 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, provided that the Value of
any rights issued pursuant to a "Shareholder Rights Plan" shall be deemed to
have no value unless a "triggering event" shall have occurred (i.e., if the
Rights issued pursuant thereto are no longer "attached" to the REIT Shares and
are able to trade independently).
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 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 2.2 Name
The name of the Partnership is Shelbourne Properties I L.P.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner, the
Company or any of their respective Affiliates. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall notify the Limited Partners of such change in the next
regular communication to the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be 5 Cambridge Center, 9th Floor, Cambridge, Massachusetts
02142 or such other place as the General Partner may from time to time designate
by notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on April 3, 2000, the
date on which the Certificate was filed in the office of the Secretary of State
of the State of Delaware in accordance with the Act, and shall continue in
perpetuity, unless it is dissolved pursuant to the provisions of Article XIII
hereof or as otherwise provided by law.
Section 2.5 Power of Attorney
11
<PAGE>
A. Each Limited Partner and each Assignee hereby constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in- fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
i. execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments (including, without limitation, this
Agreement and the Certificate of Limited Partnership and all amendments
or restatements thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership
(or a partnership in which the Limited Partners have limited liability)
in the State of Delaware and in all other jurisdictions in which the
Partnership may or plans to conduct business or own property; (b) all
instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this
Agreement in accordance with its terms; (c) all conveyances and other
instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described in,
Article XI, XII or XIII hereof or relating to the Capital Contribution
of any Partner; and (e) all certificates, documents and other
instruments relating to the determination of the rights, preferences
and privileges of Partnership Interests; and
ii. execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or any Liquidator, to make, evidence,
give, confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this agreement or appropriate or
necessary, in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article XIV
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's OP Units
and shall extend to such Limited Partner's or Assignee's heirs, successors,
assigns and personal representatives. Each such Limited Partner or Assignee
hereby agrees to be bound by any representation made by the General Partner or
any Liquidator, acting in good faith pursuant to such power of attorney, and
each such Limited Partner or Assignee hereby waives any and all defenses which
may be available to contest, negate or disaffirm the action of the General
Partner or any
12
<PAGE>
Liquidator, taken in good faith under such power of attorney. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
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 be classified as a REIT, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Partnership; (ii) to enter into any partnership, joint venture, limited
liability company or other similar arrangement to engage in any of the foregoing
or to own interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing.
The General Partner also shall be empowered to do any and all acts and things
necessary or prudent to ensure that the Partnership will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Code,
including but not limited to imposing restrictions on transfers and restrictions
on redemptions.
Section 3.2 Powers
The Partnership shall have full power and authority to do any
and all acts and things necessary, appropriate, proper, advisable, incidental to
or convenient for the furtherance and accomplishment of the purposes and
business described herein and for the protection and benefit of the Partnership,
including, without limitation, directly or through its ownership interest in
other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property and other real estate-related assets, and lease, sell,
transfer and dispose of real property and other real estate-related assets;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the Company to
continue to qualify as a REIT, (ii) could subject the Company to any additional
taxes under Section 857 or Section 4981 of the Code or (iii) could 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 by the General Partner in writing.
Section 3.3 Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes
specified in Section 3.1 above, and this Agreement shall not be deemed to create
a partnership among the
13
<PAGE>
Partners with respect to any activities whatsoever other than the activities
within the purposes of the Partnership as specified in Section 3.1 above.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Accounts and Capital Contributions of the
Partners
A. Capital Accounts. Capital Accounts shall be maintained for
each Partner pursuant to Exhibit B hereof. On the Effective Date, the Capital
Account balances of the General Partner and the Company shall equal the product
ot their Percentage Interest and the Agreed Value of the assets acquired by the
Partnership on the Effective Date.
B. General Partnership Interest. The OP Units held by the
General Partner shall be deemed to be the General Partner Interest.
C. No Obligation to Make Additional Capital Contributions.
Except as provided in Sections 4.2 and 10.4 hereof or elsewhere in this
Agreement, the Partners shall have no obligation to make any additional Capital
Contributions or provide any additional funding to the Partnership (whether in
the form of loans, repayments of loans or otherwise). No Partner shall have any
obligation to restore any deficit that may exist in its Capital Account, either
upon a liquidation of the Partnership or otherwise. Each Partner shall own the
number of OP Units set forth for such Partner in Exhibit A and shall have a
Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest shall be adjusted in Exhibit A from time to time by the
General Partner to the extent necessary to reflect accurately redemptions,
additional Capital Contributions, the issuance of additional OP Units (pursuant
to any merger or otherwise), or similar events having an effect on any Partner's
Percentage Interest.
Section 4.2 Issuances of Partnership Interests
The General Partner is hereby authorized to cause the
Partnership from time to time to issue to the Partners (including the Company
and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) additional OP
Units or other Partnership Interests in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to the Limited Partner Interests issued on the
Effective Date, all as shall be determined by the General Partner in its sole
and absolute discretion subject to Delaware law, including, without limitation,
(i) the allocations of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; provided that no
such additional OP Units or other Partnership Interests shall be issued to the
Company, unless either (a)(1) the additional Partnership Interests are issued in
connection with the grant, award or issuance of REIT Shares or other equity
interests by the Company, which REIT Shares or other equity interests have
designations, preferences and other rights such that the economic interests
attributable to such REIT Shares or other equity interests are substantially
similar to the
14
<PAGE>
designations, preferences and other rights of the additional Partnership
Interests issued to the Company in accordance with this Section 4.2 and (2) the
Company shall make a Capital Contribution to the Partnership in an amount equal
to the proceeds raised in connection with such issuance, or (b) the additional
Partnership Interests are issued to all Partners in proportion to their
respective Percentage Interests. In addition, the Company may acquire OP Units
from other Partners pursuant to this Agreement. In the event that the
Partnership issues Partnership Interests pursuant to this Section 4.2, the
General Partner shall make such revisions to this Agreement (without any
requirement of receiving approval of the Limited Partners) including but not
limited to the revisions described in Section 5.4, Section 6.2 and Section 8.7
hereof, as it deems necessary to reflect the issuance of such additional
Partnership Interests and the special rights, powers and duties associated
therewith. Unless specifically set forth otherwise by the General Partner, any
Partnership Interest issued after the Effective Date shall have the same rights,
powers and duties as the Partnership Interests issued on the Effective Date.
Section 4.3 Contributions of Proceeds of Issuances of REIT
Shares.
From and after the date hereof, the Company shall not issue
any additional REIT Shares (other than REIT Shares issued pursuant to Section
8.7), or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares (collectively "New
Securities") other than to all holders of REIT Shares unless (i) 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 New
Securities; and (ii) the Company contributes to the Partnership the proceeds
from the issuance of such New Securities and from the exercise of rights
contained in such New Securities, provided that if the proceeds received by the
Company are less than the gross proceeds of such issuance as a result of any
underwriter's discount or other expenses paid or incurred in connection with
such issuance, then the Company shall be deemed to have made a Capital
Contribution to the Partnership in the amount equal to the sum of the net
proceeds of such issuance plus the amount of such underwriter's discount and
other expenses paid by the Company (which discount and expense shall be treated
as an expense for the benefit of the Partnership for purposes of Section 7.4).
Without limiting the foregoing, the Company is expressly authorized to issue New
Securities for no tangible value or 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 interests of the Company
and the Partnership (for example, and not by way of limitation, the issuance of
REIT Shares and corresponding OP Units pursuant to an employee stock purchase
plan providing for employee grants or purchases of REIT Shares or employee stock
options that have an exercise price that is less than the fair market value of
the REIT Shares, either at the time of issuance or at the time of exercise); and
(y) the Company contributes all proceeds, if any, from such issuance and
exercise to the Partnership. In the case of employee acquisitions of New
Securities at a discount from fair market value or for no value in connection
with a grant of New Securities, the amount of such discount representing
compensation to the employee, as determined by the General Partner, shall be
treated as an expense of the issuance of such New Securities.
15
<PAGE>
Section 4.4 No Preemptive Rights
Except to the extent expressly granted by the General Partner
(on behalf of the Partnership) pursuant to another agreement, no Person shall
have any preemptive, preferential or other similar right with respect to (i)
additional Capital Contributions or loans to the Partnership or (ii) issuance or
sale of any OP Units or other Partnership Interests.
Section 4.5 Other Contribution Provisions
In the event that any Partner is admitted to the Partnership
and is given a Capital Account in exchange for services rendered to the
Partnership, such transaction shall be treated by the Partnership and the
affected Partner as if the Partnership had compensated such Partner in cash for
the fair market value of such services, and the Partner had contributed such
cash to the capital of the Partnership.
Section 4.6 No Interest on Capital
No Partner shall be entitled to interest on its Capital
Contributions or its Capital Account.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall have the exclusive right and
authority to declare and cause the Partnership to make distributions as and when
and in such amounts as the General Partner deems appropriate or desirable in its
sole discretion. All distributions shall be made to Partners who are Partners on
the Partnership Record Date in accordance with their respective Percentage
Interests on such Partnership Record Date; provided that in no event may a
Partner receive a distribution with respect to an OP Unit if such Partner is
entitled to receive a distribution with respect to a REIT Share for which such
OP Unit has been exchanged and such distribution shall be made to the Company.
For so long as the Company elects to qualify as a REIT, the General Partner
shall take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with the Company's qualification as a REIT, to make
distributions so that the Company will receive amounts sufficient to enable the
Company to satisfy the requirements for qualifying as a REIT under the Code and
the Regulations (the "REIT Requirements") and avoid federal income taxation or
excise tax liability to the Company. Unless otherwise expressly provided for
herein or in an agreement at the time a new class of Partnership Interests is
created in accordance with Article IV hereof, no Partnership Interest shall be
entitled to a distribution in preference to any other Partnership Interest.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.4 hereof with respect to any
allocation, payment or distribution to the General Partner, the Limited Partners
or Assignees shall be treated as amounts distributed to the
16
<PAGE>
General Partner, Limited Partners or Assignees pursuant to Section 5.1 above for
all purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other
cash received or reductions in reserves made after commencement of the
liquidation of the Partnership shall be distributed to the Partners in
accordance with Section 13.2.
Section 5.4 Revisions to Reflect Issuance of Additional
Partnership Interests
In the event that the Partnership issues additional
Partnership Interests to the General Partner, the Company or any Additional
Limited Partner pursuant to Article IV hereof, the General Partner shall make
such revisions to this Article V as it deems necessary to reflect the issuance
of such additional Partnership Interests.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Exhibit B
hereto) shall be allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C hereto, Net Income shall be allocated (i)
first, to the General Partner to the extent that Net Losses previously allocated
to the General Partner pursuant to the last sentence of Section 6.1.B exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1.A; (ii) next, to all Partners, in accordance with their
Percentage Interests, to the extent that Net Losses previously allocated to them
pursuant to Section 6.1.B exceed Net Income previously allocated to them
pursuant to this clause (ii) of Section 6.1A; and (iii) thereafter, to the
Partners in accordance with their respective Percentage Interests.
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C hereto, Net Losses shall be allocated to the
Partners in proportion to their Percentage Interests, provided that, Net Losses
shall not be allocated to any Partner pursuant to this Section 6.1.B. to the
extent that such allocation would cause such Partner to have an Adjusted Capital
Account Deficit (or to increase an existing Adjusted Capital Account Deficit) at
the end of such taxable year (or portion thereof). All Net Losses in excess of
the limitations set forth in this Section 6.1.B. shall be allocated to the
General Partner.
C. Allocation of Nonrecourse Debt. The Partners agree that
Nonrecourse Liabilities of the Partnership shall be allocated among the Partners
in accordance with the provisions of Regulations Section 1.752-3, as modified by
any guidance published by the Internal Revenue Service, or otherwise reasonably
interpreted.
17
<PAGE>
D. Recapture Income. Any gain allocated to the Partners upon a
Sale or Disposition of any Partnership property shall, to the extent possible,
after taking into account other required allocations of gain pursuant to Exhibit
C, be characterized as Recapture Income in the same proportions and to the same
extent as such Partners have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
Section 6.2 Revisions to Allocations to Reflect Issuance of
Additional Partnership Interests
In the event that the Partnership issues additional
Partnership Interests to the General Partner, the Company or any Additional
Limited Partner pursuant to Article IV hereof, the General Partner shall make
such revisions to this Article VI as it deems necessary to reflect the terms of
the issuance of such additional Partnership Interests.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner shall
have full power and authority to do all things deemed necessary or desirable by
it on such terms and conditions as the General Partner in its sole discretion
deems appropriate, to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effectuate the purposes set forth
in Section 3.1 hereof, including, without limitation:
i. the making of any expenditures, the lending or
borrowing of money, including, without limitation, making prepayments
on loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as will permit the
Company (as long as the Company qualifies as a REIT) to avoid the
payment of any federal income tax (including, for this purpose, any
excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders sufficient to permit the Company to
maintain REIT status, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by mortgage,
deed of trust or other lien or encumbrance on the Partnership's assets)
and the incurring of any obligations it deems necessary or desirable
for the conduct of the activities of the Partnership;
ii. the making of tax, regulatory and other filings,
or rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership, the registration of any class of securities of the
18
<PAGE>
Partnership under the Securities Exchange Act of 1934, as amended, and
the listing of any debt securities of the Partnership on any exchange;
iii. the acquisition, disposition, sale, mortgage,
pledge, encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership (including the exercise or grant of any
conversion, option, privilege or subscription right or other right
available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with
or into another entity, on such terms as the General Partner deems
proper in its sole and absolute discretion;
iv. the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement, including, without
limitation, the financing of the conduct of the operations of the
Company, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Company and/or the Subsidiaries of the Partnership) and the repayment
of obligations of the Partnership and its Subsidiaries and any other
Person in which the Partnership has an equity investment and the making
of capital contributions to its Subsidiaries;
v. the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership or any other Person in which the Partnership has made a
direct or indirect equity investment;
vi. the negotiation, execution, and performance of
any contracts, conveyances or other instruments that the General
Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General Partner's
powers under this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other professional
advisors and other agents (including the Advisor) and the payment of
their expenses and compensation out of the Partnership's assets;
vii. the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
viii. the holding, managing, investing and
reinvesting of cash and other assets of the Partnership and, in
connection therewith, the opening, maintaining and closing of bank and
brokerage accounts and the drawing of checks or other orders for the
payment of moneys;
ix. the collection and receipt of revenues and income
of the Partnership;
x. the selection and dismissal of employees of the
Partnership (including, without limitation, employees having titles
such as "president," "vice president," "secretary" and "treasurer,) and
agents, outside attorneys, accountants, consultants and contractors of
the Partnership, and the determination of their compensation and other
terms of employment or hiring;
19
<PAGE>
xi. the maintenance of such insurance for the benefit
of the Partnership, the Partners and directors and officers thereof as
it deems necessary and appropriate;
xii. the formation of, or acquisition of an interest
in, and the contribution of property to, any further limited or general
partnerships, joint ventures, limited liability companies 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
investment from time to time);
xiii. the control of any matters affecting the rights
and obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of dispute
resolution or abandonment of any claim, cause of action, liability,
debt or damages due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution, the
representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute
resolution, the incurring of legal expense and the indemnification of
any Person against liabilities and contingencies to the extent
permitted by law;
xiv. the determination of the fair market value of
any Partnership property distributed in kind, using such reasonable
method of valuation as the General Partner may adopt;
xv. the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney,
of any right, including the right to vote, appurtenant to any assets or
investment held by the Partnership;
xvi. the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or in connection with
any Subsidiary of the Partnership or any other Person in which the
Partnership has a direct or indirect interest, individually or jointly
with any such Subsidiary or other Person;
xvii. the exercise of any of the powers of the
General Partner enumerated in this Agreement on behalf of any Person in
which the Partnership does not have any interest pursuant to
contractual or other arrangements with such Person;
xviii. the making, executing and delivering of any
and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts, guarantees,
warranties, indemnities, waivers, releases or other legal instruments
or agreements in writing necessary or appropriate in the judgment of
the General Partner for the accomplishment of any of the powers of the
General Partner under this Agreement;
xix. the distribution of cash to acquire OP Units
held by a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.7 hereof;
20
<PAGE>
xx. the amendment and restatement of Exhibit A hereto
to reflect accurately at all times the Capital Contributions and
Percentage Interests of the Partners as the same are adjusted from time
to time to the extent necessary to reflect redemptions, Capital
Contributions, the issuance of OP Units, the admission of any
Additional Limited Partner or any Substituted Limited Partner or
otherwise, which amendment and restatement, notwithstanding anything in
this Agreement to the contrary, shall not be deemed an amendment of
this Agreement, as long as the matter or event being reflected in
Exhibit A hereto otherwise is authorized by this Agreement;
xxi. the approval and/or implementation of any merger
(including a triangular merger), consolidation or other combination
between the Partnership and another person that is not prohibited under
this Agreement, whether with or without Consent, the terms of Section
17-211(g) of the Act shall be applicable such that the General Partner
shall have the right to effect any amendment to this Agreement or
effect the adoption of a new partnership agreement for a limited
partnership if it is the surviving or resulting limited partnership of
the merger or consolidation (except as may be expressly prohibited
under Section 14.1.C or Section 14.1.D); and
xxii. the taking of any and all actions necessary or
desirable in furtherance of, in connection with or incidental to the
foregoing.
B. No Approval by Limited Partners. Each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, to the full extent permitted under the Act or other
applicable law. The execution, delivery or performance by the General Partner or
the Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
(both in purpose and amount) from time to time, including upon liquidation of
the Partnership pursuant to Section 13.2 hereof.
E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken
21
<PAGE>
(or not taken) by it. The General Partner and the Partnership shall not have
liability to a Limited Partner for monetary damages or otherwise for losses
sustained, liabilities incurred or benefits not derived by such Limited Partner
in connection with such decisions, provided that the General Partner has acted
in good faith and not beyond its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The Partnership has previously caused the Certificate to be
filed with the Secretary of State of Delaware. To the extent that such action is
determined by the General Partner to be reasonable and necessary or appropriate,
the General Partner shall file amendments to and restatements of the Certificate
and do all the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
The General Partner shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, the District of
Columbia or other jurisdiction in which the Partnership may elect to do business
or own property. Subject to the terms of Section 8.6.A(iv) hereof, the General
Partner shall not be required, before or after filing, to deliver or mail a copy
of the Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partners, 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. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.4 Reimbursement of the General Partner and the
Company
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
Conversion, the ownership of its assets and its management, administration
and operations. The General Partner shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its
22
<PAGE>
sole and absolute discretion, for all expenses it incurs relating to the
Conversion and the ownership, management, administration and operation of, or
for the benefit of, the Partnership (including, without limitation, expenses
related to the ownership, management and administration of any Subsidiaries of
the Company or the Partnership or Affiliates of the Partnership). The General
Partner shall determine in good faith the amount of expenses incurred by it
related to the ownership and operation of, or for the benefit of, the
Partnership. Such reimbursements shall be in addition to any reimbursement to
the Company pursuant to Section 10.3.C hereof and as a result of indemnification
pursuant to Section 7.7 below. All payments and reimbursements hereunder shall
be characterized for federal income tax purposes as expenses of the Partnership
incurred on its behalf, and not as expenses of the General Partner.
C. Reimbursement of Company Expenses. The Company shall be
reimbursed on a monthly basis, or such other basis as the General Partner may
determine in its sole and absolute discretion, for all expenses that the Company
incurs relating to the ownership and operation of, or for the benefit of, the
Partnership (including, without limitation, (i) expenses relating to the
ownership of interests in the Partnership, (ii) compensation of the Company's
officers and employees including, without limitation, payments under the
Company's Stock Incentive Plans that provides for stock units, or other phantom
stock, pursuant to which employees of the Company will receive payments based
upon dividends on or the value of REIT Shares, (iii) director fees and expenses
and (iv) all costs and expenses of being a public company, including costs of
filings with the SEC, reports and other distributions to its stockholders);
provided that the amount of any such reimbursement shall be reduced by any
interest earned by the Company with respect to bank accounts or other
instruments or accounts held by it on behalf of the Partnership. The Partners
acknowledge that all such expenses of the Company are deemed to be for the
benefit of the Partnership. Such reimbursement shall be in addition to any
reimbursement made as a result of indemnification pursuant to Section 7.7
hereof.
D. Partnership Interest Issuance Expenses. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, debt of the Partnership or rights, options,
warrants or convertible or exchangeable securities pursuant to Article IV hereof
(including, without limitation, all costs, expenses, damages and other payments
resulting from or arising in connection with litigation related to any of the
foregoing), all of which expenses are considered by the Partners to constitute
expenses of, and for the benefit of, the Partnership.
E. Tax Treatment of Certain Reimbursements. If and to the
extent that any reimbursement made pursuant to this Section 7.4 is determined
for federal income tax purposes not to constitute a payment of expenses of the
Partnership, then such reimbursement shall be treated as a distribution pursuant
to Article V hereof.
Section 7.5 Outside Activities of the General Partner and the
Company
A. General Partner. The General Partner shall not, directly or
indirectly, enter into or conduct any business other than in connection with the
ownership, acquisition and disposition of Partnership Interests as a General
Partner or Limited Partner and the management of the business of the Partnership
and such activities as are incidental to any of the foregoing.
23
<PAGE>
B. Company. The Company shall not, directly or indirectly,
enter into or conduct any business other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a Limited Partner, the
ownership of the General Partner and such activities as are incidental to any of
the foregoing, and any other activities contemplated hereby.
Section 7.6 Transactions with Affiliates
A. Transactions with Certain Affiliates. The Partnership may
enter into transactions with Affiliates of the General Partner (including
transactions providing for the purchase or sale of property or other assets)
provided that the terms of such transactions are comparable to those that could
be obtained from unaffiliated third parties.
B. Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans funded by
the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. Conflict Avoidance. The General Partner is expressly
authorized to enter into, in the name and on behalf of the Partnership, a right
of first opportunity arrangement and other conflict avoidance agreements with
various Affiliates of the Partnership and the General Partner, on such terms as
the General Partner, in its sole and absolute discretion, believes are
advisable.
D. Transfers of Assets. 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 consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. General. To the fullest extent permitted by Delaware law,
the Partnership shall indemnify each Indemnitee from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorneys fees and other legal fees and expenses),
judgments, fines, settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the operations of the Partnership, the General
Partner or the Company as set forth in this Agreement, in which such 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. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise for any indebtedness of the
Partnership or any Subsidiary of the Partnership (including without limitation,
any indebtedness which the
24
<PAGE>
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the General Partner is hereby authorized and empowered, on behalf of
the Partnership, to enter into one or more indemnity agreements consistent with
the provisions of this Section 7.7 in favor of any Indemnitee having or
potentially having liability for any such indebtedness. The termination of any
proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or
its equivalent by an Indemnitee, or an entry of an order of probation against an
Indemnitee prior to judgment, creates a rebuttable presumption that such
Indemnitee acted in a manner that would preclude indemnification under this
Section 7.7. Any indemnification pursuant to this Section 7.7 shall be made only
out of the assets of the Partnership, and neither the General Partner nor any
Limited Partner shall have any obligation to contribute to the capital of the
Partnership, or otherwise provide funds, to enable the Partnership to fund its
obligations under this Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee, in the case of any director or officer who is
an Indemnitee 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
Section 7.7.A has been met and (ii) a written undertaking by or on behalf of the
Indemnitee to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by
this Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain
insurance on behalf of the Indemnitees and such other Persons as the General
Partner shall determine against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7,
(i) 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, (ii) 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 7.7 and (iii) 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 that is not
opposed to the best interests of the Partnership
25
<PAGE>
F. No Personal Liability for Limited Partner. In no event may
an Indemnitee subject any of the Partners to liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7, or any
provision hereof, shall be prospective only and shall not in any way affect the
obligation of the Partnership to any Indemnitee under this Section 7.7 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or related to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the
extent any payments to the General Partner pursuant to this Section 7.7
constitute gross income to the General Partner (as opposed to the repayment of
advances made on behalf of the Partnership), such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners, and shall
not be treated as distributions for purposes of computing the Partners' Capital
Accounts.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner and its directors and officers shall not
be liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner acted in good faith.
B. No Obligation to Consider Separate Interests of Limited
Partners or Shareholders. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, 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 Assignees) in deciding whether to cause the Partnership to take (or
decline to take) any actions and that the General Partner shall not be liable
for monetary damages or otherwise 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. In addition, the
Limited Partners expressly acknowledge that the Company is acting on behalf of
its shareholders, that the Company, in its capacity as the sole member of the
General Partner, is under no obligation to consider the separate interests of
the Limited Partners (including, without limitation, the tax consequences to
Limited Partners or Assignees) in deciding whether to cause the General Partner
to cause the Partnership to take (or decline to take) any actions and that the
Company shall not be liable for monetary damages or otherwise for losses
sustained, liabilities
26
<PAGE>
incurred or benefits not derived by Limited Partners in connection with such
decisions, provided that the General Partner has acted in good faith.
C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A above, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its agents
(including the Advisor). The General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent (including the Advisor)
appointed by the General Partner in good faith.
D. Effect of Amendment. Any amendment, modification or repeal
of this Section 7.8 or any provision hereof shall be prospective only and shall
not in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. Reliance on Documents. The General Partner may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors selected by it, and any act taken or
omitted to be taken in reliance upon the advice of such Persons as to matters
which the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such advice.
C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to employ
persons in the operation and management of the business of the Partnership,
including but not limited to, the Advisor, supervisory managing agents, building
management agents, insurance, real estate and loan brokers, agents, employees,
managers, accountants, attorneys, consultants and others, on such terms and for
such compensation as the General Partner shall determine. In addition, the
General Partner may act through any of its duly authorized officers or a duly
appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power and
authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation.
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
27
<PAGE>
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT; or (ii) to avoid the Company incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
E. Actions to Avoid Publicly Traded Partnership Status.
Notwithstanding any other provision of this Agreement, 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 to ensure that the
Partnership will not be classified as a "publicly traded partnership" for
purposes of Sections 351(e), 469(k) or 7704 of the Code, including without
limitation imposing restrictions on transfers and redemptions of OP Units
hereunder and modifying the Specified Redemption Date, is expressly authorized
under this Agreement and is deemed approved by all the Limited Partners;
provided however, that the General Partner shall be under no obligation to avoid
publicly traded partnership status for the Partnership if the General Partner
determines, in its sole and absolute discretion, that the avoidance of such
status is no longer in the best interests of the Partners.
Section 7.10 Purchase of REIT Shares by Company
In the event that the Company shall elect to purchase from its
shareholders REIT Shares for the purpose of delivering such REIT Shares to
satisfy an obligation under any dividend reinvestment program adopted by the
Company, any employee stock purchase plan adopted by the Company, or any similar
obligation or arrangement undertaken by the Company in the future or for the
purpose of retiring such REIT Shares, the purchase price paid by the Company for
such REIT Shares and any other expenses incurred by the Company in connection
with such purchase shall be considered expenses of the Partnership and shall be
advanced to the Company or reimbursed to the Company, subject to the condition
that: (i) if such REIT Shares subsequently are sold by the Company, the Company
shall pay to the Partnership any proceeds received by the Company for such REIT
Shares (which sales proceeds shall include the amount of dividends reinvested
under any dividend reinvestment or similar program provided that a transfer of
REIT Shares for OP Units pursuant to Section 8.7 would not be considered a sale
for such purposes); and (ii) if such REIT Shares are not retransferred by the
Company within thirty (30) days after the purchase thereof, or the Company
otherwise determines not to retransfer such REIT Shares, the General Partner
shall cause the Partnership to redeem a number of OP Units held by the Company,
as a Limited Partner, equal to the product obtained by dividing the number of
such REIT Shares by the Conversion Factor (in which case such advancement or
reimbursement of expenses shall be treated as having been made as a distribution
in redemption of such number of Units held by the Company).
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority, without consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership and
such
28
<PAGE>
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement, including Section 10.4
hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner or
agent of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner or agent of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such, shall not affect, impair or eliminate the
limitations on the liability of the Limited Partners or Assignees under this
Agreement.
Section 8.3 [Intentionally Left Blank]
Section 8.4 Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section
7.6.C hereof and any other agreements entered into by a Limited Partner or its
Affiliates with the Partnership or any of its Subsidiaries, any Limited Partner
(other than the Company) and any officer, director, employee, agent, trustee,
Affiliate or shareholder of any Limited Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities that
are in direct competition with the Partnership or that are enhanced by the
activities of the Partnership. Neither the Partnership nor
29
<PAGE>
any Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. None of the Limited Partners (other
than the Company) nor any other Person shall have any rights by virtue of this
Agreement or the Partnership relationship established hereby in any business
ventures of any other Person and such Person shall have no obligation pursuant
to this Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.5 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.7 below, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. No Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee, either as to the return of Capital Contributions or
as to profits, losses or distributions.
Section 8.6 Rights of Limited Partners Relating to the
Partnership
A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.6.C below, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:
i. to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the Company
pursuant to the Securities Exchange Act of 1934;
ii. to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year,
iii. to obtain a current list of the name and last known
business, residence or mailing address of each Partner, and
iv. to obtain a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with executed copies
of all powers of attorney pursuant to which this Agreement, the Certificate of
Limited Partnership and all amendments thereto have been executed.
B. Notice of Conversion Factor. The Partnership shall notify
each Limited Partner, upon request, of the then current Conversion Factor and,
with reasonable detail, how the same was determined.
C. Confidentiality. Notwithstanding any other provision of
this Section 8.6, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or
30
<PAGE>
other information the disclosure of which the General Partner in good faith
believes is not in the best interests of the Partnership or could damage the
Partnership or its business or (ii) the Partnership is required by law or by
agreements with unaffiliated third parties to keep confidential.
Section 8.7 Redemption Right
A. General. Subject to Sections 8.7.B and 8.7.C hereof, on or
after that date which is 12 months after the issuance of OP Units to a Limited
Partner other than the Company, such Limited Partner shall have the right (the
"Redemption Right") to require the Partnership to redeem on a Specified
Redemption Date the OP Units held by such Limited Partner (or such lesser amount
as the General Partner may permit) at a redemption price per OP Unit 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 Company) 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 Company elects to purchase the OP Units subject to the Notice of Redemption
pursuant to Section 8.7.B. A Limited Partner may not exercise the Redemption
Right for less than all of the OP Units held by such Partner unless the General
Partner otherwise consents. The Redeeming Partner shall have no right, with
respect to any OP Units so redeemed, to receive any distributions paid on or
after the Specified Redemption Date. The Assignee of any Limited Partner may
exercise the rights of such Limited Partner pursuant to this Section 8.7, and
such Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Assignee. In
connection with any exercise of such rights by an Assignee on behalf of a
Limited Partner, the Cash Amount shall be paid by the Partnership directly to
such Assignee and not to such Limited Partner.
B. Redemption by Company. Notwithstanding the provisions of
Section 8.7.A, a Limited Partner that exercises the Redemption Right shall be
deemed to have offered to sell the OP Units described in the Notice of
Redemption to the Company. The Company may, in its sole and absolute discretion
(subject to any limitations on ownership and transfer of REIT Shares set forth
in the Certificate of Incorporation), elect to assume directly and satisfy a
Redemption Right by paying to the Redeeming Partner either the Cash Amount or
the REIT Shares Amount, as the Company determines in its sole and absolute
discretion on the Specified Redemption Date, whereupon the Company shall acquire
the OP Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such OP Units. If the
Company shall elect to exercise its right to purchase OP Units under this
Section 8.7.B with respect to a Notice of Redemption, it shall so notify the
Redeeming Partner within five (5) Business Days after the receipt by it of such
Notice of Redemption. Unless the Company (in its sole and absolute discretion)
shall exercise its right to purchase OP Units from the Redeeming Partner
pursuant to this Section 8.7.B, the Company shall not have any obligation to the
Redeeming Partner or the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the Company shall exercise its
right to purchase OP Units with respect to the exercise of a Redemption Right in
the manner described in the first sentence of this Section 8.7.B, the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the Company shall treat the
31
<PAGE>
transaction between the Company and the Redeeming Partner, for federal income
tax purposes, as a sale of the Redeeming Partner's OP Units to the Company. Each
Redeeming Partner agrees to execute such documents as the Company may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Redemption Right.. In the event that the Company determines to pay the Redeeming
Partner the Redemption Amount in the form of REIT Shares, the total number of
REIT Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's OP Units shall be the applicable REIT Shares Amount. In the event this
amount is not a whole number of REIT Shares, the Redeeming Partner shall be paid
(i) that number of REIT Shares that equals the nearest whole number less than
such amount plus (ii) an amount of cash which the Company determines, in its
reasonable discretion, to represent the fair value of the remaining fractional
Share which would otherwise be payable to the Redeeming Partner.
C. Exceptions to Exercise of Redemption Right. Notwithstanding
the provisions of Sections 8.7.A and 8.7.B above, a Partner shall not be
entitled to exercise the Redemption Right pursuant to Section 8.7.A above if
(but only as long as) the delivery of REIT Shares to such Partner on the
Specified Redemption Date (i) would be prohibited under the Certificate of
Incorporation, or (ii) as long as the REIT Shares are Publicly Traded, would be
prohibited under applicable federal or state securities laws or regulations
(assuming the Company would in fact assume and satisfy the Redemption Right).
Furthermore, the Redemption Right pursuant to Sections 8.7.A and 8.7.B shall be
subject to any restrictions on redemptions imposed by the General Partner
pursuant to Section 7.9.E hereof.
D. No Liens on Partnership Units Delivered for Redemption.
Each Limited Partner covenants and agrees with the Company that all OP Units
delivered for redemption shall be delivered to the Partnership or the Company,
as the case may be, free and clear of all liens, and, notwithstanding anything
contained herein to the contrary, neither the Company nor the Partnership shall
be under any obligation to acquire OP Units that are or may be subject to any
liens. Each Limited Partner further agrees that, in the event the General
Partner determines that any state or local real property transfer, gains, excise
or other similar tax is required to be paid in connection with the transfer of
its OP Units to the Partnership or the Company, such Limited Partner shall
assume full liability for and shall pay when due such transfer tax. Each Limited
Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Limited Partner's OP Units to secure such Limited
Partner's obligation to pay all amounts required to be paid pursuant to this
Section 8.7D, and shall take such actions as the General Partner shall request
in order to perfect, maintain or enforce such security interest.
E. Additional Partnership Interests. In the event that the
Partnership issues additional Partnership Interests pursuant to Section 4.2
hereof, the General Partner shall make such revisions to this Section 8.7 as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
32
<PAGE>
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 below. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on. or be in the form of, punch cards, magnetic tape,
computer disk, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no event
later than one hundred five (105) days after the close of each Partnership Year,
the General Partner shall cause to be mailed to each Limited Partner as of the
close of the Partnership Year, an annual report containing financial statements
of the Partnership, or of the Company if such statements are prepared solely on
a consolidated basis with the Company, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.
B. Quarterly Reports. As soon as practicable, but in no event
later than one hundred five (105) days after the close of each calendar quarter
(except the last calendar quarter of each year), the General Partner shall cause
to be mailed to each Limited Partner as of the last day of the calendar quarter,
a report containing unaudited financial statements of the Partnership, or of the
Company, if such statements are prepared solely on a consolidated basis with the
Company, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code. The General Partner shall have the
right to seek to revoke any such election upon the General
33
<PAGE>
Partner's determination in its sole and absolute discretion that such revocation
is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6230(e)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profits interest of each of the Limited Partners and any Assignees;
provided, that such information is provided to the Partnership by the Limited
Partners.
B. Powers. The tax matters partner is authorized, but not
required:
(1) to enter into any settlement with the IRS with respect
to any administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax purposes
(such administrative proceedings being referred to as a "tax audit" and such
judicial proceedings being referred to as "judicial review"), and in the
settlement agreement the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such settlement agreement shall
not bind any Partner (i) who (within the time prescribed pursuant to the Code
and Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such final adjustment, including
the filing of a petition for readjustment with the Tax Court or the filing of a
complaint for refund with the United States Claims Court or the District Court
of the United States for the district in which the Partnership's principal place
of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not allowed by the IRS,
to file an appropriate pleading (petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners of
the Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.
34
<PAGE>
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 hereof shall be fully applicable to the
tax matters partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be become by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.
Section 10.4 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a recourse loan by the Partnership to such Limited Partner, which
loan shall be repaid by such Limited Partner within fifteen (15) days after
notice from the General Partner that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's OP Units to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.4. In the event that a Limited Partner
fails to pay all amounts owed to the Partnership pursuant to this Section 10.4
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus four (4) percentage points (but
not higher than the maximum lawful rate) from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the General Partner shall request in order to
perfect, maintain or enforce the security interest created hereunder.
35
<PAGE>
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. Definition. The "transfer," when used in this Article XI
with respect to a Partnership Interest or an OP Unit, shall be deemed to refer
to a transaction by which the General Partner purports to assign all or any part
of its General Partnership Interest to another Person or by which a Limited
Partner purports to assign all or any part of its Limited Partnership Interest
to another Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
The term "transfer" when used in this Article XI does not include any redemption
or repurchase of OP Units by the Partnership from a Limited Partner or
acquisition of OP Units from a Limited Partner by the Company pursuant to
Section 8.7 hereof or otherwise. No part of the interest of a Limited Partner
shall be subject to the claims of any creditor, any spouse for alimony or
support, or to legal process, and no part of the interest of a Limited Partner
may be voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.
Section 11.2 Transfers of Partnership Interests of General
Partner and the Company
A. Except as provided elsewhere in this Agreement, the General
Partner may not transfer any of its General Partner Interest or withdraw as
General Partner, and the Company may not transfer any of its Limited Partner
Interest or engage in an Extraordinary Transaction, except, in any such case,
(i) if such Extraordinary Transaction is, or such transfer or withdrawal is
pursuant to an Extraordinary Transaction that is, permitted under Section
11.2(B) or (ii) if Limited Partners holding at least a majority of the
Percentage Interests of the Limited Partners consent to such transfer or
withdrawal or Extraordinary Transaction, or (iii) if such transfer is to an
entity that is wholly-owned by the Company and is either a Disregarded Entity or
a Qualified REIT Subsidiary under Section 856(i) of the Code.
B. The General Partner and the Company are permitted to engage
in the following Extraordinary Transactions without the approval or vote of the
Limited Partners:
(i) an Extraordinary Transaction in connection with which
all Limited Partners either will receive, or will have the right to elect to
receive, for each OP Unit an amount of cash, securities, or other property equal
to the product of the REIT Shares Amount and the greatest amount of cash,
securities or other property paid to a holder of one REIT Share in consideration
of one REIT Share pursuant to the terms of the Extraordinary Transaction;
provided that, if, in connection with the Extraordinary Transaction, a purchase,
tender or exchange offer shall have been made to and accepted by the holders of
the outstanding REIT
36
<PAGE>
Shares, each holder of OP Units shall receive, or shall have the right to elect
to receive, the greatest amount of cash, securities, or other property which
such holder would have received had it exercised its right to Redemption (as set
forth in Section 8.7) and received REIT Shares in exchange for its Partnership
Units immediately prior to the expiration of such purchase, tender or exchange
offer and had thereupon accepted such purchase, tender or exchange offer and
then such Extraordinary Transaction shall have been consummated; and
(ii) a merger, or other combination of assets, with another
entity if: (w) immediately after such Extraordinary Transaction, substantially
all of the assets directly or indirectly owned by the Partnership are owned
directly or indirectly by the Partnership or another limited partnership or
limited liability company which is the survivor of a merger, consolidation or
combination of assets with the Partnership (in each case, the "Surviving
Partnership"); (x) the Limited Partners own a percentage interest of the
Surviving Partnership based on the relative fair market value of the net assets
of the Partnership (as determined pursuant to Section 11.2.C) and the other net
assets of the Surviving Partnership (as determined pursuant to Section 11.2.C)
immediately prior to the consummation of such transaction; (y) the rights,
preferences and privileges of the Limited Partners in the Surviving Partnership
are at least as favorable as those in effect immediately prior to the
consummation of such transaction and as those applicable to any other limited
partners or non-managing members of the Surviving Partnership; and (z) such
rights of the Limited Partners include the right to exchange their interests in
the Surviving Partnership for at least one of: (a) the consideration available
to such Limited Partners pursuant to Section 11.2.B(i) or (b) if the ultimate
controlling person of the Surviving Partnership has publicly traded common
equity securities, such common equity securities, with an exchange ratio based
on the relative fair market value of such securities (as determined pursuant to
Section 11.2.C) and the REIT Shares.
C. In connection with any transaction permitted by Section
11.2.B, the relative fair market values shall be reasonably determined by the
General Partner as of the time of such transaction and, to the extent
applicable, shall be no less favorable to the Limited Partners than the relative
values reflected in the terms of such transaction.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Prior to the first anniversary of the issuance of
OP Units to a Limited Partner other than the Company, such OP Units may not be
transferred in whole or in part, directly, indirectly or beneficially, without
the prior written consent of the General Partner, which consent the General
Partner may withhold in its sole discretion; provided, however, that it is
expressly understood that subject to the provisions of Sections 7.9.E, 11.3.C,
11.3.D, 11.3.E, 11.4 and 11.6 below each Limited Partner will be permitted to
make one or more transfers to any Affiliated Transferee of such Limited Partner.
Commencing on the first anniversary of the issuance of OP Units to a Limited
Partner other than the Company, and subject to the provisions of Sections 7.9.E,
11.3.C, 11.3.D, 11.3.E, 11.4 and 11.6 below, a Limited Partner (other than the
Company or any Subsidiary thereof) may transfer all or any portion of its OP
Units to any person, provided such Limited Partner obtains the prior written
consent of the General Partner, which consent may be withheld only if the
General Partner determines in its sole discretion exercised in good faith that
such a transfer would cause the Partnership or any or all of the Partners other
than the Limited Partner seeking to transfer its rights as a Limited Partner to
be
37
<PAGE>
subject to tax liability as a result of such transfer. Any purported transfer
attempted in violation of the foregoing sentence shall be deemed void ab initio
and shall have no force or effect.
B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited Partner, in
and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer of OP Units by a Limited Partner if, in the opinion of
legal counsel to the Partnership, such transfer would require filing of a
registration statement under the Securities Act or would otherwise violate any
federal, or state securities laws or regulations applicable to the Partnership
or the OP Unit.
D. No Transfers Affecting Tax Status of Partnership. The
General Partner may prohibit any transfer of OP Units by a Limited Partner if
(i) the General Partner determines that such transfer would result in the
Partnership being treated as an association taxable as a corporation for federal
income tax purposes; (ii) it would adversely affect the ability of the Company
to continue to qualify as a REIT or would subject the Company to any additional
taxes under Section 857 or Section 4981 of the Code; (iii) the General Partner
determines that such transfer is being effectuated through an "established
securities market" or a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code, or would otherwise
violate any restrictions imposed by the General Partner pursuant to Section 7.9E
hereof; (iv) such transfer would cause the Partnership to become, with respect
to any employee benefit plan subject to Title I of ERISA, a "party-in-interest"
(as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (v) such transfer would, in the opinion of legal
counsel for the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.2-101; or (vi) such transfer would subject the
Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or the Employee Retirement Income Security Act
of 1974, each as amended.
E. No Transfers to Holders of Nonrecourse Liabilities. No
pledge or transfer of any OP Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion.
Section 11.4 Substituted Limited Partners
A. Consent of General Partner. No Limited Partner shall have
the right to substitute a transferee as a Limited Partner in its place without
the consent of the General Partner to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 11.4 as a Substituted
Limited Partner, which consent may be given or withheld by the
38
<PAGE>
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner.
B. Rights of Substituted Limited Partner A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and subject to all the restrictions and
liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 2.5 hereof and such other documents or instruments as may
be required to effect the admission)
C. Amendment and Restatement of Exhibit A. Upon the admission
of a Substituted Limited Partner, the General Partner shall amend and restate
Exhibit A hereto to reflect the name, address, Capital Account, number of OP
Units, and Percentage Interest of such Substituted Limited Partner and to
eliminate or adjust, if necessary, the name, address, Capital Account and
Percentage Interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
above as a Substituted Limited Partner, as described in Section 11.4 above, then
so long as the General Partner is not prohibiting the proposed transfer pursuant
to Sections 11.3C, 11.3D or 11.3E (in which event the transfer shall be void ab
initio and shall have no force or effect), such transferee shall be considered
an Assignee for purposes of this Agreement, subject, however, to Section 11.6E
hereof. An Assignee shall be entitled to all the rights of an assignee of a
limited partnership interest under the Act, including the right to receive
distributions from the Partnership and the share of Net Income, Net Losses,
gain, loss and Recapture Income attributable to the OP Units assigned to such
transferee, and shall have the rights granted to the Limited Partners under
Section 8.7 hereof, but shall not be deemed to be a holder of OP Units for any
other purpose under this Agreement, and shall not be entitled to vote such OP
Units in any matter presented to the Limited Partners for a vote (such OP Units
being deemed to have been voted on such matter in the same proportion as all
other OP Units held by Limited Partners are voted). In the event any such
transferee desires to make a further assignment of any such OP Units, such
transferee shall be subject to all the provisions of this Article XI to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of OP Units.
Section 11.6 General Provisions
A. Withdrawal of Limited Partner. No Limited Partner may
withdraw from the Partnership other than as a result of a permitted transfer of
all of such Limited Partner's OP Units in accordance with this Article XI or
pursuant to redemption of all of its OP Units under Section 8.7 hereof.
39
<PAGE>
B. Termination of Status as Limited Partner Any Limited
Partner who shall transfer all of its OP Units in a transfer permitted pursuant
to this Article XI or pursuant to redemption of all of its OP Units under
Section 8.7 hereof shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article XI
may only be made on the first day of a fiscal quarter of the Partnership, unless
the General Partner otherwise agrees.
D. Allocations. If any Partnership Interest is transferred
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article XI or redeemed or transferred pursuant to Section
8.7 hereof, Net Income, Net Losses, each item thereof and all other items
attributable to such interest for such fiscal year shall be divided and
allocated between the transferor Partner and the transferee Partner by taking
into account their varying interests during the fiscal year in accordance with
Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly, or a monthly proration period, in which event Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such fiscal year shall be prorated based upon the applicable method selected
by the General Partner). All distributions attributable to any OP Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions thereafter attributable to
OP Partnership Unit shall be made to the transferee Partner.
E. Additional Restrictions. In addition to any other
restrictions on transfer herein contained, including without limitation the
provisions of this Article XI, in no event may any transfer or assignment of a
Partnership Interest by any Partner (including pursuant to Section 8.7 hereof)
be made without the express consent of the General Partner, in its sole and
absolute discretion, (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; or (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to
Section 11.2 hereof who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner, effective
upon such transfer. Any such transferee shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
40
<PAGE>
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
A. General. A Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.5 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner. Notwithstanding anything to the contrary in this Section 12.2,
no Person shall be admitted as an Additional Limited Partner without the consent
of the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
B. Allocations to Additional Limited Partner. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Section 706(d) of the Code, using
the interim closing of the books method (unless the General Partner, in its sole
and absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses and each item thereof shall be
prorated based upon the applicable period selected by the General Partner). All
distributions with respect to which the Partnership Record Date is before the
date of such admission shall be made solely to Partners and Assignees other than
the Additional Limited Partner, and all distributions thereafter shall be made
to all the Partners and Assignees including such Additional Limited Partner.
Section12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership (including an amendment and restatement of
Exhibit A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 2.5 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
41
<PAGE>
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, only upon the first to occur of any of the
following ("Liquidating Events"):
A. an event of withdrawal of the General Partner, as defined
in the Act (other than an event of bankruptcy), unless, within ninety (90) days
after such event of withdrawal a majority in interest of the remaining Partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner;
B. an election to dissolve the Partnership made by the General
Partner with the Consent of Partners holding a majority of the Percentage
Interests of the Limited Partners;
C. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
D. the sale or exchange of all or substantially all of the
assets and properties of the Partnership for cash or marketable securities; or
E. a final and non-appealable judgment is entered by a court
of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
Section 13.2 Winding Up
A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a Majority in Interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order.
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners;
42
<PAGE>
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the Partners in accordance with
their Capital Accounts, after giving effect to all contributions, distributions,
and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A above which require liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of
Regulations
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B)
43
<PAGE>
withheld to provide a reasonable reserve for Partnership liabilities (contingent
or otherwise) and to reflect the unrealized portion of any installment
obligations owed to the Partnership, that such withheld amounts shall be
distributed to the General Partner and Limited Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article XIII, in
the event the Partnership is deemed liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged and the Partnership's affairs shall not be wound
up. Instead, for federal income tax purposes and for purposes of maintaining
Capital Accounts pursuant to Exhibit B hereto, unless otherwise provided in
Regulations Section 1.704-1(b)(2)(iv), the Partnership shall be deemed to have
distributed its assets in kind to the General Partner and Limited Partners, who
shall be deemed to have assumed and taken such assets subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership assets in kind to the Partnership, which
shall be deemed to have assumed and taken such assets subject to all such
liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. Except as otherwise expressly
provided in this Agreement, no Limited Partner shall have priority over any
other Limited Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of an election or objection by one or more
Partners pursuant to Section 13.1 above, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and to all other parties
with whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
Section 13.7 Cancellation of Certificate of Limited
Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 above, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding Up
44
<PAGE>
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed only
by the General Partner. Following such proposal, the General Partner shall
submit any proposed amendment to the Limited Partners. The General Partner shall
seek the written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written vote, the General Partner may
require a response within a reasonable specified time, but not less than fifteen
(15) days, and failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation with respect to
the proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Partners holding
a majority of the Percentage Interests of the Limited Partners.
B. Amendments Not Requiring Limited Partner Approval.
Notwithstanding Section 14.1.A, the General Partner shall have the power,
without the consent of the Limited Partners, to amend this Agreement as may be
required to facilitate or implement any provision of this Agreement which is
within the General Partner's discretion hereunder, including without limitation,
the following:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth and reflect in the Agreement the
designations, rights, powers, duties, and preferences of the holders of any
additional Partnership Interests issued pursuant to Section 4.2 hereof;
45
<PAGE>
(4) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any material respect, or
to cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Amendments Requiring Limited Partner Approval.
Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General Partner
shall not (except in connection with amendments made to reflect the issuance of
additional Partnership Interests and the relative rights, powers and duties
incident thereto) amend Sections 4.2, 7.5, and 11.2, this Section 14.1.C or
Section 14.2 without the Consent of Limited Partners holding a majority of the
Percentage Interests of the Limited Partners, excluding Limited Partner
Interests held by the Company if the Company is not the sole Limited Partner.
D. Other Amendments Requiring Certain Limited Partner
Approval. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner (other than as a result of the issuance of Partnership Interests) to
receive distributions pursuant to Article V or Article XIII or alter the
allocations specified in Article VI (except as provided for in Exhibit B or as
permitted pursuant to Section 4.2 and Section 14.1.B(3) hereof); (iv) alter or
modify the Redemption Right and REIT Shares Amount as set forth in Sections 8.7
and 11.2.B, and the related definitions, in a manner adverse to such Partner,
subject (in the case of the Redemption Right) to the General Partner's
authorization to impose additional restrictions or modify existing restrictions
on the redemption of OP Units; or (v) amend this Section 14.1.D. In addition,
Section 8.7 may only be amended as provided therein.
E. Amendment and Restatement of Exhibit A Not An Amendment.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of Exhibit A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(xx) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.
Section 14.2 Meetings of the Partners
A. General. Meetings of the Partners may be called only by the
General Partner. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days
46
<PAGE>
prior to the date of such meeting; provided that a Partner's attendance at any
meeting of Partners shall be deemed a waiver of the foregoing notice requirement
with respect to such Partner. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of Partners is permitted or required under
this Agreement, such vote or Consent may be given at a meeting of Partners or
may be given in accordance with the procedure prescribed in Section 14.1.A
above. Except as otherwise expressly provided in this Agreement, the Consent of
holders of a majority of the Percentage Interests held by Limited Partners shall
control.
B. Actions Without a Meeting. Any action required or permitted
to be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for such Limited Partner by proxy on all matters in which a
Limited Partner is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Limited Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Limited
Partner executing it, such revocation to be effective upon the Partnership's
receipt of notice thereof in writing.
D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A hereto (which
shall be the address of record as of such date) or such other address as the
Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
47
<PAGE>
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors; Other Third Parties
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor or other third party having
dealings with the Partnership.
Section 15.7 Waiver
No failure by any parry to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties am not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement in-immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Entire Agreement
48
<PAGE>
This Agreement and all Exhibits attached hereto (which
Exhibits are incorporated herein by reference as if fully set forth herein)
contains the entire understanding and agreement among the Partners with respect
to the subject matter hereof and supersedes any prior written oral
understandings or agreements among them with respect thereto.
Section 15.12 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as
conferring upon the holders of the OP Units any rights whatsoever as
shareholders of the Company, including, without limitation. any right to receive
dividends or other distributions made to shareholders of the Company.
IN WITNESS WHEREOF, the General Partner and the Limited
Partner have executed this Agreement as of the date first written above.
SHELBOURNE PROPERTIES I GP, LLC
By: Shelbourne Properties I, Inc.,
its sole member
By:________________________________
Name:
Title:
SHELBOURNE PROPERTIES I, INC.
By:________________________________
Name:
Title:
49
<PAGE>
EXHIBIT A
Partners and Percentage Interest
General Partner
<TABLE>
<CAPTION>
Number of
Name OP Units Percentage Interest
- ---- -------- -------------------
<S> <C> <C>
Shelbourne Properties I GP, LLC 4,211 1%
<CAPTION>
Limited Partner
Number of
Name OP Units Percentage Interest
- ---- -------- -------------------
Shelbourne Properties I, Inc. 416,852 99%
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
A. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
1.704-1(b)(2)(iv). The initial Capital Account balance of each Person who is a
Partner on the Execution Date shall be as set forth in Section 4.1.A of the
Agreement. Such Capital Account shall be increased by (i) the amount of all
Capital Contributions and any deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts,
unless otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any election under
Section 754 of the Code which may be made by the Partnership, provided
that the amounts of any adjustments to the adjusted bases of the assets
of the Partnership made pursuant to Section 734 of the Code as a result
of the distribution of property by the Partnership to a Partner (to the
extent that such adjustments have not previously been reflected in the
Partners' Capital Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the limitations prescribed
in Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact that items described
in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable
in gross income or are neither currently deductible nor capitalized for
federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such fiscal
year.
BB-1
<PAGE>
(5) In the event the Carrying Value of any Partnership Asset
is adjusted pursuant to Section 1.D hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
C. A transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the Carrying Value of
all Partnership assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times:
(a) immediately prior to the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (b) immediately prior to the
distribution by the Partnership to a Partner of more than a de minimis
amount of property as consideration for an interest in the Partnership;
and (c) immediately prior to the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above shall
be made only if the General Partner determines that such adjustments
are necessary or appropriate to reflect the relative economic interests
of the Partners in the Partnership.
(3) In accordance with Regulations Section
1.704-1(b)(2)(iv)(e), the Carrying Value of Partnership assets
distributed in kind shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership
property, as of the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount and fair market
value of all Partnership assets (including cash or cash equivalents)
shall be determined by the General Partner (or the Liquidator, if
applicable) using such reasonable method of valuation as it may adopt.
The General Partner (or the Liquidator, if applicable) shall allocate
such aggregate value among the assets of the Partnership (in such
manner as it determines in its sole and absolute discretion) to arrive
at a fair market value for individual properties.
E. The provisions of this Agreement (including this Exhibit B
and other Exhibits to this Agreement) relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify (i) the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed; or (ii)
the manner in which items are allocated among the Partners for federal income
tax purposes in order to comply with such Regulations or to comply with Section
704(c) of the Code, the General Partner may make such modification without
BB-2
<PAGE>
regard to Article XIV of the Agreement, provided that it is not likely to have a
material effect on the amounts distributable to any Person pursuant to Article
XIII of the Agreement upon the dissolution of the Partnership. The General
Partner also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q);
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv) the
adoption of reasonable conventions and methods for the valuation of assets and
the determination of tax basis; (v) the allocation of asset value and tax basis;
and (vi) conventions for the determination of cost recovery, depreciation and
amortization deductions, as it determines in its sole discretion are necessary
or appropriate to execute the provisions of this Agreement, to comply with
federal and state tax laws, and are in the best interests of the Partners.
BB-3
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this
Exhibit C, the following special allocations shall be made in the following
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of
Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there
is a net decrease in Partnership Minimum Gain during any Partnership taxable
year, each Partner shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6). This
Section 1.A is intended to comply with the minimum gain chargeback requirements
in Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.A, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit for such Partnership
taxable year and without regard to any decrease in Partner Minimum Gain during
such Partnership taxable year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.A hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
taxable year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.702-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 1.B is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of the Section 1.B, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such
Partnership taxable year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and, after giving effect to the allocations required
under Sections 1.A and 1.B hereof, such Partner has an Adjusted Capital
CC-1
<PAGE>
Account Deficit, items of Partnership income and gain (consisting of a pro rata
portion of each item of Partnership income, including gross income and gain for
the Partnership taxable year) shall be specially allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible.
D. Gross Income Allocation. In the event that any Partner has
an Adjusted Capital Account Deficit at the end of any Partnership taxable year
(after taking into account allocations to be made under the preceding paragraphs
hereof with respect to such Partnership taxable year) each such Partner shall be
specially allocated items of Partnership income and gain (consisting of a pro
rata portion of each item of Partnership income, including gross income and gain
for the Partnership taxable year) in an amount and manner sufficient to
eliminate, to the extent required by Regulations, its Adjusted Capital Account
Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership taxable year shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of the
Regulations promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the Limited Partners, to revise the prescribed ratio
to the numerically closest ratio for such Partnership taxable year which would
satisfy such requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership taxable year shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
H. Curative Allocations. The allocations set forth in Section
1.A through 1.F of this Exhibit C (the "Regulatory Allocations") are intended to
comply with certain requirements of the Regulations under Section 704(b) of the
Code. The Regulatory Allocations may not be consistent with the manner in which
the Partners intend to divide Partnership distributions. Accordingly, the
General Partner is hereby authorized to divide other allocations of income,
gain, deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that, if
necessary, this will be accomplished by specially allocating other items of
income, gain, loss and deduction among the Partners so that the net amount of
the Regulatory Allocations and such special allocations to each person is zero.
CC-2
<PAGE>
However, the General Partner will have discretion to accomplish this result in
any reasonable manner; provided, however, that no allocation pursuant to this
Section 1.G shall cause the Partnership to fail to comply with the requirements
of Regulations Sections 1.704-1(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income,
gain, loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(1)(a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners, consistent
with the principles of Section 704(c) of the Code and the Regulations
thereunder, to take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of contribution;
and
(b) any item of Residual Gain or Residual Loss attributable to
a Contributed Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
(2)(a) In the case of an Adjusted Property, such items shall
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c)of the Code and the Regulations thereunder
to take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof pursuant to
Exhibit B; and
(b) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section 2.B(1) of this Exhibit C; and
(c) any item of Residual Gain or Residual Loss attributable to
an Adjusted Property shall be allocated among the Partners in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
C. To the extent that the Treasury Regulations promulgated
pursuant to Section 704(c) of the Code permit the Partnership to utilize
alternative methods to eliminate the disparities between the Carrying Value of
property and its adjusted basis, the General Partner shall have the authority to
elect the method to be used by the Partnership and such election shall be
binding on all Partners.
CC-3
<PAGE>
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned irrevocably (i) elects to redeem ________ OP Units in
Shelbourne Properties I L.P. in accordance with the terms of the Agreement of
Limited Partnership of Shelbourne Properties I L.P., as amended (the
"Partnership Agreement"), and the Redemption Right referred to therein, (ii)
surrenders such OP Units and all right, title and interest therein and (iii)
directs that promptly after the Specified Redemption Date the Cash Amount or
REIT Shares Amount (as determined by the General Partner) deliverable upon
exercise of the Redemption Right be delivered to the address specified below,
and if REIT Shares are to be delivered, such REIT Shares be registered or placed
in the name(s) and at the address(es) specified below. The undersigned hereby
represents, warrants, and certifies that the undersigned (a) has marketable and
unencumbered title to such OP Units, free and clear of the rights of or interest
of any other person or entity, (b) has the full right, power and authority to
redeem and surrender such OP Units as provided herein and (c) has obtained the
consent or approval of all persons or entities, if any, having the right to
consult or approve such redemption or surrender. Capitalized terms used herein
have the meanings assigned to them in the Partnership Agreement.
Dated:__________ Name of Limited Partner:_________________________
_________________________________________________
(Signature of Limited Partner)
_________________________________________________
(Street Address)
_________________________________________________
(City) (State) Zip Code)
Signature Guaranteed by:_________________________
If Shares are to be issued, issue to:
Name:
Please insert social security or identifying number:
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of
this ___ day of _______, 2000 by and between Shelbourne Properties I, Inc., a
Delaware corporation (the "Company") and _____________________("Indemnitee").
WHEREAS, the Company desires to attract and retain the
services of highly qualified individuals, such as Indemnitee, to serve as
directors and/or executive officers of the Company; and
WHEREAS, the Company recognizes Indemnitee's need for
protection against personal liability, and in order to assure Indemnitee's
continued service to the Company, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to
Indemnitee.
NOW, THEREFORE, the Company and Indemnitee hereby agree as
follows:
1. Indemnification.
a. Third-Party Proceedings. The Company shall indemnify
Indemnitee to the full extent permitted now or hereafter by applicable law, as
from time to time amended, subject to the exceptions provided in Section 8 of
this Agreement. Without limiting the foregoing but subject to the provisions of
this Agreement, the Company shall indemnify Indemnitee if Indemnitee is or was a
party or is threatened to be made a party to any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of Indemnitee's past, present or future service as a director or executive
officer of the Company, or, at the Company's request, of another enterprise or
entity in which the Company had, directly or indirectly, an interest at the time
of such service, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with investigating, preparing
for, defending or settling such action or proceeding. The Company hereby agrees
to indemnify Indemnitee's spouse (whether by statute or at common law and
without regard to the location of the governing jurisdiction) and children
(including by way of adoption) as express third-party beneficiaries hereunder to
the same extent and subject to the same limitations applicable to Indemnitee
hereunder for claims arising out of the status of such person as a spouse or
child of Indemnitee, including claims seeking damages from marital property
(including community property) or property held by Indemnitee and such spouse or
property transferred to such spouse or child. The indemnification provided under
this Agreement may not be amended, modified or limited in a manner adverse to
the rights of Indemnitee without the consent of Indemnitee, and Indemnitee shall
be deemed to be serving in his capacity as an officer and/or director of the
Company in reliance on the terms of this Agreement.
<PAGE>
b. Proceedings By or in the Right of the Company. Subject to
the provisions of this Agreement, the Company shall indemnify Indemnitee if
Indemnitee was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding by or in the right of the
Company or any subsidiary of the Company to procure a judgment in its favor by
reason of Indemnitee's past, present or future service as a director or officer
of the Company, or, at the Company's request, of another enterprise or entity in
which the Company had, directly or indirectly, an interest at the time of such
service, against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with investigating,
preparing for, defending or settling such action or proceeding.
2. Expenses; Indemnification Procedure.
a. Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined, in
accordance with Section 2(c), that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Such notice shall contain the written affirmation of Indemnitee that
the standard of conduct necessary for indemnification hereunder has been
satisfied. Notice to the Company shall be directed to the President of the
Company in the manner provided in Section 13 hereof. Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power. A delay in giving notice under this Section
2(b) shall invalidate the Indemnitee's right to indemnity under this Agreement
only to the extent that such delay prejudices the defense of the claim or the
availability to the Company of insurance coverage for such claim.
c. Procedure. Any indemnification provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Certificate of Incorporation or Bylaws,
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof that complies
with the requirements of this Agreement has first been received by the Company,
Indemnitee may, but need not, at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and, subject to Section 12 of
this Agreement, Indemnitee shall also be entitled to be paid for the expenses
(including attorneys' fees) of bringing such action. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in connection with any action or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct that made it
permissible under applicable law
2
<PAGE>
for the Company to indemnify Indemnitee for the amount claimed, but Indemnitee
shall be entitled to receive interim payments of expenses pursuant to Subsection
2(a) unless and until such defense may be finally adjudicated by court order or
judgment from which no further right of appeal exists. It is the parties'
intention that if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel or its equity holders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable law, nor an
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel or
its equity holders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
d. Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company have directors'
and officers' liability insurance in effect, the Company shall give prompt
notice of the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such proceeding
in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, unless Indemnitee determines that a conflict of
interest exists between the Indemnitee and the Company with respect to a
particular claim, shall be entitled to assume the defense of such proceeding,
with counsel approved by Indemnitee, which approval shall not be unreasonably
withheld, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding; provided that (i) Indemnitee
shall have the right to employ his own separate counsel in any such proceeding
in addition to or in place of any counsel retained by the Company on behalf of
Indemnitee at Indemnitee's expense, and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
3. Nonexclusivity of Indemnification Rights. The indemnification
provided by this Agreement shall not be deemed exclusive of any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation or
Bylaws, any agreement, any vote of equity holders or disinterested Directors,
applicable law, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office.
3
<PAGE>
4. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken and may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company' right under public
policy to indemnify Indemnitee.
6. Directors' and Officers' Liability Insurance. The Company currently
intends to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the directors and officers of the Company with
coverage for losses from wrongful acts, or to ensure the Company's performance
of its indemnification obligations under this Agreement, subject to its good
faith determination from time to time whether or not it is practicable for the
Company to obtain or maintain such insurance. Among other considerations, the
Company will weigh the costs of obtaining such insurance coverage against the
protection afforded by such coverage. In all policies of directors' and
officers' liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
7. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. the Company' inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify Indemnitee in the following circumstances:
a. Excluded Acts. The Company shall not be obligated to
indemnify Indemnitee for any acts or omissions or transactions from which a
person serving in Indemnitee's capacity
4
<PAGE>
with respect to the Company may not be relieved of liability under the
jurisdiction of the Company's organization;
b. Claims Initiated by Indemnitee. The Company shall not be
obligated to indemnify or advance expenses to Indemnitee with respect to
proceedings or claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statute or
law in accordance with Section 1(b) hereof, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Company's Board of Directors or general partner, as applicable, has approved the
initiation or bringing of such suit;
c. Insured Claims. The Company shall not be obligated to
indemnify Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) to the extent that Indemnitee has
otherwise actually received payment, or payments have been made on behalf of
Indemnitee, with respect to such expense or liability (under any insurance
policy or provision of the Company's Certificate of Incorporation or Bylaws, or
otherwise) of amounts otherwise indemnifiable hereunder; or
d. Claims Under Section 16(b). The Company shall not be
obligated to indemnify Indemnitee for expenses and the payment of profits
arising from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar
successor statute.
9. Construction of Certain Phrases.
a. For purposes of this Agreement, references to "the Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees, or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to "another
enterprise" or "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer, employee or
agent of the Company which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute a single agreement.
5
<PAGE>
11. Successors and Assigns. This Agreement shall be binding upon the
Company and its respective successors and assigns, and shall inure to the
benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and
assigns.
12. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including reasonable attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
13. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to any party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
14. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SHELBOURNE PROPERTIES I, INC.
By:__________________________________
Name:
Title:
Address: 5 Cambridge Center
9th Floor,
Cambridge, MA 02142
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ------------------------
Address:
<PAGE>
ADVISORY AGREEMENT
BETWEEN
SHELBOURNE PROPERTIES I, INC.,
SHELBOURNE PROPERTIES I GP, LLC
AND
SHELBOURNE MANAGEMENT LLC
Dated as of __________, 2000
<PAGE>
ADVISORY AGREEMENT
THIS AGREEMENT, made as of ____________, 2000, between
SHELBOURNE PROPERTIES I, INC., a Delaware corporation ("Company"), SHELBOURNE
PROPERTIES I GP, LLC, a Delaware limited liability company (the "General
Partner") and SHELBOURNE MANAGEMENT LLC, a Delaware limited liability company
(the "Advisor").
WHEREAS, pursuant to a merger (the "Merger"), Integrated
Resources High Equity Partners, Series 85, A California Limited Partnership
("HEP") was merged into Shelbourne Properties I L.P. (the "Operating
Partnership") and each partner of HEP received in exchange for their partnership
interests in HEP shares of common stock in the Company;
WHEREAS, the Operating Partnership is the surviving entity in
the Merger and now owns all of the properties formerly owned by HEP;
WHEREAS, the General Partner is the general partner of the
Operating Partnership;
WHEREAS, the Company is the sole member of the General Partner
and the Company intends to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the Company and the General Partner desire to avail
themselves of the services of the Advisor as hereafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, it is agreed as follows:
ARTICLE I.
RETENTION OF ADVISOR
Subject to the terms and conditions hereinafter set forth, the
Company and the General Partner hereby each retain the Advisor to undertake the
duties and responsibilities hereinafter set forth. By its execution and delivery
of this Agreement, the Advisor represents and warrants that (i) it is duly
organized, validly existing, in good standing under the laws of the state of
Delaware and has all requisite power and authority to enter into and perform its
obligations under this Agreement and (ii) the person signing this Agreement for
the Advisor is duly authorized to execute this Agreement on the Advisor's
behalf.
ARTICLE II.
RESPONSIBILITIES OF ADVISOR
2.01 General Responsibility. Subject to the supervision of the Board
of Directors of the Company (the "Board"), the Advisor shall use its best
efforts to:
<PAGE>
(a) with respect to the Company:
(i) serve as the Company's investment and financial advisor and
recommend changes in the Company's investment policies, when
appropriate;
(ii) investigate and evaluate investment opportunities and
recommend them to the Board;
(iii) administer the day-to-day operations of the Company;
(iv) investigate, select and conduct relations and enter into
appropriate contracts on behalf of the Company with other
individuals, corporations and entities in furtherance of the
investment activities of the Company;
(v) acquire and dispose of investments and funds of the Company,
handle, prosecute and settle any claims of the Company and
handle, defend and settle claims against the Company;
(vi) invest and reinvest any money of the Company;
(vii) negotiate, as appropriate, on behalf of the Company with
investment banking firms, banks and other institutions or
investors for public or private sales of securities of the
Company or for other financing on behalf of the Company;
(viii) conduct relations on behalf of the Company with the
Company's shareholders and with securities exchanges and dealers
making markets in the Company's securities;
(ix) establish one or more bank accounts in the name of the
Company and deposit into and disburse from such accounts any
moneys on behalf of the Company, provided that no funds in any
such account shall be commingled with funds of the Advisor, and
the Advisor shall as requested by the Board render appropriate
accountings of such deposits and payments to the Board;
(x) administer such day-to-day bookkeeping and accounting
functions as are required for the proper management of the assets
of the Company and prepare or cause to be prepared such reports
(other than the preparation and filing of tax returns) as may be
required by any governmental authority in connection with the
ordinary conduct of the Company's business, including without
limitation, periodic reports, returns or statements required
under the Securities Exchange Act of 1934, as amended, the Code,
the securities and tax statutes of any jurisdiction in which the
Company is obligated to file reports or the rules and regulations
promulgated under any of the foregoing; and
2
<PAGE>
(xi) from time to time, or at any time requested by the officers
and Directors of the Company, make reports to the officers and
directors of the Company of its performance of the foregoing
services.
(b) with respect to the General Partner:
(i) Administration and Management. The Advisor shall
provide all management and administrative services required to be
provided by the General Partner to the Operating Partnership under the
terms of the Agreement of Limited Partnership of the Operating
Partnership.
(ii) Property Management Services. The Advisor shall
provide or arrange for the provision of property management services
for each property owned by the Operating Partnership. The compensation
for the performance of property management services shall be based on
competitive rates in the area in which a property is located but shall
not exceed 6% of gross revenues.
2.02 REIT Qualification. The Advisor shall refrain from taking any
action which in its sole judgment made in good faith would adversely affect
the status of the Company as a real estate investment trust as defined
under the Code, except if such action shall be ordered by the Board, in which
event the Advisor shall promptly notify the Board of the Advisor's judgment that
such action would adversely affect such status and shall refrain from taking
such action pending further clarification or instructions from the Board.
2.03 Authority. The Advisor shall have full discretion and authority
pursuant to this Agreement to perform the duties and services specified in
Section 2.01 hereof in such manner as the Advisor reasonably considers
appropriate. In furtherance of the foregoing, the Company and the General
Partner each hereby designates and appoints the Advisor or its designee as the
agent and attorney-in-fact of the Company and the General Partner, with full
power and authority and without further approval of the Company or the General
Partner, for purposes of accomplishing on its behalf any of the foregoing
matters or any matters which are properly the subject matter of this Agreement.
The Advisor may execute, in the name and on behalf of the Company and/or the
General Partner and their respective affiliates (including the Operating
Partnership and any other partnership in which the Company, any of the Company's
affiliates or the General Partner is acting as a general partner), as the case
may be, all such documents and take all such other actions which the Advisor
reasonably considers necessary or advisable to carry out its duties hereunder.
ARTICLE III.
INDEMNIFICATION
3.01 The Company's Indemnity. The Company shall indemnify and hold
harmless the Advisor, and its officers, directors, shareholders, agents and
employees, from and against any and all liability, claims, demands, expenses and
fees, fines, suits, losses and causes of action of any and every kind or nature
arising from or in any way connected with the
3
<PAGE>
performance by the Advisor of its obligations under this Agreement, other than
any liability, claim, demand, expense, fee, suit, loss or cause of action
arising from or in any way connected with (a) any acts of the Advisor, or its
officers, agents or employees, outside the scope of the authority of the Advisor
under this Agreement unless such person acted in good faith and reasonably
believed that his conduct was within the scope of authority of the Advisor under
this Agreement, or (b) the gross negligence, willful misconduct or material
breach of this Agreement by the Advisor, its officers, agents or employees.
3.02 Additional Costs; Survival. The obligation to indemnify set forth
in Section 3.01 above shall include the payment of reasonable attorneys' fees
and investigation costs, as well as other reasonable costs and expenses incurred
by the indemnified party in connection with any such claim. At the option of,
and upon receipt of notice from, the indemnified party, the indemnifying party
shall promptly and diligently defend any such claim, demand, action or
proceeding. The provisions of Sections 3.01 and 3.02 hereof shall survive the
expiration or earlier termination of this Agreement.
ARTICLE IV.
COMPENSATION
In addition to the compensation provided for under the Supervisory
Management Agreement, the Company agrees to pay to the Advisor, and the Advisor
agrees to accept from the Company, the following compensation as full and
complete consideration for all services to be rendered by the Advisor pursuant
to this Agreement:
4.01 Annual Asset Management Fee The Advisor shall be entitled to
receive an annual asset management fee equal to 1.25% of the Gross Asset Value
as of the last day of the period in respect of which the annual asset management
fee is payable (which amount shall be prorated for any partial year). The annual
asset management fee shall be paid quarterly. For purposes of this Paragraph
4.01, the term "Gross Asset Value" on a particular date means the gross asset
value of all assets owned by the Company and the Operating Partnership on that
date, as determined by the most recent appraisal of such assets by an
independent appraiser of national reputation selected by the General Partner.
4.02 Expense Reimbursement. Without regard to other compensation
received by the Advisor from the Company pursuant to this Agreement, the Company
shall:
(a) pay the Advisor $150,000 per annum as a non-accountable expense
reimbursement; and
(b) reimburse the Advisor for all out of pocket expenses (including
overhead expenses) incurred by the Advisor in connection with the
performance of its services hereunder. The Advisor shall be entitled to
be reimbursed for accountable expenses to the same extent as the
general partners of HEP were previously entitled to be reimbursed prior
to the Merger.
4
<PAGE>
4.03 Expenses of the Company and the Operating Partnership. All
expenses relating to the operation and management of the Company and the
Operating Partnership shall be paid by the Company and the Operating
Partnership. Such expenses include, without limitation:
(a) The cost of borrowed money;
(b) Taxes on income and taxes and assessments on real property, if any,
and all other taxes;
(c) Underwriting, brokerage, listing, reporting, registration and other
fees, and printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, trading,
registration and securities exchange or quotation system listing of the
Company's securities;
(d) Fees and expenses paid to directors, independent advisors,
consultants, managers, local property managers or management firms, and
other agents employed by or on behalf of the Company;
(e) Expenses directly connected with the acquisition, disposition and
ownership of real estate interests or other property (including the
costs of foreclosure, insurance premiums, legal services, brokerage and
sales commissions, maintenance, repair, improvement and local
management of property);
(f) Expenses connected with payments of dividends or interest or
distributions in cash or any other form made to holders of securities
of the Company;
(g) All expenses connected with communications to holders of securities
of the Company and the other bookkeeping and clerical work necessary in
maintaining relations with holders of securities and proxy solicitation
materials and reports to holders of the Company's securities;
(h) Transfer agent's, registrar's and indenture trustee's fees and
charges;
(i) Legal, accounting, auditing and tax return preparation fees and
expenses;
(j) All expenses in connection with shareholders meetings and meetings
of the Board; and
(k) All expenses relating to membership of the Company in any trade or
similar association.
ARTICLE V.
TERM OF AGREEMENT; TERMINATION
5.01 Term. This Agreement shall become effective on ___________, 2000
and shall, unless sooner terminated in accordance with the terms of the
Agreement, terminate on ___________, 2010.
5
<PAGE>
5.02 Right of Termination. Notwithstanding anything to the contrary
contained in this Agreement, the Company and/or the General Partner may
terminate this Agreement for cause upon thirty (30) days' prior written notice
to the Advisor. The occurrence of any of the following events shall be deemed
"cause" for termination by the Company of this Agreement:
(a) The Advisor's continuous and intentional failure to perform its
duties under this Agreement after written notice from the Company
and/or the General Partner to the Advisor of such non-performance;
(b) Intentional misconduct by the Advisor which is materially injurious
to the Company or the General Partner, monetarily or otherwise; or
(c) The material breach by the Advisor of any of the material terms or
conditions of this Agreement.
5.03 The Advisor's Right of Termination. The Advisor may terminate this
Agreement upon sixty (60) days' prior written notice to the Company and the
General Partner.
5.04 Continued Responsibility. Notwithstanding termination of this
Agreement as provided above, the Advisor agrees to use its best efforts in the
performance of its duties under this Agreement until the effective date of the
termination of this Agreement.
5.05 Responsibilities upon Termination. Upon termination of this
Agreement, the Advisor shall forthwith deliver the following to the Company
and/or the General Partner, as applicable, on the effective date of termination:
(a) A final accounting reflecting the balance of funds held on behalf
of the Company or the General Partner as of the date of termination;
and
(b) All files, records, documents and other property of any kind
relating to the Company or the General Partner, including, but not
limited to, computer records, contracts, leases, warranties, bank
statements, rent rolls, employment records, plans and specifications,
inventories, correspondence, tenant records, receipts, paid and unpaid
bills or invoices, maintenance records.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
6.01 Other Activities of Advisor. Nothing herein shall prevent the
Advisor from engaging in other activities or businesses or from acting as
advisor to any other person or entity even though such person or entity has
investment policies and objectives similar to those of the Company or its
affiliates . Specifically, the Company acknowledges that the Advisor is
presently acting as advisor for Shelbourne Properties II, Inc. and Shelbourne
Properties III, Inc. under agreements substantially identical to this Agreement.
6
<PAGE>
6.02 Notice. Any notice required or permitted under this Agreement
shall be in writing and shall be given by being delivered to the following
addresses or fax numbers of the parties hereto:
To the Company: Shelbourne Properties I, Inc.
5 Cambridge Center, 9th Floor
Cambridge, Massachusetts 02142
Fax:(617) 234-3346
To the General Partner: Shelbourne Properties I GP, LLC
527 Madison Avenue
New York, New York 10022
Fax:(212) 319-4557
To the Advisor: Shelbourne Management LLC
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
Fax:(516) 433-2777
or to such other address or fax number as may be specified from time to time by
such party in writing.
6.03 Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties hereto with respect to the subject matter hereof. This
Agreement shall not be amended or modified in any respect unless agreed to in
writing by the Company, the General Partner and the Advisor.
6.04 Governing Law. This Agreement shall be construed, interpreted and
applied in accordance with, and shall be governed by, the laws of the State of
New York without reference to principles of conflicts of law.
6.05 Assignment This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties hereto; provided,
however, that the Advisor shall be permitted to assign this Agreement or any of
its rights hereunder, and delegate any and all of its responsibilities and
obligations hereunder, to any of its affiliates without the consent of the other
parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
SHELBOURNE PROPERTIES I, INC.
By: _________________________
Name:
Title:
SHELBOURNE MANAGEMENT LLC
By: _________________________
Name:
Title:
SHELBOURNE PROPERTIES I GP, LLC
By: _________________________
Name:
Title:
8
<PAGE>
Exhibit 23.1
CONSENT OF ROSENMAN & COLIN LLP
We hereby consent to the references to this firm in Amendment No. 2 to
the Registration Statement on Form S-4 under the captions "RISK FACTORS," "THE
CONVERSION," "FEDERAL INCOME TAX CONSEQUENCES" and "LEGAL MATTERS."
ROSENMAN & COLIN LLP
New York, New York
April 7, 2000
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this registration statement of
Shelbourne Properties I, Inc. on Form S-4 of our report dated March 17, 2000
appearing in the Annual Report on Form 10-K of Integrated Resources High Equity
Partners, Series 85, A California Limited Partnership for the year ended
December 31, 1999 and to the use of our report dated April 4, 2000, on our audit
of the consolidated balance sheet of Shelbourne Properties I, Inc. as of April
3, 2000, appearing in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 7, 2000
<PAGE>
Exhibit 99.2
ROBERT W. MILLS, ESQ. 062154
ELIZABETH G. LEAVY, ESQ. 050979
THE MILLS LAW FIRM
300 Drake's Landing Road
Suite 155
Greenbrae, CA 94904
Telephone: (415) 464-4770
ANDREW D. FRIEDMAN, ESQ. LIONEL Z. GLANCY, ESQ. (#134180)
WECHSLER HARWOOD HALEBIAN LAW OFFICES OF LIONEL Z. GLANCY
& FEFFER LLP 1801 Avenue of the Stars
488 Madison Avenue, 8th Floor Suite 308
New York, NY 10022 Los Angeles, CA 90067
Telephone: (212) 935-7400 Telephone: (310) 201-9150
Lead Counsel for Plaintiffs Liaison Counsel for Plaintiffs
PROSKAUER ROSE LLP
LOIS D. THOMPSON, State Bar No. 93245
LESLIE A. WEDERICH, State Bar No. 144043
2049 Century Park East, Suite 3200
Los Angeles, California 90067-3206
(310) 557-2900
Attorneys for Defendants
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
<TABLE>
<S> <C> <C>
MARK ERWIN, TRUSTEE, MARK ERWIN SALES, INC., DEFINED BENEFIT PLAN, ) Case No. BC 080254
DRESCHER FAMILY TRUST ACCOUNT, J/B INVESTMENT PARTNERS, STEVEN J. )
KLINE, RUSH AND NANCY STUDINSKI, SAUL SILVERMAN, RAY THOMPSON, )
individually and on behalf of all others similarly situated, ) FINAL JUDGMENT AND ORDER OF DISMISSAL
) WITH PREJUDICE
Plaintiffs, )
)
v. ) Date: April 29, 1999
) Time: 10:00 a.m.
RESOURCES HIGH EQUITY, INC., RESOURCES CAPITAL CORP., and PRESIDIO ) Ctrm: 59
CAPITAL CORPORATION, )
)
Defendants. ) ACTION FILED: May 3, 1993
)
)
- ------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
This matter having come before this Court on the application of the
parties to the Stipulation of Settlement of Consolidated Class and Derivative
Action filed January 11, 1999 (the "Settlement Stipulation"), for approval of
the Settlement of the above-captioned class and derivative action (the
"Action"), and this Court having considered the Settlement Stipulation, the
terms of which are expressly incorporated herein by reference, all other
submissions and motions filed, and arguments made by counsel in connection
therewith, the letter reports dated January 27, 1999 and April 26, 1999 of
court-appointed expert Willie R. Barnes, and the pleadings, files and records
and proceedings in this Action, and a hearing having been held before this Court
on April 29, 1999, after due notice by mail to all limited partners (whether or
not they requested exclusion when the classes, hereinafter referred to for
convenience as the Settlement Class, were notified of class certification in or
about September 1998), at which hearing all limited partners (whether or not
they requested exclusion from the Settlement Class) were given an opportunity to
be heard, and at which time this Court approved the Settlement Stipulation and
all the transactions contemplated thereby, as fair, reasonable, adequate and in
the best interests of the Settlement Class and the Partnerships, and this Court
otherwise being fully advised and informed, this Court finds as follows:
A. Class Counsel in the Action have represented in the Settlement
Stipulation that they have sufficiently investigated the facts and researched
the applicable law regarding the claims of the Named Plaintiffs, the Class
Plaintiffs, and all other members of the Settlement Class, as well as the
potential defenses that have been or may be asserted thereto.
B. After good faith, arm's-length negotiations, the Named Plaintiffs,
the Class Plaintiffs, and the Defendants, through their respective counsel,
executed and filed the Settlement Stipulation. The Settlement Stipulation sets
forth the terms and conditions for the
2
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
settlement of the Action, subject to (i) approval by this Court, (ii) the
satisfaction or waiver of certain conditions set forth in Section 5.1 of the
Settlement Stipulation, and (iii) the entry and finality of this Final Judgment
and Order of Dismissal with Prejudice (the "Order").
C. On February 11, 1999, in its Order Re: Notice of Proposed Settlement
to the Class, and Hearing on the Proposed Settlement, this Court approved the
form of Notice of Proposed Settlement of Class and Derivative Action, Hearing on
the Proposed Settlement, and Right to Appear at the Hearing (the "Notice") to be
sent to all limited partners (whether or not they requested exclusion from the
Settlement Class) and ordered that such notice be mailed in accordance with that
order. Pursuant to and in accordance with such order, counsel caused the Notice
to be mailed.
D. The Notice provided to the Settlement Class members is the best
possible notice practicable under the circumstances. Such notice constituted
valid, due and sufficient notice to all Settlement Class members.
E. The parties jointly have applied to this Court for approval of the
terms of the Settlement Stipulation and for the entry of this Order. Pursuant to
the Notice, and upon notice to all limited partners (regardless of whether or
not they requested exclusion from the Settlement Class), a hearing was held
before this Court on April 29, 1999, to consider whether the Settlement
Stipulation and the transactions contemplated thereby, should be approved as
fair, reasonable, adequate, and in the best interests of the Settlement Class
and the Partnerships.
THIS COURT, THEREFORE, GOOD CAUSE APPEARING, HEREBY ORDERS, ADJUDGES
AND DECREES THAT:
1. The terms used in this Order shall have the same meanings as defined
in the Settlement Stipulation, except as otherwise may be specified herein.
3
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
2. This Court has jurisdiction over the subject matter of this Action
and over all of the parties, including all members of the Settlement Class.
3. After considering that persons who requested exclusion from the
Settlement Class, after notice of class certification was caused to be mailed to
all members of the three classes now defined as the Settlement Class on or about
September 14, 1998, retain their individual rights of action, if any, against
the Defendants, this Court hereby approves in its entirety the Settlement
Stipulation and the transactions contemplated thereby, based on finding that the
Settlement Stipulation and the transactions contemplated thereby are fair,
reasonable and adequate to all limited partners and that the Settlement is in
the best interests of the Settlement Class and the Partnerships, and this Court
therefore directs the parties to comply with the terms of the Settlement
Stipulation and the transactions contemplated thereby.
4. This Court hereby dismisses the Action, the Amended Complaint and
each and every cause of action and claim set forth therein on the merits as to
all present and former Defendants and with prejudice to the Settlement Class.
The Court further extinguishes all claims, rights, demands and causes of action
(including Unknown Claims) that might have been asserted therein by the Named
Plaintiffs and Class Plaintiffs on behalf of themselves or the Settlement Class
or the Partnerships, from which the Defendants and all Released Persons are
hereby discharged.
5. The Named Plaintiffs, the Class Plaintiffs and all other members of
the Settlement Class and each of them, are fully and forever permanently barred
and enjoined from instituting, asserting or prosecuting, either directly or
indirectly, any and all direct Released Claims against any and all of the
Released Persons, as those terms are defined in the Settlement Stipulation. All
limited partners, whether or not members of the Settlement Class, and each of
them, are fully and
4
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
permanently barred and enjoined from instituting, asserting or prosecuting,
either directly or indirectly, any and all derivative Released Claims against
any and all Released Persons, as those terms are defined in the Settlement
Stipulation.
6. The Release of Claims set forth in Section 3.1 of the Settlement
Stipulation is hereby rendered and declared fully effective and enforceable, and
each and all of the Released Persons are hereby fully and forever released and
discharged with respect to any and all of the Released Claims.
7. Class Counsels' application for an award of attorneys' fees and
reimbursement of expenses, totaling in the aggregate $2.5 million, is granted
with the express understanding that of that total amount, $75,000 shall be paid
to Max Folkenflik, Folkenflik & McGerity, and Theodore W. Phillips, Phillips,
Greenberg, Strain & Hauser, jointly, as counsel for objectors Ronald S. Morton
and Doris S. Morton, as Trustees of the Morton Living Trust U/A dated 9/2/93,
and Linda Prior, Trustee of the Jayne Cuzner Charitable Lead Unitrust
("Objectors' Counsel"). Therefore, a total of $2,425,000 shall be paid to Class
Counsel as attorneys' fees and reimbursement of expenses and $75,000 shall be
paid to Objectors' Counsel. No other attorneys' fees or reimbursement of
expenses are awarded. Of the total amount of fees and expenses awarded,
thirty-five percent (or $875,000) shall be paid by the Defendants and the
remaining sixty-five percent shall be paid by the HEP Partnerships in the
following percentages: 21.667% by each of HEP 85, HEP 86, and HEP 88. Payment of
all attorneys' fees and expenses awarded shall be governed by and is subject to
the provisions of the Settlement Stipulation including, but not limited to,
Section 4.6 (Consummation of Settlement).
8. Neither the Settlement Stipulation, nor any exhibit or document
referenced therein, nor the Settlement contained therein, nor this Order, nor
any action taken to effectuate or further
5
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
the Settlement Stipulation, the Settlement set forth therein or this Order: (a)
is, or may be construed or used as, an admission by or against any Defendant, or
any other person or entity, of the validity of any Released Claims or any other
claims and allegations that are or could have been asserted in the Action, or of
any wrongdoing by any Defendant or Released Person; (b) is or shall be deemed to
be or shall be used as any admission of any fault, wrongdoing, liability or
omission whatsoever, whether or not in any statement, release or written
document or report issued, filed or made, nor as a waiver or limitation of any
defenses otherwise available to any Defendant or Released Person; (c) shall be
offered or used in a manner inconsistent with section 8.1 of the Settlement
Stipulation.
9. Each and all of the parties to the Settlement Stipulation are
ordered and affirmatively enjoined to comply with all of the terms and
provisions of this Order and the Settlement Stipulation, and to undertake all
acts and perform all obligations imposed under this Order and the Settlement
Stipulation as reasonably necessary to effectuate all the terms contained herein
or therein.
10. Without affecting the finality of this Order in any way as to the
Defendants, this Court hereby retains continuing jurisdiction over the Action,
the Named Plaintiffs, the Class Plaintiffs, all members of the Settlement Class,
all the Defendants and over any and all matters relating to the administration
and consummation of the Settlement Stipulation and the transactions contemplated
thereby.
11. In the event that this Order does not become final or the
settlement otherwise does not become effective in accordance with the terms of
the Settlement Stipulation, because of the nonfulfillment or impossibility of
fulfillment of any of the conditions set forth in Article V of the Settlement
Stipulation, or the failure to fulfill all of the said conditions within 9
months after the
6
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
date of the Settlement Stipulation, as provided in Section 5.2 thereof, this
Order, except for Paragraph 8, shall be rendered null and void and shall be
vacated nunc pro tunc, the Settlement reflected in the Settlement Stipulation
shall be terminated pursuant to its terms, and the parties to the Settlement
Stipulation shall be deemed to have reverted to their respective status and
position in the Action as of the date immediately prior to the execution of the
Settlement Stipulation, all as provided in Section 5.2 of the Settlement
Stipulation.
12. Persons who duly and timely requested exclusion from the Settlement
Class in October 1998 may now pursue only their own individual remedies, if any,
as against any of the
7
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
<PAGE>
Defendants, and not any class or derivative actions. All other members of the
Settlement Class shall be bound by all the applicable terms and provisions of
this Order and of the Settlement Stipulation.
Dated: May 20, 1999 /s/ Bruce E. Mitchell
----------------------- ---------------------------------------
Commissioner Bruce E. Mitchell
APPROVED AS TO FORM:
DATED: May 10, 1999 PROSKAUER ROSE LLP
LOIS D. THOMPSON
LESLIE A. WEDERICH
By: /s/ Lois D. Thompson
-----------------------------------
Lois D. Thompson
Attorneys for Defendants RESOURCES HIGH
EQUITY, INC., RESOURCES CAPITAL CORP.,
and PRESIDIO CAPITAL CORPORATION
DATED: May 10, 1999 LAW OFFICES OF LIONEL Z. GLANCY
LIONEL Z. GLANCY
By: /s/ Lionel Z. Glancy
-----------------------------------
Lionel Z. Glancy
Liaison Class Counsel
DATED: May 10, 1999 WECHSLER HARWOOD HALEBIAN & FEFFER LLP
ANDREW D. FRIEDMAN
By: /s/ Andrew D. Friedman
-----------------------------------
Andrew D. Friedman
Lead Counsel for Class
DATED: May 10, 1999 THE MILLS LAW FIRM
ROBERT W. MILLS
ELIZABETH G. LEAVY
By: /s/ Robert W. Mills
-----------------------------------
Robert W. Mills
Lead Counsel for Class
8
- --------------------------------------------------------------------------------
[PROPOSED FINAL JUDGMENT AND ORDER OF DISMISSAL WITH PREJUDICE
