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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHELBOURNE PROPERTIES II, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 6798 Applied for
- ----------------------------- ------------------------- -------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or organization) Code Number) Number)
SHELBOURNE PROPERTIES II, 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)
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COPY TO:
MARK I. FISHER, ESQ.
TODD J. EMMERMAN, ESQ.
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 940-8800
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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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE REGISTERED OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED (1) UNIT (2) PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value 1,237,916 $48.29 $59,778,963.64 $15,781.65
$.01 per share
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</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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(1) Based upon the maximum number of shares expected to be issued in
connection with the transaction described herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
<PAGE>
SHELBOURNE PROPERTIES II, INC.
PROSPECTUS RELATING TO
1,237,916 SHARES OF COMMON STOCK
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HIGH EQUITY PARTNERS L.P. - SERIES 86
CONSENT SOLICITATION STATEMENT
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We are proposing to restructure your partnership into a publicly-traded
real estate investment trust. This proposal is the final step in a class action
settlement approved by the California Superior Court. Your vote is important.
The restructuring must be approved by holders of a majority of the outstanding
units in your partnership. After carefully reviewing this document, please
complete, sign and return the enclosed Consent Form. Failure to return a signed
Consent Form will be a vote against the restructuring.
We are the general partners of your partnership, High Equity Partners L.P.
- - Series 86. We are soliciting your approval of the restructuring of your
partnership into an operating partnership controlled by a newly-formed
corporation called Shelbourne Properties II, Inc. Following the restructuring,
Shelbourne Properties II, Inc. (the "REIT") will elect to be treated for Federal
income tax purposes as a real estate investment trust. The restructuring is
conditioned on the REIT's common stock ("Common Stock") being approved for
listing on the American Stock Exchange.
You will receive two shares of Common Stock in the restructuring in
exchange for each of your partnership units unless, as discussed below, you
elect to retain units in the operating partnership. You will not be taxed on
your receipt of Common Stock in the restructuring.
The REIT's primary business objective will be to maximize the value of its
Common Stock. The REIT will seek to achieve this objective by making capital
improvements to and/or selling properties and by making additional real
estate-related investments. All operations of the REIT, including the historic
operations of your partnership, will be conducted through the operating
partnership. All references in this Consent Solicitation Statement/Prospectus to
the "REIT" refer to Shelbourne Properties II, Inc. and the operating
partnership, together, unless the context otherwise requires.
While you may realize a number of potential benefits from the
restructuring, you should consider the effects of the restructuring on the
nature of your investment as well as the risks associated with an investment in
Common Stock, some of which are listed below. A more complete discussion of the
effects and risks can be found under "Risk Factors and Other Considerations,"
starting on page 16.
Effects of the Restructuring:
o Unlike your partnership, the REIT will be permitted to make new real
estate-related investments, including investments in joint ventures
and other real estate companies
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o Unlike your partnership, the REIT may reinvest proceeds of property
sales
o Unlike your partnership, the REIT will not be limited in its ability
to borrow money, including on a secured and cross-collateralized
basis
o Unlike your partnership, the REIT will have the ability to raise
capital by issuing additional equity interests
o Unlike your partnership, the REIT will have perpetual existence with
no specific timing for liquidation of its assets
o As a result of the restructuring, we no longer will be obligated
upon liquidation of your partnership to pay to you the "fee
give-back" amount (a maximum of $4.38 per unit) provided under your
partnership agreement
o Unlike your partnership, income and losses of the REIT will not pass
through to stockholders, and, if you are a taxable limited partner,
you generally will be taxed on your REIT dividends.
o You will be unable to use your passive activity losses from your
partnership or other passive activity investments to offset your
income from REIT dividends, and generally will only be able to
deduct unused passive activity losses from your partnership when you
sell all of your Common Stock
o Provisions of the REIT's governing documents may have the effect of
discouraging third parties from seeking to acquire control of the
REIT
Risks Associated with an Investment in Common Stock:
o The REIT will be subject to corporate income tax if it is unable to
qualify or maintain qualification as a real estate investment trust
following the restructuring
o Shares of Common Stock may trade substantially below the net asset
value and book value of the REIT
o The issuance of additional equity interests by the REIT could be
economically dilutive to your investment
o The value of the Common Stock would be adversely affected if the
REIT defaults under loan obligations
o There can be no assurance that prior distribution levels will be
maintained
o The Board of Directors of the REIT has the authority to change the
REIT's investment policies without the vote of stockholders
The operations and day-to-day affairs of the REIT will be managed by our
affiliate, Shelbourne Management LLC, on substantially the same terms as we
manage your partnership.
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You may vote "YES" or "NO" to the restructuring. A majority of the limited
partnership units in your partnership must vote "YES" in favor of the
restructuring in order for the restructuring to be approved. Our affiliates own
a total of 123,002 units in your partnership (or approximately 20.9% of the
outstanding units). Our affiliates intend to vote all of these units to approve
the restructuring. Your vote in favor of the restructuring also will constitute
your vote in favor of amending and restating your partnership's partnership
agreement to become the partnership agreement of the operating partnership.
A separate Consent Form has been delivered to you with this Consent
Solicitation Statement/Prospectus. After carefully reviewing this document,
please complete, sign and return the Consent Form by mail in the enclosed
pre-addressed, postage paid envelope or by facsimile to (617) 234-3310. If you
have any questions, you may call (888) 448-5554.
You may elect to retain your units as an alternative to receiving Common
Stock by checking the appropriate box on the Consent Form. Your units would
represent a percentage interest in the operating partnership equal to your
current percentage interest in your partnership. However, the voting power of
holders of units in the operating partnership ("OP Units") with respect to REIT
matters may be diluted. In addition, there will be no formal trading market for
OP Units and the transfer of OP Units will be restricted. Beginning one year
after the restructuring you may at certain times elect to have your OP Units
redeemed for, at the REIT's option, Common Stock (on a two-for-one basis) or
cash in an amount equal to the fair market value of such Common Stock at the
time. However, unlike receiving Common Stock in the restructuring, the receipt
of Common Stock (or cash) upon the redemption of your OP Units will be a taxable
transaction for you. We do not believe that as a general matter it is in your
best interest to retain OP Units. For additional information on retaining OP
Units, see "SUMMARY -- RETAINING OP UNITS."
This Consent Solicitation Statement/Prospectus is first being mailed to
unitholders in your partnership on or about __________, 2000.
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The securities to be issued in the Restructuring have not been approved or
disapproved by the Securities and Exchange Commission or any state
securities commission nor has the Securities and Exchange Commission or
any state securities commission passed upon the accuracy or adequacy of
this Consent Solicitation Statement/Prospectus. Any representation to the
contrary is a criminal offense.
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The date of this Consent Solicitation Statement/Prospectus is ________ __,
2000.
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TABLE OF CONTENTS
Page
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SUMMARY........................................................................1
Background Of The Restructuring.............................................1
Your Partnership.........................................................1
The Class Action Settlement..............................................1
The Restructuring..........................................................2
Risk Factors and Other Considerations.......................................2
Potential Benefits of the Restructuring.....................................4
Comparison of Your Partnership and the Reit.................................5
General Partners' Statement................................................11
Voting.....................................................................11
Retaining OP Units.........................................................12
Allocation of Common Stock and OP Units....................................13
Alternatives to the Restructuring..........................................14
Continuation of Your Partnership........................................14
Liquidation and Dissolution of Your Partnership.........................14
Miscellaneous..............................................................15
No Dissenters' or Appraisal Rights......................................15
Limited Partner Lists...................................................15
RISK FACTORS AND OTHER CONSIDERATIONS.........................................16
Market Price of Shares..................................................16
Change in Nature of Investment..........................................16
Permitted Reinvestment of Property Sales Proceeds.......................16
Potential Dilution......................................................16
Elimination of "Fee Give-Back" Obligation...............................16
Modification of Restriction on Transactions With Affiliates.............17
Ownership Limitation; Change in Control.................................17
Newly Organized Corporation.............................................18
Future Investments and Investment Risks.................................18
Risk of Indebtedness....................................................19
Dividends and Distributions Are Not Guaranteed and May Fluctuate........19
The Board of Directors May Change Investment Policies...................19
Growth Dependent on Ability to Raise Capital............................19
Illiquidity of Real Estate Investments..................................20
Environmental Matters...................................................20
Uninsured Losses........................................................20
Federal Income Tax Risks...................................................21
Qualification as a Real Estate Investment Trust.........................21
Distribution Requirements...............................................21
Potential Tax Disadvantages to Conducting Business
as a Real Estate Investment Trust.......................................22
Other Tax Risks............................................................22
State Conformity With Federal Tax Law...................................22
COMPARISON OF YOUR PARTNERSHIP AND THE REIT...................................23
Form of Organization.......................................................23
General Business...........................................................24
Duration of Existence......................................................24
Voting Rights..............................................................25
Fiduciary Duties, Limitation of Liability and Indemnification..............26
Review of Books and Records................................................27
Management.................................................................27
(i)
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TABLE OF CONTENTS
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Distributions; distribution policy.........................................28
Management Fees to Affiliates..............................................29
Taxation of Taxable Limited Partners.......................................31
Taxation of Tax-Exempt Limited Partners....................................31
THE RESTRUCTURING.............................................................32
General....................................................................32
Mechanics of the Restructuring.............................................32
Effective Time.............................................................33
Conditions to the Restructuring............................................33
Fees And Expenses..........................................................33
Potential Benefits of the Restructuring....................................34
Greater Liquidity.......................................................34
Ability to Make New Investments.........................................34
Ability to Raise Capital................................................34
Beneficial Company Structure............................................35
Elected Governance......................................................35
Tax-Free Receipt of Common Stock........................................35
No UBTI.................................................................35
Simplified Tax Reporting................................................35
Reduced State Income Tax Reporting......................................35
Background of the Restructuring............................................35
General.................................................................35
Your Partnership........................................................36
The Class Action........................................................37
The Class Action Settlement.............................................37
Alternatives to the Restructuring..........................................38
Continuation of Your Partnership........................................38
Liquidation and Dissolution of Your Partnership.........................39
Recommendations And Fairness...............................................39
General Partners' Statement.............................................39
Comparison of Alternative Consideration....................................40
Secondary Market Prices.................................................40
Liquidation Values......................................................42
Recent Tender Offer Prices..............................................42
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
Impairment of Assets....................................................46
Results of Operations...................................................47
VOTING........................................................................49
General.................................................................49
Vote Required...........................................................50
Voting Procedure........................................................50
Record Date and Outstanding Units.......................................51
Effect of Voting to Approve the Restructuring...........................51
Solicitation of Votes; Solicitation Expenses............................51
Investor Lists..........................................................51
Retaining OP Units......................................................51
THE REIT......................................................................53
(ii)
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TABLE OF CONTENTS
Page
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General....................................................................53
Objectives and Strategies..................................................53
The Properties.............................................................54
Other Assets and Liabilities...............................................55
Cash Dividend Policy.......................................................55
Management.................................................................55
THE OPERATING PARTNERSHIP AND OP UNITS........................................59
General....................................................................59
Organization; Term.........................................................60
Ownership of Properties....................................................60
Non-Participating Voting Stock.............................................60
Partnership Agreement......................................................60
Management..............................................................60
Removal of the General Partner..........................................61
Amendments of the Partnership Agreement.................................61
Transfer of OP Units; Substitute Limited Partners.......................61
Issuance of Additional Limited Partnership Interest.....................61
Exculpation and Indemnification of the General Partner..................62
Tax Matters.............................................................62
Redemption of OP Units..................................................62
PRO FORMA FINANCIAL INFORMATION OF THE REIT...................................64
DESCRIPTION OF CAPITAL STOCK..................................................73
General....................................................................73
Common Stock...............................................................73
NP Stock...................................................................74
Preferred Stock............................................................74
Listing, Price and Trading.................................................75
Restrictions on Transfers..................................................75
Additional Issuances.......................................................77
Shareholder Rights Agreement...............................................77
CERTAIN PROVISIONS OF DELAWARE LAW AND
THE REIT'S CERTIFICATE AND BYLAWS.............................................79
Amendment of Certificate and Bylaws........................................79
Dissolution of the Reit....................................................80
Meetings of Stockholders...................................................80
The Board of Directors.....................................................80
Limitation of Liability and Indemnification................................80
Business Combinations......................................................81
Indemnification Agreements.................................................81
RESALE OF SECURITIES..........................................................82
FEDERAL INCOME TAX CONSEQUENCES...............................................82
The Restructuring..........................................................83
Taxation of the Reit as a Real Estate Investment Trust.....................84
General.................................................................84
Requirements for Qualification..........................................85
Organizational Requirements.............................................85
Income Tests............................................................86
Asset Tests.............................................................88
Annual Distribution Requirements........................................88
Failure of the REIT to Qualify as a Real Estate Investment Trust........89
Taxation of Taxable U.S. Stockholders......................................89
Distributions by the REIT...............................................89
Passive Activity Losses and the Investment Interest Limitation..........90
(iii)
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TABLE OF CONTENTS
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Sale of Common Stock....................................................90
Backup Withholding......................................................91
Taxation of Tax-Exempt Stockholders........................................91
Taxation of Non-U.S. Stockholders..........................................91
Distributions by the REIT...............................................92
Sale of Common Stock....................................................92
Backup Withholding Tax and Information Reporting........................93
Electing Large Partnership Election........................................93
Certain Tax Aspects of Owning OP Units Following the Restructuring.........93
Tax Status of the Operating Partnership....................................95
Other Taxes................................................................96
Possible Tax Law Changes...................................................96
Importance of Obtaining Professional Tax Assistance........................96
AVAILABLE INFORMATION.........................................................96
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................97
FORWARD-LOOKING STATEMENTS....................................................98
EXPERTS.......................................................................98
LEGAL MATTERS.................................................................98
APPENDIX A - Consent Form....................................................A-1
APPENDIX B - Amended and Restated Agreement of Limited Partnership...........B-1
APPENDIX C - Agreement and Plan of Merger....................................C-1
(iv)
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SUMMARY
The following is a summary of information relating to your partnership,
the restructuring, the REIT and the operating partnership. We have provided
cross-references to other sections of this document where you will find a more
complete discussion of the information summarized below.
BACKGROUND OF THE RESTRUCTURING
Your Partnership
Your partnership was formed in 1985 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 1986 and 1987. Your partnership invested substantially all of the capital
raised from the sale of units in the ten properties it currently owns as well as
in two other properties that have been sold. A complete description of your
partnership is set forth under "THE REIT -- THE PROPERTIES."
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. For a listing of recently reported trading
activity and prices relating to sales of units on the secondary market, see the
table set forth under "THE RESTRUCTURING -- ALTERNATIVES TO THE RESTRUCTURING."
The Class Action Settlement
This restructuring proposal is the final step in a class action settlement
approved by the California Superior Court.
In February 1999, you received a notice containing a detailed description
of the terms of the settlement. Under the terms of the settlement we agreed to
take certain actions regarding your partnership subject to first obtaining the
consent of limited partners to amendments to your partnership's agreement of
limited partnership. Limited partners of your partnership approved the
amendments, and the settlement became effective, in August 1999. The amendments
to the partnership agreement provided for (a) modification of the method of
calculating the "Partnership Asset Management Fee" payable by your partnership
so that the fee for each year is now 1.25% of the gross assets of your
partnership rather than 1.05% of the gross amount of your partnership's original
offering proceeds paid or allocable to acquire properties, (b) a management fee
of $973,293 for 1999 which is $312,139 less than the amount that would have been
paid for 1999 under the previous formula and (c) fixing the "fee give-back"
amount that we would be liable for upon liquidation of your partnership as
repayment of certain fees received by us and our affiliates. In this regard, we
also agreed that one of our affiliates would guarantee payment of the "fee
give-back" amount. As a result of the effectiveness of the settlement, we agreed
to cause our affiliate to make a tender offer to limited partners of your
partnership to acquire 39,596 units at a price of $103.05 per unit. The tender
offer commenced in November 1999 and was fully subscribed when it expired in
January 2000. Finally, we also agreed to propose and use our best efforts to
complete a restructuring 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. The terms of the restructuring were not provided for in
the settlement. The settlement did provide, however, that the "fee give-back"
obligation would be eliminated in the event of a restructuring.
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For a complete discussion of the class action litigation and the
settlement, see "THE RESTRUCTURING -- BACKGROUND OF THE RESTRUCTURING."
THE RESTRUCTURING
As a result of the restructuring, your partnership will be restructured
into an operating partnership controlled by the REIT. Following the
restructuring, the REIT will elect to be treated for Federal income tax purposes
as a real estate investment trust. Limited partners in your partnership will
receive two shares of Common Stock for each of their Units unless, as discussed
below under "RETAINING OP UNITS," a limited partner elects to retain OP Units.
You will not be taxed on your receipt of Common Stock in the restructuring.
The restructuring is conditioned upon the REIT's Common Stock being
approved for listing on the American Stock Exchange. Following the
restructuring, the outstanding shares of Common Stock will be owned by limited
partners of your partnership who receive Common Stock in the restructuring. OP
Units will be owned by the REIT and partners of your partnership who retain OP
Units. See "THE RESTRUCTURING -- MECHANICS OF THE RESTRUCTURING" The REIT will
conduct all of its operations, including the historic operations of your
partnership, through the operating partnership.
The REIT's primary business objective will be to maximize the value of its
Common Stock. The REIT 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. In order to achieve this objective, the REIT may need to
raise additional capital. The REIT will raise capital either by selling
properties, mortgaging existing properties or otherwise borrowing money, or by
selling additional equity or debt securities. See "THE REIT -- OBJECTIVES AND
STRATEGIES."
Following the restructuring, the REIT will have a Board of Directors
consisting of seven directors, two of whom will be Independent Directors. See
"THE REIT -- MANAGEMENT." Directors of the REIT will be elected in the future by
holders of Common Stock and by the operating partnership as the sole holder of
the REIT's non-participating voting stock. The non-participating voting stock
will vote together with Common Stock (and not as a separate class) on a
one-for-one basis.
Our affiliate, Shelbourne Management LLC, will manage the day-to-day
affairs of the REIT following the restructuring under an advisory agreement. The
advisor will provide management services to the REIT on substantially the same
terms as we manage your partnership. For a discussion of the services to be
performed by Shelbourne Management and the fees payable to Shelbourne
Management, see, "THE REIT -- MANAGEMENT - The Advisory Agreement and the
Advisor."
The REIT was formed under the Delaware General Corporations Law. The
REIT's principal executive offices are located at 5 Cambridge Center, 9th floor,
Cambridge, MA 02142.
RISK FACTORS AND OTHER CONSIDERATIONS
The restructuring will have certain effects on the nature of your
investment. In addition, an investment in the REIT involves certain risks.
Certain of such effects and risks are summarized below. For a more complete
discussion, see "RISK FACTORS AND OTHER CONSIDERATIONS."
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Qualification as a Real Estate Investment Trust. Maintaining qualification
as a real estate investment trust will require the REIT to comply with various
restrictions that do not apply to your partnership. If the REIT 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 its stockholders
and could materially reduce the value of Common Stock.
Market Price of Shares. Common Stock may trade at prices substantially
below the value of the REIT'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.
Change in Nature of Investment. The nature of your investment will change
upon the restructuring. You now own an interest in a specified portfolio of
income-producing properties; following the restructuring, you will own an
interest in a real estate company that may change its investments from time to
time without your approval.
Permitted Reinvestment of Property Sale Proceeds. The REIT will be
permitted to reinvest proceeds of property sales in new investments. However,
the REIT will distribute such sale proceeds as are necessary to assure its
continued qualification as a real estate investment trust. Your partnership is
not permitted to acquire new investments.
Future Investments. Following the restructuring, the REIT may make
additional real estate-related investments including investments in joint
ventures and other real estate companies. The new investments will be subject to
the general risks associated with real estate-related 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.
Growth Dependent on Ability to Raise Capital. The REIT's ability to grow
may be dependent on the ability of the REIT to raise additional capital to make
additional investments. While the REIT has the ability to raise additional
capital in a variety of ways, including through the issuance of debt and
additional equity securities and mortgaging properties, there can be no
assurance that it will be successful in raising such capital in the financial
markets.
Risk of Indebtedness. The REIT and the operating partnership may borrow
money on both a secured, unsecured and cross-collateralized basis to finance
future investments, to improve existing properties or for other purposes. The
borrowing of money will result in debt service obligations and the potential for
default.
Potential Dilution. Unlike your partnership, the REIT will have the
ability to raise capital by issuing additional shares of Common Stock or causing
the operating partnership to issue additional OP Units. The issuance of
additional equity securities could be economically dilutive to your investment.
Modification of Restrictions on Transactions with Affiliates. As a result
of the restructuring, the restrictions on transactions with our affiliates
contained in your partnership agreement will be modified. The REIT will be
permitted to enter into transactions with affiliates provided the terms of such
transactions are comparable to those which could be obtained from unaffiliated
third parties.
Elimination of "Fee Give-Back" Obligation. Pursuant to the terms of the
settlement of the class action litigation involving your partnership, if the
restructuring is approved we no longer will have any
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3
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obligation to pay limited partners of your partnership the "fee give-back"
amount (a maximum of $4.38 per unit) provided under your partnership's
partnership agreement.
Change in Taxation of Investment. The tax aspects of owning Common Stock
differ in various respects from owning partnership units. Unlike your
partnership, the REIT may be subject to entity-level income taxes under certain
circumstances, and its income and losses will not pass through to its
stockholders. Instead, if you are a taxable unitholder, you generally will be
taxed on your REIT dividends and will be unable to offset your unused passive
activity losses from your partnership or other investments against your dividend
income from the REIT (but your unused passive activity losses from your
partnership generally will be deductible by you when you sell all of your Common
Stock). If you are tax-exempt, your ownership of Common Stock generally will not
result in unrelated business taxable income (UBTI) to you even if the REIT
incurs debt.
Ownership Limitation; Change in Control. Certain provisions of the REIT's
certificate of incorporation and by-laws may have the effect of discouraging a
change in control. These include ownership limits on the number of shares of
Common Stock, a shareholders' rights plan and a staggered board of directors.
Newly Organized Corporation. The REIT was organized only recently and has
no operating history.
Dividends Not Guaranteed and May Fluctuate. The amount of the REIT's
dividends will depend upon numerous factors, many of which are beyond the
control of management. There can be no assurance that prior distribution levels
will be maintained.
The Board of Directors May Change Investment Policies. The descriptions in
this Consent Solicitation Statement/Prospectus of the investment and other
business policies of the REIT reflect its current policies. The Board of
Directors has the authority to change the REIT's investment policies without
your vote. If the REIT changes its investment policies, the risks and potential
rewards of your investment in the REIT also may change.
POTENTIAL BENEFITS OF THE RESTRUCTURING
We anticipate that the restructuring will result in the following
potential benefits. For a more detailed discussion of the benefits, see "THE
RESTRUCTURING --POTENTIAL BENEFITS OF THE RESTRUCTURING."
Greater Liquidity. Unlike units in your partnership, which have a limited
trading market, Common Stock will be traded on the American Stock Exchange.
Ability to Make New Investments. Unlike your partnership, the REIT will
have the ability to make new investments. The REIT may acquire new properties,
interests in joint ventures, interests in other real estate companies, mortgages
and other real estate-related assets. The ability to make new investments will
enable the REIT to change its investment portfolio in response to changing
market conditions and to avail itself of potentially favorable investment
opportunities.
Ability to Raise Capital. The REIT 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. Common Stock may be a more attractive investment to
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certain types of investors (e.g., institutional investors, tax-exempt investors
and foreign investors) than an investment in a partnership or in real estate.
Beneficial Company Structure. The "UPREIT" structure resulting from the
restructuring will enhance the ability of the REIT to make future acquisitions.
The operating partnership will be able to issue additional OP Units in
transactions which would afford beneficial tax treatment to prospective sellers.
Elected Governance. Following the restructuring, holders of Common Stock
and non-participating voting stock together will be entitled to elect directors
of the REIT.
Tax-Free Receipt of Common Stock. You will not be taxed on Common Stock
you receive in the restructuring (whereas, if you elect to retain OP Units, you
will be subject to tax on your receipt of Common Stock (or cash) if you later
redeem your OP Units).
No UBTI. Indebtedness incurred by the REIT will not result in UBTI to
tax-exempt stockholders.
Simplified Tax Reporting. If you receive Common Stock, the
restructuring 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 the REIT.
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 THE REIT
There are differences between an investment in your partnership and an
investment in the REIT. The following chart summarizes certain of these
differences. A more detailed comparison is set forth under "COMPARISON OF YOUR
PARTNERSHIP AND THE REIT."
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- -------------- ---------------- --------
General Business Owning and operating Owning and operating existing
existing and to be acquired properties,
income-producing including on a joint venture
properties, including basis, as well as other real
on a joint venture estate-related investments
basis such as mortgages and
securities of other real
estate companies (all business
to be conducted through
operating partnership)
Management Conflicts Various conflicts Present conflicts eliminated;
of Interest based on our the advisor may have conflicts
potentially opposing of interest in connection with
economic interests, services provided by it and
particularly with its affiliates to other
respect to management property owners
and timing of sales of
properties
- --------------------------------------------------------------------------------
5
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- --------------------------------------------------------------------------------
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- -------------- ---------------- --------
Liquidity of Your Relatively illiquid Listed for trading on the
Investment American 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
Affiliates transactions with our provisions of Delaware law;
affiliates contained transactions with our
in your partnership affiliates must be on terms
agreement comparable to transactions
with unaffiliated third parties
Borrowing Policy Minimal ability to Borrowing permitted on a
employ leverage secured and unsecured basis;
provided borrowing cross-collateralization
would not result in permitted; borrowing will not
UBTI result in UBTI to tax-exempt
Common Stockholders
Issuances of Prohibited from Ability to raise additional
Additional Securities issuing additional capital or acquire additional
securities properties or other
investments through issuances
of debt or additional equity
securities (Common Stock or OP
Units)
Duration of Entity December 31, 2015; Perpetual, no fixed
originally liquidation date
contemplated holding
period for properties
expired in 1998
Federal Taxation Not subject to Federal Generally not subject to
tax Federal tax on income
distributed to stockholders,
and 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 Generally taxed on amounts
of your partnership's distributed to you (unless you
taxable income (loss) are tax-exempt), which
is included in distributions will be made pro
calculating your rata to all holders of Common
taxable income, Stock
regardless of whether
your partnership makes
any cash
distributions; there
are special
allocations of
depreciation
deductions to taxable
unitholders
- --------------------------------------------------------------------------------
6
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- --------------------------------------------------------------------------------
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- -------------- ---------------- --------
Tax Characterization Generally passive Dividends and capital gains
of Income activity income from Common 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, Form 1099-DIV must be mailed
generally mailed to to you by January 31 of each
you by March 15 of year
each year, typically
increasing your cost
of tax return
preparation
You generally are You generally will not have to
required to file state file tax returns or pay taxes
tax returns, and pay in states other than your
taxes, in various state of residence on account
states where of owning Common Stock
properties are located
Distributions; Quarterly historical Quarterly dividends; dividend
distribution policy distributions; rate determined by the Board
distributions of Directors based on the
suspended as of REIT's results of operations,
September 30, 1999 cash flow and capital
requirements; mandatory
distributions required to
satisfy REIT requirements
Management Vested in general Vested in Board of Directors
partners elected by holders of Common
Stock and non-participating
voting stock; day-to-day
management subject to advisory
agreement with the advisor
(one of our affiliates)
Voting Based on percentage One vote per share. Majority
interest; voting is vote of Common Stock and
generally permitted non-participating voting stock
only for significant (owned by operating
actions requiring partnership) required for
approval of limited certain significant
partners holding transactions such as merger or
majority of units such sale of substantially all of
as sale of the assets
substantially all of
the assets or
amendment of your
partnership agreement
Partnership Management Partnership asset Asset management fees payable
Fees Payable to Us or management fee would under advisory agreement would
to Our Affiliates be 1.25% of appraised equal 1.25% of appraised value
value of assets of assets (same method of
calculation used for
determination of Partnership
Asset Management Fee)
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- --------------------------------------------------------------------------------
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- -------------- ---------------- --------
Property Management Up to 6% of property Up to 6% of property revenues
Fees Payable to Us or revenues but no more paid to advisor but no more
to Our Affiliates than competitive rate than competitive rate for
for similar services similar services
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 All expenses paid by operating
Expenses to Us or Our your partnership; we partnership; the advisor, our
Affiliates are reimbursed for affiliate, entitled to
expenses incurred in reimbursement for expenses
connection with incurred in connection with
performance of performance of services for
services for your the operating partnership,
partnership plus a plus a $200,000
$200,000 non-accountable expense
non-accountable reimbursement per annum
expense reimbursement
per annum
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
The following depicts the structure of your partnership before and after
the restructuring:
BEFORE THE RESTRUCTURING:
----------------------
PRESIDIO CAPITAL CORP.
----------------------
100% |
(indirect) |
|
----------------------------------------------------------
| | |
| | |
| | |
V V V
- ---------------------- ---------------------- ------------------------
General Partner General Partner General Partner
--------------- --------------- ---------------
Resources High Presidio AGP Corp. Resources Capital Corp.
Equity, Inc.
- ---------------------- ---------------------- ------------------------
| | |
| | |
| | |
----------------------------------------------------------
|
|
|
- ---------------------- |
|
Limited Partners |
|
- ---------------------- |
| |
| |
| 95% | 5%
| |
| |
-----------------------------
|
|
|
V
----------------------
Your Partnership
----------------
High Equity Partners
L.P.-Series 86
----------------------
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
AFTER THE RESTRUCTURING:
<TABLE>
<S> <C>
---------------------
Stockholders
------------
Former Unitholders
---------------------
|
|
| 100%
V
- ------------------------- ------------------------- -------------------
Limited Partners Advisor
---------------- -------
Former General Partners Shelbourne Properties II, (Advisory Shelbourne
and Unitholders who Inc. Agreement) Management LLC
retain OP Units (the "REIT") ------------ (affiliate of your
100% general partners)
- ------------------------- ------------------------- -------------------
| | |
| | | -------------------------
| | |----------> General Partner
| | ---------------
| | Shelbourne Properties II
| | GP, Inc.
| | -------------------------
| 99%(1) | 1% |
| | |
V V V
--------------------------------------------------------------------
Operating Partnership(2)
------------------------
Shelbourne Properities II L.P.(3)
(Property Owner)
--------------------------------------------------------------------
</TABLE>
- ----------
(1) Limited Partners and the REIT together will own a 99% limited partnership
interest in the Operating Partnership.
(2) The operating partnership will own a number of shares of the REIT's
non-participating voting stock equal to the number of shares of Common
Stock which may be issued upon redemption of outstanding OP Units, subject
to the limitation that the number of shares which may be issued to the
operating partnership may not represent more than 19% of the aggregate
voting power of all voting securities of the REIT.
(3) Formerly High Equity Partners L.P.-Series 86
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10
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PARTNERS' STATEMENT
We believe that the restructuring is fair and in your best interest.
Accordingly, we recommend that you vote "YES" to approve the restructuring. Our
belief is based on the following factors. The terms of the settlement of the
class action required that we use our best efforts to reorganize your
partnership into a real estate investment trust or other entity whose shares
were listed on a national securities exchange. The California Superior Court
determined that the provisions of the settlement were fair, reasonable and
adequate and in the best interests of your partnership. The restructuring will
give you the option of receiving shares of Common Stock listed on the American
Stock Exchange or retaining OP Units. We and our affiliates will be entitled to
receive Common Stock or OP Units on the same basis as limited partners in your
partnership.
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 (617) 234-3310.
This Consent Solicitation Statement/Prospectus is accompanied by a
separate Consent Form in the form of Appendix A attached to this Consent
Solicitation Statement/Prospectus. You may take one of the following actions
with respect to the restructuring:
Vote "YES" -- I vote to approve the Restructuring.
or
Vote "NO" -- I vote not to approve the Restructuring.
or
Abstain from voting (abstentions will constitute "NO" votes)
We strongly urge you to vote "YES" to approve the restructuring.
If you vote "YES", you will receive Common Stock in exchange for your
partnership units unless you elect on the Consent Form to retain OP Units. A
"YES" vote also will constitute your approval to amend and restate your
partnership agreement in the form of Appendix B, whether or not you elect to
retain OP Units in lieu of receiving Common Stock.
If you vote "NO" and the restructuring is nonetheless approved, you will
receive Common Stock unless you elect on the Consent Form to retain OP Units. A
"NO" vote will be a vote against the amendment and restatement of your
partnership's partnership agreement.
If you abstain or fail to return a Consent Form and the restructuring is
nonetheless approved, you will receive Common Stock unless, in the case of an
abstention, you elect on the Consent Form to retain OP Units. If you abstain
from voting or fail to return a Consent Form, you will be deemed to have voted
against the amendment and restatement of your partnership's partnership
agreement.
Please complete, sign and return the enclosed Consent Form to the
Information Agent 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
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
notice of your withdrawal to the Information Agent. You may change your Consent
Form at any time before the expiration date by delivering to the Information
Agent a duly completed and signed substitute Consent Form, together with a
letter indicating that your prior Consent Form has 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 restructuring, you will be deemed to have voted "YES" for approval of the
restructuring.
The restructuring will be approved when limited partners holding a
majority of the outstanding Units have consented to the restructuring but in no
event prior to _____ __, 2000. The Information Agent will tabulate the Consent
Forms received from you.
The restructuring will apply prospectively from and after the date it
becomes effective. If the restructuring becomes effective, you will be bound by
its terms, whether or not you vote in favor of it.
The Information Agent is:
The Swenson Group L.L.C.
Attn: Special Projects
5 Cambridge Center
9th Floor
Cambridge, Massachusetts 02142
(888) 448-5554
RETAINING OP UNITS
You may elect to retain your units as an alternative to receiving Common
Stock by checking the appropriate box on the Consent Form. Your units would
represent a percentage interest in the operating partnership equal to your
percentage interest in your partnership as of the effective time of the
restructuring. There will be no formal trading market for OP Units and the
transfer of OP Units will be restricted. Beginning one year after the
restructuring you may at certain times elect to have your OP Units redeemed for,
at the REIT's option, Common Stock (on a two-for-one basis) or cash in an amount
equal to the fair market value of such Common Stock at the time. See "THE
OPERATING PARTNERSHIP AND OP UNITS." However, unlike receiving Common Stock in
the restructuring, the receipt of Common Stock (or cash) upon the redemption of
your OP Units will be a taxable transaction for you. Moreover, you will be taxed
on the value of the non-participating voting stock of the REIT being issued to
the operating partnership in connection with the restructuring (but you will not
otherwise be subject to tax as a result of the restructuring).
Because all business operations of the REIT will be conducted through the
operating partnership, holders of OP Units will have substantially the same
economic benefits with respect to cash distributions and liquidation proceeds as
holders of Common Stock. However, the tax aspects of retaining OP Units will
differ in various respects from owning units in your partnership. Tax-exempt
unitholders may realize UBTI from OP Units if, as anticipated, the operating
partnership borrows money to finance real property acquisitions and
improvements. If you are a taxable unitholder, you will not be specially
allocated depreciation deductions as you were by your partnership, which likely
will result in your being allocated taxable income rather than tax losses with
respect to your OP Units. Furthermore, if you retain OP Units and the operating
partnership becomes a "publicly traded partnership," you would not be able to
use any losses from other passive activities to offset your allocable share of
the operating partnership's taxable income. See
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
"FEDERAL INCOME TAX CONSEQUENCES -- CERTAIN TAX ASPECTS OF OWNING OP UNITS
FOLLOWING THE RESTRUCTURING."
Subject to the potential dilution in voting power resulting from the 19%
limitation referred to below, holders of OP Units will have substantially the
same voting rights with respect to the REIT as holders of Common Stock. This
will be effected by the operating partnership holding shares of the REIT's
non-participating voting stock. The non-participating voting stock will vote
together with Common Stock (and not as a separate class) on a one-for-one basis
and will be voted by the operating partnership in proportion to the vote of OP
Unitholders (other than the REIT). The operating partnership will hold a number
of shares of non-participating voting stock equal to the number of shares of
Common Stock which may be issued upon redemption of the outstanding OP Units at
any time. However, the number of shares which the operating partnership may hold
as a result of the restructuring may not represent more than 19% of the combined
voting power of all voting securities of the REIT. Accordingly, the voting power
of holders of OP Units with respect to REIT matters may be diluted. The
non-participating voting stock will not participate in any dividends paid by the
REIT and will not participate in any liquidating distributions made by the REIT.
See "THE OPERATING PARTNERSHIP AND OP UNITS -- NON-PARTICIPATING VOTING STOCK."
We do not believe that as a general matter it is in your best interest to
retain OP Units. However, you should consult with your tax and financial advisor
to determine whether your particular circumstances warrant retaining OP Units.
As discussed below under "ALLOCATION OF COMMON STOCK AND OP UNITS," as a result
of special tax considerations applicable to us and our affiliates (because of
our indirect ownership by a foreign entity), we and our affiliates intend to
retain OP Units with respect to certain of our interests in your partnership.
ALLOCATION OF COMMON STOCK AND OP UNITS
Units in your partnership will be exchanged for shares of Common Stock on
a two-for-one basis. If you elect to retain OP Units, after the restructuring
your OP Units will represent a percentage interest in the operating partnership
which is equal to your percentage interest in your partnership at the time of
the restructuring. We and our affiliates will be allocated Common Stock and OP
Units on the same basis as unitholders.
We own a 5% general partnership interest in your partnership
(corresponding to 30,948 units in your partnership). Our affiliates own a total
of 123,002 units in your partnership (or approximately 20.9% of the outstanding
units). The 5% general partnership interest owned by us and 80,464 of the units
owned by our affiliates are beneficially owned by Presidio Capital Corp., a
British Virgin Islands company. As a result of special tax considerations
applicable to foreign entities such as Presidio, we and our affiliates intend to
retain 111,412 OP Units with respect to the partnership interests beneficially
owned by Presidio. However, depending on the total number of OP Units retained
by limited partners, we and our affiliates may decide instead to exchange some
of the partnership interests beneficially owned by Presidio for shares of Common
Stock in order to reduce the voting dilution which may result from the
limitation on the number of shares of non-participating voting stock which may
be issued in the restructuring. Subject to the foregoing, our affiliates will
receive 85,076 shares of Common Stock with respect to the balance of the units
owned by them.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
ALTERNATIVES TO THE RESTRUCTURING
In order to assist you in evaluating the restructuring, we have compared
the alternatives to the restructuring discussed below. We are not proposing the
alternatives discussed below, but rather are discussing them for comparison
purposes. For a more detailed discussion of such comparison, see "THE
RESTRUCTURING -- ALTERNATIVES TO THE RESTRUCTURING."
Continuation of Your Partnership
Continuing your partnership outside of the restructuring 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.
We do not believe that continuation of your partnership outside of the
restructuring provides you with as many benefits as the restructuring. As a
limited partner, 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, your general partners 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
currently is no active trading market for your partnership units. The limited
number of units of your partnership that recently have been sold on the informal
secondary market for units have been sold at substantial discounts to the net
asset value of your partnership.
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. A benefit from liquidation
would be that you no longer would be subject to the risks associated with owning
real estate. Furthermore, in accordance with the terms of your partnership
agreement, if your partnership were liquidated this year, we would be obligated
to pay limited partners $4.38 per unit under the "fee give-back" provisions of
your partnership agreement. That amount decreases every year.
Nevertheless, we believe that it would not be in your best interest to
liquidate your partnership at this time. If your partnership liquidated, it
would sell its assets, pay off existing liabilities, distribute the cash
proceeds in accordance with your partnership agreement, and then dissolve. We do
not believe that now is an opportune time to liquidate your partnership. In
addition, liquidating your partnership's properties would not be in your best
interests because selling properties on a liquidation basis often results in the
owners receiving significantly less than market value. Moreover, because four of
your partnership's properties are held in joint ventures with other parties,
your partnership's ability to sell these investments may be limited. As a
result, liquidation of these investments likely would result in your partnership
receiving substantially less than fair market value. We have estimated the
liquidation value of your units as of September 30, 1999 to be $128.40 per unit.
This amount includes the "fee give-back amount" payable as of such date ($4.50),
but does not take into account any discount that may be applicable to your
partnership's joint venture investments. See "THE RESTRUCTURING -- ALTERNATIVES
TO THE RESTRUCTURING."
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
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 39,596 Units at a price of $103.05 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 39,596 Units were
acquired by our affiliates.
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 AND OTHER CONSIDERATIONS
You should carefully consider the following risk factors and other
considerations, as well as the other information set forth or incorporated by
reference in this Consent Solicitation Statement/Prospectus, before voting on
the restructuring.
Market Price of Shares
The restructuring is conditioned upon the Common Stock being approved for
listing on the American Stock Exchange. There is presently no market for Common
Stock. Shares of Common Stock may trade at prices substantially below the value
of the REIT'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. We believe that following the restructuring the
market price of shares of Common Stock will depend on several factors. Such
factors include how the market perceives the REIT; whether the REIT maintains or
increases its dividend level; the size of the REIT in terms of its assets and
market capitalization; the degree to which leverage is used in the REIT's
capital structure; the historical performance of the REIT; external factors such
as the creditworthiness of tenants of the REIT'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.
Change in Nature of Investment
The nature of your investment will change fundamentally. Originally, you
acquired units in an entity with a finite life. By contrast, the REIT plans to
operate indefinitely and has no required date by which it must liquidate its
assets. Moreover, unlike your partnership, the REIT does not intend to
distribute proceeds of any sales of its assets, including its properties, except
as necessary to maintain its status as a real estate investment trust and to
avoid the imposition of income and excise taxes on the REIT. Instead, the REIT
intends to reinvest those proceeds in additional real estate acquisitions. See
"THE REIT -- OBJECTIVES AND STRATEGIES."
Permitted Reinvestment of Property Sales Proceeds
The REIT will be permitted to reinvest proceeds of property sales in new
investments. However, the REIT will distribute such sales proceeds as are
necessary to assure its continued qualification as a real estate investment
trust. Your partnership is not permitted to acquire new investments.
Potential Dilution
Unlike your partnership, the REIT will have the ability to raise capital
by issuing additional shares of Common Stock and the operating partnership will
have the ability to issue additional OP Units. The issuance of additional equity
securities to raise capital or make new investments would reduce your percentage
interest in the REIT and could reduce dividends you would receive from the REIT.
Elimination of "Fee Give-Back" Obligation
Pursuant to the terms of the settlement of the class action litigation
involving your partnership, we are presently obligated to pay a "fee give-back"
amount of $4.38 per unit if your partnership is liquidated. That
16
<PAGE>
amount is reduced by 10% for each full year in which a liquidation does not
occur. Because the settlement provides that the "fee give-back" obligation is
eliminated if your partnership is converted to a real estate investment trust or
other public entity, following the restructuring we no longer will be obligated
upon liquidation of your partnership to pay to you any "fee give-back" amount.
See "THE RESTRUCTURING -- BACKGROUND OF THE RESTRUCTURING - The Class Action
Settlement."
Modification of Restriction on Transactions With Affiliates
Your partnership agreement presently restricts certain transactions with
affiliates. As a result of the restructuring, these restrictions will be
modified to provide that the REIT may enter into transactions with our
affiliates on terms comparable to transactions with unaffiliated third parties.
The REIT's ability to transact with our affiliates will also be subject to
applicable provisions of Delaware law.
Ownership Limitation; Change in Control
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 the REIT may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities). See "FEDERAL
INCOME TAX CONSEQUENCES -- TAXATION OF THE REIT AS A REAL ESTATE INVESTMENT
TRUST - Requirements for Qualification." In order to facilitate maintenance of
its qualification as a REIT for federal income tax purposes, and to otherwise
address concerns relating to concentration of capital stock ownership, the REIT
generally has prohibited ownership, directly or by virtue of the attribution
provisions of the Code, by any single stockholder of more than 8% of the issued
and outstanding shares of the REIT's Common Stock. However, the ownership limit
will not apply to NorthStar Capital Investment Corp. (or any of its officers,
directors and affiliates) or the operating partnership (or any of its
affiliates) provided that their ownership in excess of this limit will not
jeopardize the REIT'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 the REIT's qualification
as a real estate investment trust for federal income tax purposes. 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 connection with
such a transaction. Certain provisions of the REIT's Certificate and Bylaws and
of the Partnership Agreement may have the effect of inhibiting a third party
from making an acquisition proposal for the REIT or of impeding a change in
control of the REIT under circumstances that could otherwise provide the holders
of shares of Common Stock with the opportunity to realize a premium over the
then-prevailing market price of such shares. The ownership limit described in
the preceding paragraph also may have the effect of precluding acquisition of
control of the REIT even if such a change in control were in the best interests
of some, or a majority, of the REIT's stockholders. 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 the REIT, even if such a
change in control were in the best interests of some, or a majority, of the
REIT's stockholders. See "THE REIT -- MANAGEMENT - Directors."
The Certificate 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
17
<PAGE>
AND THE REIT'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 the REIT, even if such a change in control were in the best
interests of some, or a majority, of the REIT's stockholders. No shares of
preferred stock will be issued or outstanding immediately subsequent to the
restructuring and the REIT has no present intention to issue any such shares.
Prior to the completion of the restructuring, the REIT authorized the issuance
of a series of preferred stock in connection with the adoption of a shareholder
rights plan. See "DESCRIPTION OF CAPITAL STOCK -- SHAREHOLDER RIGHTS AGREEMENT."
The REIT has adopted a Shareholder Rights Agreement. Under the terms of
the Shareholder Rights Agreement, in general, if a person or group acquires more
than 15% of the outstanding shares of Common Stock (an "Acquiring Person"), all
other Stockholders will have the right to purchase securities from the REIT 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 the REIT 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 the REIT 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 certain advantages under the
Shareholder Rights Agreement that are not available to other stockholders. See
"DESCRIPTION OF CAPITAL STOCK -- SHAREHOLDER RIGHTS AGREEMENT."
Certain provisions of Delaware law could inhibit acquisitions and changes
in control. Certain provisions of the Delaware General Corporation Law also may
have the effect of inhibiting a third party from making an acquisition proposal
for the REIT or of impeding a change in control of the REIT 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 THE REIT'S CERTIFICATE AND
BYLAWS."
Potential Conflict for Advisor. The Advisor will manage assets of other
entities, including entities which may seek to acquire assets which may also be
potential acquisition targets of the REIT. Accordingly the Advisor may have a
conflict of interest with respect to its management of such entities.
Newly Organized Corporation
The REIT was organized only recently and has no operating history. The
acquisition of additional investments will depend on whether the REIT can borrow
funds or otherwise obtain financing. The REIT will be competing with other real
estate investors, including other real estate investment trusts, for additional
real estate investments. Some of these competitors may have more experience and
greater financial resources than the REIT. See "THE REIT."
Future Investments and Investment Risks
Following the restructuring, the REIT 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
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<PAGE>
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 the REIT'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 "THE REIT -- OBJECTIVES AND STRATEGIES."
Risk of Indebtedness
Your partnership did not incur any indebtedness in connection with raising
capital or acquiring its properties. In contrast, the REIT may borrow money on a
secured, unsecured and cross-collateralized basis to finance future investments,
to improve existing properties or for other purposes. The incurrence of debt
could have certain adverse effects, including on the REIT's ability to pay
dividends to its stockholders. In addition, the risk of default on credit
obligations carries with it further risks. The properties owned by the REIT
could be subject to foreclosure if required principal and interest payments are
not made when due. The REIT may be unable to satisfy applicable REIT
distribution requirements because of the obligation to make principal payments,
thereby jeopardizing the REIT's qualification as a real estate investment trust
or subjecting the REIT to entity-level taxes. Finally, any default by the REIT
in any of its debt obligations may cause other debt obligations to become
immediately due and payable. See "THE REIT -- OBJECTIVES AND STRATEGIES."
Dividends and Distributions Are Not Guaranteed and May Fluctuate
The amount of the REIT's dividends to its stockholders 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. There can be no assurance that prior distribution levels will be
maintained.
The REIT will not be required to adhere to any particular formula in
determining what dividends it will declare and pay. The Board of Directors of
the REIT, in its sole discretion, will determine the actual dividend rate. The
Board will determine the dividend rate based on the REIT's results of
operations, cash flow and capital requirements, economic conditions, tax
considerations and other factors. The REIT will be required to distribute
substantially all of its taxable income in order to maintain its status as a
real estate investment trust. See "THE REIT -- CASH DIVIDEND POLICY."
The Board of Directors May Change Investment Policies
The descriptions in this Consent Solicitation Statement/Prospectus of the
investment and other business policies of the REIT reflect its current policies.
The Board of Directors has the authority to change the REIT's investment
policies without your vote. If the REIT changes its investment policies, the
risks and potential rewards of your investment in the REIT also may change. See
"THE REIT -- MANAGEMENT."
Growth Dependent on Ability to Raise Capital
The REIT's ability to grow is largely dependent on its ability to raise
additional capital to acquire additional properties and make new investments.
While the REIT has the ability to raise additional capital in a variety of ways,
including through the issuance of debt and additional equity securities, there
can be no
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<PAGE>
assurance that it will be successful in raising such capital in the capital and
financial markets. For example, since the REIT 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 "THE REIT -- CASH DIVIDEND
POLICY." If the REIT 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
Real estate investments are illiquid relative to other investments such as
publicly traded securities. The illiquidity of the REIT's assets will limit its
ability to be able to buy or sell property in response to economic or other
conditions. In addition, certain 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, the
REIT's ability to respond to adverse changes in the performance of its
investments will be restricted, which could have an adverse effect on the REIT's
financial condition and results of operations.
Environmental Matters
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 certain hazardous or toxic substances released on or in its
property, as well as certain 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 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. No assurance can be given that all potential
environmental liabilities have been identified and remedied, or that there does
not exist an unknown or in the future could exist a material environmental
condition or environmental liability.
Uninsured Losses
Your partnership carries, and the REIT 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, certain 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 restructuring. 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, the REIT could lose both its capital invested in and
anticipated profits from such property.
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FEDERAL INCOME TAX RISKS
Qualification as a Real Estate Investment Trust
The REIT intends to elect to be treated for tax purposes and to operate so
as to qualify as a real estate investment trust under the Code effective for its
taxable year ending December 31, 2000. If the REIT 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 the REIT 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
restructuring, the REIT will receive an opinion of Rosenman & Colin LLP to the
effect that, commencing with the REIT's taxable year ending on December 31,
2000, the REIT will be organized in conformity with the requirements for
qualification as a real estate investment trust, and the REIT'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 restructuring
and certain procedural steps described under "Federal Income Tax Consequences"
are completed in a timely fashion and (2) the REIT 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 THE REIT AS A REAL ESTATE INVESTMENT TRUST."
If the REIT 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 under certain statutory provisions, the REIT 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 the REIT would reduce the funds available for distribution to its
stockholders for each of the years involved, and could materially reduce the
value of Common Stock. See "FEDERAL INCOME TAX CONSEQUENCES - TAXATION OF THE
REIT AS A REAL ESTATE INVESTMENT TRUST - Failure of the REIT to Qualify as a
Real Estate Investment Trust."
Distribution Requirements
In order to qualify as a real estate investment trust, the REIT generally
will be required each year to distribute to its stockholders at least 95% (90%
for taxable years after 2000) of its net taxable income (excluding any net
capital gain). In addition, the REIT 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, and
(3) any undistributed taxable income from prior years.
The REIT 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
net taxable income could cause the REIT to distribute amounts that would
otherwise be spent on future acquisitions, capital expenditures or repayment of
debt. Failure to spend cash flow on
21
<PAGE>
such items could require the REIT to borrow or sell assets or issue additional
equity to fund the cost of such items. See "FEDERAL INCOME TAX CONSEQUENCES -
TAXATION OF THE REIT AS A REAL ESTATE INVESTMENT TRUST - Requirements for
Qualification - Annual Distribution Requirements."
Potential Tax Disadvantages to Conducting Business as a Real Estate
Investment Trust
While conducting business as a real estate investment trust will provide
the REIT with certain advantages, it also will result in certain tax
disadvantages to the REIT and its stockholders. Maintaining qualification as a
real estate investment trust will require the REIT to comply with various
restrictions (e.g., with respect to its assets and income) that are not
applicable to your partnership. Unlike your partnership, the REIT 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 the REIT will not pass through to its stockholders, and taxable
stockholders generally will be taxed on REIT dividends.
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 could be deducted when you sell all of your Common Stock.). See
"COMPARISON OF YOUR PARTNERSHIP AND THE REIT -- TAXATION OF TAXABLE LIMITED
PARTNERS" and "FEDERAL INCOME TAX CONSEQUENCES -- TAXATION OF TAXABLE U.S.
STOCKHOLDERS."
OTHER TAX RISKS
State Conformity With Federal Tax Law
While we anticipate that the REIT will qualify as a real estate investment
trust for Federal income tax purposes, the REIT'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 the REIT 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 the
REIT or its stockholders. You should consult your tax advisors regarding your
state's tax law. See "FEDERAL INCOME TAX CONSEQUENCES -- OTHER TAXES."
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COMPARISON OF YOUR PARTNERSHIP AND THE REIT
Your rights and obligations are currently governed by the Delaware
Revised Uniform Limited Partnership Act ("Delaware Partnership Law") and your
partnership agreement. Following the restructuring, your rights will be governed
by the Delaware General Corporation Law and the organizational documents of the
REIT. The following compares certain of such rights as well as certain
attributes of the ownership of units in your partnership and shares of Common
Stock. See "DESCRIPTION OF CAPITAL STOCK" for additional information with
respect to Common Stock.
YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Form of Organization
Your partnership is a limited The REIT is a corporation organized
partnership formed under Delaware under Delaware General Corporation Law.
Partnership Law. Your partnership has The REIT intends to qualify as a real
been treated as a partnership for estate investment trust under the Code,
Federal income tax purposes, and is thereby generally avoiding Federal
not subject to entity-level taxes. 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. The REIT may be
subject to entity-level taxes in
certain circumstances.
Your partnership is a limited partnership governed by Delaware partnership
law. The REIT is a corporation governed by Delaware corporate law. Qualification
of the REIT as a real estate investment trust will enable the REIT to avoid much
of the double taxation normally associated with corporations.
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<PAGE>
YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
General Business
The business of your partnership is The REIT will have the authority to
limited to the ownership of interests engage in any and all business
in its properties. The properties were activities permitted a corporation
intended to be sold over varying organized under the laws of the State
periods of time with the resulting of Delaware which is consistent with
liquidation of your partnership. Your qualification as a real estate
partnership is prohibited from investment trust. Specifically, through
reinvesting its funds in additional the operating partnership, the REIT
properties. 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. The
REIT will also acquire new investments
with borrowed money or capital raised
by issuing additional equity
securities. Equity securities in the
REIT may be more attractive to certain
types of investors than partnership
interests, thereby enhancing the REIT"s
ability to raise additional capital (as
compared with your partnership).
The REIT 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 the REIT with respect to
raising additional capital and borrowing.
- ------------------------------------- ---------------------------------------
Duration of Existence
Your partnership has a finite term of In accordance with the Delaware General
existence. Your partnership agreement Corporation Law and the REIT's
provides for a term lasting until Certificate, the REIT will have a
December 31, 2015, unless sooner perpetual existence, and continue to
terminated in connection with a operate indefinitely.
liquidation following the sale of all
the Properties. While your partnership
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 2015, whereas the REIT's Certificate provides for perpetual
existence. Accordingly, after the restructuring, liquidation of your investment
in the REIT will not likely be achieved through liquidating distributions, but
through the sale of shares of Common Stock on the American Stock Exchange.
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<PAGE>
YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Voting Rights
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 the REIT shall
partners. Although you have no right be entitled to vote, subject to any
to elect management of your voting rights which may be granted to
partnership on an annual basis or to holders of preferred stock, on all
participate in the management or matters submitted to a vote of the
control of its business, the vote of stockholders. In determining the number
limited partners holding more than 50% of shares entitled to vote, each share
of the outstanding units may, subject of Common Stock and non-participating
to certain exceptions and limitations voting stock (owned by the operating
set forth in the your partnership partnership) is entitled to one vote.
agreement, approve certain significant
actions such as approve or initiate Generally, matters submitted to the
(1) removal of a general partner and stockholders require the affirmative
the election of a successor general vote of stockholders holding a majority
partner, (2) election of an additional of the number of votes cast either
general partner, (3) termination and present in person or by proxy at a duly
dissolution of your partnership, (4) convened meeting of stockholders,
certain amendments to your except that the removal of directors
partnership, (5) sale of substantially and the amendment of certain sections
all of the assets of your partnership, of the Certificate requires the
(6) the pledge or encumbrance of affirmative vote of stockholders
substantially all of the assets of holding two-thirds of the number of
your partnership, and (7) the votes entitled to be cast on such
extension of the term of your proposals.
partnership.
The Bylaws of the REIT require the REIT
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 or under the
Bylaws is entitled to such notice.
You will be entitled to vote on certain matters as a stockholder of the
REIT that you currently cannot vote on in your partnership, including the
entitlement to vote in the annual election of directors.
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YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Fiduciary Duties, Limitation of Liability and Indemnification
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
exercise good faith and integrity in in such fiduciary duties, it is
all our dealings in your partnership's possible that the fiduciary duties of
affairs. Your partnership agreement directors of the REIT to its
generally provides that neither we nor stockholders could be less than our
any of our affiliates performing fiduciary duties to you, which may
services on behalf of your partnership result in decreased potential liability
will be liable to your partnership or of the directors of the REIT. The
any of their respective partners for REIT's Certificate limits the liability
any loss suffered by your partnership of the REIT's directors to the fullest
that arises out of any action or extent permitted from time to time by
inaction of us or our affiliates if we Delaware law. The Certificate presently
in good faith determine that such permits the liability of directors to
course of conduct was in the best the REIT or its stockholders for money
interests of your partnership, damages to be limited, except for
provided that such course of conduct liability (1) for any transaction from
did not constitute negligence or which the director derived an improper
misconduct of us and our affiliates. benefit, (2) for any breach of the
director's duty of loyalty to the REIT
Your partnership agreement generally or its stockholders, (3) acts or
requires your partnership to indemnify omissions not in good faith or which
us to the maximum extent permitted by involve intentional misconduct or a
law from any liability, loss or damage knowing violation of law, and (4) under
incurred by reason of an act performed Section 174 of the General Corporation
or omitted to be performed by them, Law of the State of Delaware.
including costs and expenses, provided
that (1) the course of conduct was The REIT's Bylaws require the REIT to
determined to be in the best interest indemnify its directors and officers to
of your partnership, and (2) the the fullest extent permitted from time
course of conduct did not constitute to time by Delaware law.
negligence or misconduct.
Delaware law permits indemnification to
certain persons against expenses and
certain 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.
The REIT has also entered into
indemnification agreements with each of
its directors and executive officers
which, among other things, require the
that the REIT 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.
The rights of stockholders against management of the REIT in certain
circumstances are more limited than the rights you have against us.
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YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Review of Books and Records
Under your partnership agreement and Under Delaware General Corporation Law,
applicable law, you may be entitled to a stockholder is entitled, upon written
review and obtain a copy of a current demand, to inspect for any proper
list of the names and addresses of purposes during usual business hours,
limited partners in your partnership the REIT's stock ledger, a list of the
as well as other information REIT's stockholders and its other books
maintained at the principal offices of and records and to make copies or
your partnership. extracts therefrom. In addition, the
REIT 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.
The rights of stockholders to obtain an investor list is somewhat more
limited than your corresponding right in your partnership.
- ------------------------------------- ---------------------------------------
Management
With the exception of certain The REIT will be managed by its Board
significant transactions which require of Directors and executive officers.
your approval (such as a sale of all Management of the day-to-day affairs of
of your partnership's assets), we have the REIT will be performed by the
exclusive authority and control over Advisor. (The Advisory Agreement is
the management and operation of your described in general under "THE REIT -
partnership. You do not have the right MANAGEMENT - The Advisory Agreement and
to annually elect the management of the Advisor") The Board of Directors
your partnership. However, we may be will be elected by the holders of
removed at any time by a vote of a Common Stock and non-participating
majority of the outstanding units in voting stock.
your partnership.
Unlike limited partners in your partnership, holders of Common Stock and
non-participating voting stock will vote to elect management of the REIT.
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YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Distributions; distribution policy
Your partnership generally distributes The REIT intends to make quarterly
available cash on a quarterly basis. dividend payments to its stockholders.
Amounts distributed to you The amount of such dividends will be
historically have been derived from established by the Board of Directors,
your share of adjusted cash from taking into account the cash needs of
operations. We may, under your the REIT, the requirements of the Code
partnership agreement, create working for qualification as a real estate
capital and other reserves that may investment trust and the amount of
have the effect of decreasing cash distributions necessary to avoid
distributions. You also are entitled becoming subject to non-deductible
to receive your share of cash from excise tax. See "FEDERAL INCOME TAX
sales or financings upon the sale or, CONSEQUENCES." Under the Code, the REIT
in limited circumstances, financing of is required to distribute ordinary
your partnership's properties. income dividends of at least 95% (90%
However, except for the sale of two after taxable year 2000) of its taxable
properties, your partnership has not income. Unlike your partnership, the
to date sold or financed any of its REIT is not required to distribute, and
real estate investments. does not intend to distribute, net
proceeds from a financing of properties
or from sales of properties. However,
the REIT intends to distribute its net
capital gain income (if any) from such
sales. For a summary of the REIT's
dividend policy, see, "THE REIT -- CASH
DIVIDEND POLICY".
The REIT will pay dividends when declared by the Board of Directors of the
REIT. The amount of such dividends will depend upon the REIT's operating
expenses, debt service payments, capital expenditures and other factors. To
maintain its qualification as a real estate investment trust, the REIT must
distribute 95% (90% after 2000) of its taxable income.
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<PAGE>
YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Management Fees to Affiliates
Your partnership agreement provides Pursuant to the Advisory Agreement, the
for the payment of the following fees Advisor, which is one of our
to us and our affiliates in affiliates, will be paid (1) an asset
consideration of our and their management fee equal to 1.25% of gross
performance of certain services on assets of your partnership, (2)
behalf of your partnership. $200,000 for non-accountable expenses,
(3) competitive property management
Management and Administrative Fees. In fees and (4) reimbursements for
consideration of providing management accountable expenses.
and administrative services for your
partnership, we or our affiliates are
currently entitled to receive (1) a
per annum partnership asset management
fee equal to 1.25% of the gross assets
of your partnership per annum, and (2)
$200,000 per annum for non-accountable
expenses. In addition, your
partnership pays our affiliates
competitive property management fees.
Liquidation Fees. As a result of
certain subordination provisions
relating to liquidation stage fees, it
is not currently anticipated that we
would be entitled to receive any fees
which would otherwise be payable to us
or our affiliates in connection with
the sale of properties and the
liquidation of your partnership.
Reimbursement of Expenses. Your
partnership agreement further provides
that we and our affiliates are
entitled to be reimbursed for
accountable expenses.
The method of determining the amount of fees payable to the Advisor for
managing the REIT 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 restructuring had been in effect
during the periods presented below.
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<PAGE>
HISTORICAL AND PRO FORMA PAYMENTS TO THE GENERAL PARTNERS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------------------
1996 1997
---------------------------------------------------------------------------------------
Net Net
Historical REIT Increase Historical REIT Increase
Partnership Pro Forma (Decrease) Partnership Pro Forma (Decrease)
----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Asset Management Fee $1,406,204 $1,406,204 $0 $1,376,001 $1,376,001 $0
Property Management Fees (2) 435,467 435,467 0 416,429 416,429 0
General Partners' Distributions 76,752 76,752 0 124,721 124,721 0
Reimb. of Exp.-Non- 200,000 200,000 0 200,000 200,000 0
Accountable
Reimb. of Part. Exp. to 83,516 83,516 0 43,361 43,361 0
Affiliates ---------- ---------- -- ---------- ---------- --
Total $2,201,939 $2,201,939 $0 $2,160,512 $2,160,512 $0
---------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------
Year Ended December 31, Nine Months Ended
-----------------------------------------------------------------------------------------
1998 September 30, 1999
-----------------------------------------------------------------------------------------
Net Net
Historical REIT Increase Historical REIT Increase
Partnership Pro Forma (Decrease) Partnership Pro Forma (Decrease)
----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Asset Management Fee $1,285,432 $1,285,432 $0 $808,005 $729,970 ($78,035)(1)
Property Management Fees (2) 427,126 427,126 0 294,200 294,200 0
General Partners' Distributions 142,360 142,360 0 71,180 71,180 0
Reimb. of Exp.-Non- 200,000 200,000 0 150,000 150,000 0
Accountable
Reimb. of Part. Exp. to 102,025 102,025 0 76,500 76,500 0
Affiliates ---------- ---------- -- -------- -------- --------
Total $2,156,943 $2,156,943 $0 $1,399,885 $1,321,850 ($78,035)(1)
-----------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) The decrease in the asset management fee results from amendments to the
partnership agreement previously approved by the limited partners.
(2) Historical cost includes $435,467, $416,428, $427,126 and $294,200 of
Supervisory Management Fees paid to our affiliate for the years ended
December 31, 1996, 1997 and 1998 and the nine months ended September 30,
1999, respectively, of which $254,005, $287,466, $278,204 and $243,439,
respectively, was paid to unaffiliated management companies.
30
<PAGE>
YOUR PARTNERSHIP THE REIT
- ------------------------------------- ---------------------------------------
Taxation of Taxable Limited Partners
Your partnership, which is treated as Dividends received by taxable
a partnership for Federal income tax stockholders generally will be taxable
purposes, is not subject to tax, but as ordinary dividend income (except for
you report your allocable share of distributions properly designated as
partnership income and loss on your capital gain distributions). Dividends
tax return. Partnership distributions and capital gains from Common Stock
are not taxable to you except to the cannot be offset by passive activity
extent such distributions exceed your losses (including any unused passive
adjusted tax basis in your activity losses from your partnership)
partnership. Your partnership in the case of stockholders who are
specially allocates depreciation subject to the passive activity loss
deductions to taxable unitholders. limitation. Unused passive activity
Losses from your partnership losses from your partnership generally
constitute passive activity losses could be deducted when you sell all of
which, under the passive activity loss your Common Stock. Any tax losses of
limitation rules, cannot be deducted the REIT will not pass through to
currently except to the extent of your stockholders, but will reduce the
passive activity income (if any) from REIT's future taxable income (subject
other investments. Income from your to applicable limitations). Each
partnership generally constitutes January, stockholders will be mailed
passive activity income which, under the familiar Form 1099-DIV for
the passive activity loss limitation corporate dividends.
(but subject to other applicable
limitations), can be offset by passive As a stockholder, you generally will
activity losses from other not be required to file state income
investments. Generally, by March 15 of tax returns or pay state income taxes
each year, you receive annual Schedule outside your state of residence with
K-1 forms with respect to information respect to the REIT's operations. The
for inclusion on your Federal income REIT must pay state income taxes in
tax returns. certain states where it is qualified to
do business.
You generally must file state income
tax returns and may incur state income
tax in various states in which your
partnership owns property.
- ------------------------------------- ---------------------------------------
Taxation of Tax-Exempt Limited Partners
Leveraged acquisitions by your The IRS has ruled that distributions by
partnership would give rise to UBTI a real estate investment trust to a
under the Code. tax-exempt pension trust will not
constitute UBTI. Accordingly, dividends
received from the REIT by a stockholder
whose income is exempt from Federal
income taxation (other than certain
categories of tax-exempt stockholders)
should not constitute UBTI assuming the
stockholder does not hold its shares
subject to acquisition indebtedness.
31
<PAGE>
THE RESTRUCTURING
GENERAL
This restructuring proposal is the final step in a class action settlement
approved by the California Supreme Court.
We are soliciting your approval of a restructuring transaction in which
your partnership would be restructured into an operating partnership controlled
by the REIT. You would receive two shares of Common Stock in the restructuring
in exchange for each of your partnership units (unless as described under
"VOTING -- RETAINING OP UNITS," you elect to retain OP Units). The restructuring
is conditioned on the Common Stock being approved for listing on the American
Stock Exchange. Your receipt of Common Stock in the restructuring will be
tax-free to you.
As a result of the restructuring, the REIT's only asset will be its
ownership interests in the operating partnership. The REIT will be a limited
partner of the operating partnership, and a wholly-owned subsidiary of the REIT
named Shelbourne Properties II GP, Inc. ("Shelbourne Properties II GP") will be
the general partner of the operating partnership. The REIT will conduct all of
its operations, including the historic operations of your partnership, through
the operating partnership.
Following the restructuring, the REIT will have a Board of Directors
consisting of seven directors, two of which will be Independent Directors. See
"THE REIT -- MANAGEMENT." Our affiliate, Shelbourne Management LLC, will manage
the day-to-day affairs of the REIT following the restructuring under an advisory
agreement. For a discussion of the services to be performed by Shelbourne
Management and the fees payable to Shelbourne Management, see, "THE REIT --
MANAGEMENT - The Advisory Agreement and the Advisor."
MECHANICS OF THE RESTRUCTURING
The restructuring will be accomplished by forming a new limited
partnership that is wholly-owned by the REIT and merging it with and into your
partnership on the terms set forth in the Merger Agreement attached to this
Consent Solicitation Statement/Prospectus as Appendix C. Your partnership will
survive the merger as the operating partnership. As part of the merger, your
partnership's partnership agreement will be amended and restated in the form of
Appendix B to this Consent Solicitation Statement/Prospectus. As part of the
merger, each unit in your partnership will be converted into two shares of
Common Stock unless the owner of such unit elects to retain OP Units. The REIT
will receive one OP Unit for each unit in your partnership that is converted
into Common Stock, except that an interest in the operating partnership
representing 1% of all interests in the operating partnership, instead of being
issued to the REIT, will be issued to Shelbourne Properties II GP as the general
partner of the operating partnership. The general partnership interest in the
operating partnership and OP Units held by the REIT will not be redeemable for
Common Stock or cash like OP Units held by OP Unitholders other than the REIT.
As part of the restructuring, the REIT will issue to the operating
partnership a number of shares of the REIT's non-participating voting stock
equal to the number of shares of Common Stock that may be issued upon redemption
of the outstanding OP Units at any time. However, the number of shares to be
issued in the restructuring may not represent more than 19% of the combined
voting power of all voting securities of the operating partnership. The
non-participating voting stock will not participate in any dividends paid by the
REIT and will not participate in any liquidating distributions by the REIT. See
"THE OPERATING PARTNERSHIP AND OP UNITS -- NON-PARTICIPATING VOTING STOCK." For
each OP Unit that is redeemed by the operating partnership, two shares of
non-participating voting stock will be redeemed by the
32
<PAGE>
REIT. The REIT will pay nominal consideration to redeem the non-participating
voting stock. The general partnership interest in the operating partnership and
OP Units held by the REIT will not be entitled to vote with respect to matters
put to a vote of holders of the REIT's non-participating voting stock.
EFFECTIVE TIME
We will cause the restructuring to become effective within ten business
days of the later of (a) the business day following the last date on which
Consent Forms may be received by the Information Agent in order to be valid or
(b) the business day on which the last of the conditions to the restructuring
are fulfilled or waived.
We will cause the restructuring to become effective by filing certificates
of merger and such other documents and instruments, as required by Delaware law,
with the Office of the Secretary of State of the State of Delaware.
CONDITIONS TO THE RESTRUCTURING
Our obligation to effect the restructuring is subject to satisfaction of
the following conditions:
o Approval of the restructuring by limited partners holding a majority
of the outstanding units in your partnership
o This Consent Solicitation Statement/Prospectus 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 restructuring complies with all
requirements of state securities or "blue sky" laws
o The REIT 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 the REIT, and no group of pension trusts, each of
which owns at least 10% (by value) of the Common Stock of the REIT,
owns more than 50% (by value) of the Common Stock of the REIT
o The Common Stock has been approved for listing upon issuance on the
American Stock Exchange
o Rosenman & Colin LLP renders certain tax opinions concerning the
restructuring and the REIT's qualification as a real estate
investment trust. See "FEDERAL INCOME TAX CONSEQUENCES -- THE
RESTRUCTURING" and "-- TAXATION OF THE REIT AS A REAL ESTATE
INVESTMENT TRUST - General."
FEES AND EXPENSES
All costs and expenses incurred in connection with the restructuring will
be paid by your partnership, whether or not the restructuring is consummated.
The following is an estimate of such expenses.
33
<PAGE>
Registration, Listing and Filing Fees................ $30,782
Legal Fees........................................... 175,000
Accounting Fees and Expenses......................... 10,000
Solicitation Fees and Expenses....................... 50,000
Printing and Engraving Expenses...................... 30,000
Postage.............................................. 40,000
Miscellaneous........................................ 14,218
--------
Total......................................... $350,000
POTENTIAL BENEFITS OF THE RESTRUCTURING
As previously mentioned, we are proposing the restructuring pursuant to
the settlement of the class action litigation involving your partnership. We
expect that the following benefits will result from the restructuring.
Greater Liquidity
Unlike units in your partnership, Common Stock will be traded on the
American Stock Exchange. As a result, stockholders in the REIT should have
greater liquidity than you currently have with respect to 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 "THE RESTRUCTURING-- COMPARISON OF ALTERNATIVE CONSIDERATION -
Secondary Market Prices."
Ability to Make New Investments
Unlike your partnership, the REIT will have the ability to make new
investments. The REIT 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 the REIT 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 will be
available on terms that would be favorable. Through such additional investments,
the REIT will attempt to maximize the value of Common Stock.
Ability to Raise Capital
The REIT will have the ability to borrow money, including by mortgaging
existing properties, 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. In addition, the borrowing of money
by the REIT will not result in UBTI to tax-exempt stockholders.
34
<PAGE>
Beneficial Company Structure
The "UPREIT" structure resulting from the restructuring will enhance the
ability of the REIT to make future acquisitions. The operating partnership will
be able to issue additional OP Units in transactions which would afford
beneficial tax treatment to prospective sellers.
Elected Governance
Following the restructuring, holders of Common Stock and non-participating
voting stock will be entitled to elect directors of the REIT by voting their
shares. In addition, a vote of such stockholders holding two-thirds of the
outstanding Common Stock and non-participating voting stock, voting as a group,
generally may remove a director of the REIT. Each year, holders of Common Stock
and non-participating voting stock, voting as a group, will elect approximately
one-third of the REIT's directors, each of whom will serve for a three-year
term.
Tax-Free Receipt of Common Stock
The restructuring will allow you to exchange units in your partnership for
Common Stock on a tax-free basis. However, if you elect to retain OP Units, you
will be taxed on your receipt of Common Stock (or cash) when you later redeem
your OP Units.
No UBTI
If you receive Common Stock and are tax-exempt, dividends paid to you
generally will not constitute UBTI even if the REIT borrows funds to finance
acquisitions or improvements.
Simplified Tax Reporting
If you receive Common Stock, the restructuring 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 the REIT.
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 the Common Stock.
BACKGROUND OF THE RESTRUCTURING
General
We are proposing the restructuring 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.
35
<PAGE>
Your Partnership
Your partnership was formed in 1985 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 April 1986 and
September 1987 resulting in the sale of 588,010 partnership units for aggregate
gross proceeds to your partnership of $147,002,500. Substantially all of the
capital raised by your partnership through the sale of units (net of offering
costs, fees and certain 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 "THE REIT -- THE PROPERTIES."
Your partnership has three general partners. The Investment General
Partner is Resources High Equity, Inc. ("RHE"), a Delaware corporation, the
Administrative General Partner is Resources Capital Corp. ("RCC"), a Delaware
corporation and the Associate General Partner is Presidio AGP Corp.
As the Investment General Partner, RHE is responsible for seeking out,
evaluating and negotiating all property investments and dispositions as well as
for management of your partnership's properties. RCC, the Administrative General
Partner, is responsible for 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. None of us has any outstanding obligations or
commitments to your partnership other than our contingent obligation to pay the
"fee give-back" amount pursuant to your partnership agreement. See the
discussion of such contingent obligation included in "THE RESTRUCTURING --
ALTERNATIVES TO THE RESTRUCTURING - Liquidation and Dissolution of Your
Partnership."
Your partnership's general partners are wholly-owned by Presidio Capital
Corp. ("Presidio"). Presidio is a British Virgin Islands corporation that is
wholly-owned by Presidio Capital Investment Company, LLC ("PCIC), a Delaware
limited liability company. The majority interest in PCIC is owned by NorthStar
Presidio Capital Holding Corp. ("NS Presidio"), a Delaware corporation.
In October 1999 Presidio entered into an Agency Agreement with an
affiliate of Winthrop Financial Associates ("Winthrop"), a Boston-based
partnership and property management company which is not affiliated with
Presidio. Under the Agency Agreement, the Winthrop affiliate is responsible for
providing your partnership with the asset management and investor relation
services previously provided by your general partners. In order to facilitate
the provision of these services, nominees of the Winthrop affiliate were elected
as officers and directors of your general partners. Following the restructuring
the Winthrop affiliate will continue to furnish the foregoing services for the
advisor. In addition, nominees of the Winthrop affiliate 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 "THE RESTRUCTURING -- COMPARISON OF ALTERNATIVE CONSIDERATION."
36
<PAGE>
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. Except for 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 September 30, 1999, (2) amounts contributed
to 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 of the general partners includes a
reallocation of $7,350,125 (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
Balance Capital Income Allocated Equity
--------------------------------------------------------------------------------------------------
Per Per Per Per
Total Unit Total Unit Total Unit Total Unit
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Limited $139,652,375 237.50 (4,189,500) (7.12) 29,996,909 51.01 (53,464,084) (90.02)
Partners
- --------------------------------------------------------------------------------------------------------------
General 7,351,125 -- (220,500) -- 1,578,783 (2,813,901)
Partners
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------
Equity Balances as
Losses Allocated of 9/30/99
--------------------------------------------------
Per Per
Total Unit Total Unit
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Limited (54,944,895) (93.44) 57,050,855 97.03
Partners
- --------------------------------------------------------------
General (2,891,834) 3,003,673
Partners
- --------------------------------------------------------------
</TABLE>
The Class Action
In May 1993, certain of the limited partners in your partnership commenced
a class action (the "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, Integrated Resources High Equity Partners, Series 85, and High
Equity Partners L.P. - Series 88 (collectively with your partnership, the "HEP
Partnerships"). The amended complaint asserted claims against us, the general
partners of the other HEP Partnerships and certain related persons and entities
for, among other things, common law fraud, negligent misrepresentation, and
breaches of fiduciary duty. 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. We and the other defendants in the Action at all
times considered the Action to be without merit and vigorously defended the
Action.
The Class Action Settlement
In January 1999, we agreed with plaintiffs' counsel on the terms of the
settlement (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. An expert appointed
37
<PAGE>
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 certain 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 Asset 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 $973,293 or $312,139 less than the amount that would have been
paid for 1999 under the prior formula and (c) fixing an amount that we would be
liable to pay upon liquidation of your partnership as repayment of certain fees
received by us and our affiliates (the "Fee Give-Back Amount"), which Fee
Give-Back 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 pay any
Fee Give-Back Amount. In accordance with the terms of the Settlement, our
affiliate, Presidio Capital Corp., guaranteed payment of the Fee Give-Back
Amount.
As required by the Settlement, our affiliate, Millennium Funding III, LLC,
made a tender offer to limited partners of your partnership to acquire 39,596
units of your partnership at a price of $103.05 per unit. The offer closed in
January 2000 and Millennium acquired all 39,596 Units subject to the tender.
The final requirement of the Settlement obligated us to use our best
efforts to reorganize each of your partnership and the other HEP Partnerships
into a real estate investment trust or other entity and the general partner of
the other HEP Partnerships whose shares will be listed on a national securities
exchange or on the NASDAQ National Market System. We are proposing this
restructuring to satisfy the foregoing requirement of the Settlement with
respect to your partnership.
ALTERNATIVES TO THE RESTRUCTURING
In order to assist you in evaluating the restructuring, the following sets
forth an analysis and comparison of alternatives to the restructuring. We are
not proposing the alternatives discussed below, but rather are providing them
for comparison purposes.
Continuation of Your Partnership
Continuing your partnership outside of the restructuring 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.
We do not believe that continuation of your partnership outside of the
restructuring would provide you with as many benefits as the restructuring. 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
currently is no active trading market for the units. The limited number of units
that recently
38
<PAGE>
have been sold on the informal secondary market have been sold at substantial
discounts to net asset value of your partnership. Between December 1, 1998 and
November 30, 1999, according to Partnership Spectrum, an independent third party
industry publication, a total of 14,536 units in your partnership have traded in
the secondary market between a high of $101.18 per unit and a low of $80 per
unit.
For the reasons set forth above, we believe that anticipated benefits of
the restructuring to you significantly outweigh the benefits of continuing your
partnership outside of the restructuring 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. A benefit from liquidation
would be you no longer would be subject to the risks associated with owning real
estate. Furthermore, in accordance with the terms of your partnership agreement,
if your partnership were liquidated this year, we would be obligated to pay
limited partners $4.38 per unit under the "fee give-back" provisions of your
partnership agreement. That amount decreases every year.
Nevertheless, we believe that it would not be in your best interest to
liquidate your partnership at this time. If your partnership liquidated, it
would sell its assets, pay off existing liabilities, distribute the cash
proceeds in accordance with your partnership agreement, and then dissolve. We do
not believe that now is an opportune time to liquidate your partnership. In
addition, liquidating the properties would not be in your best interests because
selling properties on a liquidation basis often results in the owners receiving
significantly less than market value. Moreover, because four of your
partnership's properties are held in joint ventures with the parties, your
partnership's ability to sell these investments may be limited. As a result,
liquidation of these investments likely would result in your partnership
receiving substantially less than fair market value. We have estimated the
liquidation value as of September 30, 1999 to be $128.40 per unit. This amount
includes the "fee give-back amount" payable as of such date ($4.50), but does
not take into account any discount that may be applicable to your partnership's
joint venture investments. See "THE RESTRUCTURING -- COMPARISON OF ALTERNATIVE
CONSIDERATION -Liquidation Values."
RECOMMENDATIONS AND FAIRNESS
General Partners' Statement
We believe that the restructuring is fair and in the best interest of
limited partners. Accordingly, we recommend that you vote "YES" to approve the
restructuring. Our belief is based on the following factors. The terms of the
settlement of the class action required that we use our best efforts to
reorganize your partnership into a real estate investment trust or other entity
whose shares were listed on a national securities exchange. The California
Superior Court determined that the provisions of the settlement were fair,
reasonable and adequate and in the best interests of your partnership. The
restructuring will give you the option of receiving shares of Common Stock
listed on the American Stock Exchange or retaining OP Units. We and our
affiliates will be entitled to receive Common Stock or OP Units on the same
basis as limited partners in your partnership.
In recommending the restructuring, we concluded that the restructuring
provides greater benefits than any of the potential alternatives to the
restructuring discussed under "THE RESTRUCTURING -- ALTERNATIVES TO THE
RESTRUCTURING." Specifically, you will own an investment in a real estate
investment company with investment flexibility superior to your partnership. As
currently structured, your partnership is not permitted to raise additional
capital or acquire additional properties. Consequently, you
39
<PAGE>
currently own an investment in a fixed real estate portfolio. We do not believe
liquidation is an attractive alternative since it is not an opportune time to
liquidate your partnership. As a result of the inherent discount that generally
results in forced portfolio liquidations, a current liquidation of your
partnership would result in a substantial and permanent loss to limited
partners.
In determining that the restructuring is fair and in your best interest,
we considered, but did not accord significant weight to, either current or
historic market prices of units or liquidation value or net book value of units.
We did not give significant weight to the market value of units because we do
not believe that the informal secondary market for units accurately reflects the
value of your partnership's assets. As noted, we do not believe it is an
opportune time for liquidation, and therefore did not give significant weight to
liquidation value. Finally, we do not believe net book value is a meaningful
measure of your partnership's assets.
COMPARISON OF ALTERNATIVE CONSIDERATION
Secondary Market Prices
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 during
calendar years 1996, 1997 and 1998 as well as for the first three quarters of
1999 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 (which
typically range between 8% and 10% of the reported selling price).
40
<PAGE>
SECONDARY MARKET TRADING VOLUME AND UNIT PRICES
(ALL PRICE INFORMATION ON A PER UNIT BASIS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of
Date Total Units Traded Trades Weighted Average High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/1/96-3/31/96 1,257 31 $47.62 $54.00 $33.00
- ------------------------------------------------------------------------------------------------------------------------------------
4/1/96-5/30/96 2,545 37 $50.14 $54.38 $43.26
- ------------------------------------------------------------------------------------------------------------------------------------
6/1/96-7/31/96 3,432 56 $47.82 $55.00 $42.80
- ------------------------------------------------------------------------------------------------------------------------------------
8/1/96-9/30/96 2,140 22 $52.10 $61.40 $43.26
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/96-11/30/96 2,350 43 $53.02 $64.00 $46.12
- ------------------------------------------------------------------------------------------------------------------------------------
12/1/96-1/31/97 4,491 30 $58.27 $63.00 $45.51
- ------------------------------------------------------------------------------------------------------------------------------------
2/1/97-3/31/97 4,323 92 $59.77 $71.00 $55.00
- ------------------------------------------------------------------------------------------------------------------------------------
4/1/97-5/30/97 2,071 46 $64.26 $70.20 $57.00
- ------------------------------------------------------------------------------------------------------------------------------------
6/1/97-7/31/97 1,735 35 $62.34 $69.11 $59.00
- ------------------------------------------------------------------------------------------------------------------------------------
8/1/97-9/30/97 3,058 45 $64.34 $96.00 $58.00
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/97-11/30/97 982 22 $66.08 $95.00 $60.00
- ------------------------------------------------------------------------------------------------------------------------------------
12/1/97-1/31/98 2,315 47 $71.66 $78.65 $59.00
- ------------------------------------------------------------------------------------------------------------------------------------
2/1/98-3/31/98 2,640 53 $73.47 $84.03 $70.00
- ------------------------------------------------------------------------------------------------------------------------------------
4/1/98-5/31/98 1,340 43 $76.60 $85.00 $71.50
- ------------------------------------------------------------------------------------------------------------------------------------
6/1/98-7/31/98 1,528 31 $87.75 $94.30 $85.00
- ------------------------------------------------------------------------------------------------------------------------------------
8/1/98-9/30/98 3,132 49 $87.09 $90.88 $77.00
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/98-11/30/98 9,586 6 $86.45 $90.25 $85.00
- ------------------------------------------------------------------------------------------------------------------------------------
12/1/98-1/31/99 2,473 39 $88.10 $90.88 $84.60
- ------------------------------------------------------------------------------------------------------------------------------------
2/1/99-3/31/99 2,731 50 $87.57 $91.00 $85.00
- ------------------------------------------------------------------------------------------------------------------------------------
4/1/99-5/31/99 1,667 41 $90.23 $100.99 $85.00
- ------------------------------------------------------------------------------------------------------------------------------------
6/1/99-7/31/99 2,024 43 $91.71 $101.18 $85.00
- ------------------------------------------------------------------------------------------------------------------------------------
8/1/99-9/30/99 2,748 53 $89.44 $96.00 $80.00
- ------------------------------------------------------------------------------------------------------------------------------------
10/1/99-11/30/99 2,893 34 $86.52 $90.00 $80.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Liquidation Values
Your partnership is not required to liquidate at the present time. In
addition, we do not believe that now is an opportune time to sell your
partnership's properties.
We used March 1998 appraisals of your partnership's properties to estimate
the liquidation value of your partnership as of September 30, 1999. 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)
Commonwealth Industrial Park 7,200,000
Commerce Plaza I 7,600,000
Melrose Crossing 3,100,000
Matthews Township Festival 9,600,000
Sutton Square Shopping Center 10,200,000
TMR Warehouses 4,379,920(3)
----------
TOTAL $ 69,185,920
- ---------------
(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.
(3) Your partnership has a 20.66% interest in this property and the amount
listed in the table represents 20.66% of the appraised value.
To estimate your partnership's liquidation value as of September 30, 1999,
we subtracted from the total appraised value of your partnership's properties
estimated liquidation costs of $2,075,000 (approximately 3% of the total
appraised value). We then added the $9,577,000 of net current assets of your
partnership at September 30, 1999 to arrive at the estimated liquidation value
of your partnership's assets of $76,687,920. Limited partners in your
partnership would be entitled to 95% of the liquidation proceeds of your
partnership's assets plus a $4.50 per unit "fee give-back amount" which we would
be required to pay in the event of a liquidation of your partnership as of
September 30, 1999, resulting in a per unit estimated liquidation value of
$128.40. Such estimated liquidation value does not take into account any
discount that may be applicable to your partnership's joint venture investments.
Recent Tender Offer Prices
As required by the Settlement, one of our affiliates recently concluded a
tender offer in which it acquired 39,596 units in your partnership for a price
of $103.05 per unit.
42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 2000, no officer or director of any of us or of any
direct or indirect parent of ours owned any Units. It is not possible at this
time to estimate the percentage beneficial ownership of OP Units or Common Stock
that will be held by any person or entity following consummation of the
restructuring because it is not yet knows how many partners will elect to retain
OP Units. The following table shows the total number of units in your
partnership held by our affiliates as of January 31, 2000.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name of Beneficial Owner Ownership of Units % of Outstanding Units
------------------------ ------------------------------- ----------------------
<S> <C> <C>
NorthStar Capital Investment Corp. (1) 123,002 (2) 20.92%
</TABLE>
- ------------
(1) NorthStar Capital Investment Corp. ("NCIC") is the general partner of
NorthStar Partnership, L.P. the indirect majority owner of Presidio
Capital Investment Company, LLC ("PCIC"). PCIC is the 100% parent of
Presidio.
(2) Comprised of (a) 20 units held by Millennium Funding Corp., a wholly-owned
subsidiary of Presidio, (b) 80,444 units held by Millennium Funding III
Corp., a wholly-owned subsidiary of Presidio, (c) 2,944 units held by
Millennium Funding I LLC, a wholly-owned subsidiary of PCIC and (d) 39,596
units held by Millennium Funding III LLC, a wholly-owned subsidiary of
PCIC.
43
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected financial data for the periods
indicated, on a historical basis and on a pro forma basis as if the
restructuring was consummated on January 1, 1999 with respect to the nine months
ended September 30, 1999 and on January 1, 1998 with respect to the year ended
December 31, 1998. The pro forma balance sheet information is presented as if
the restructuring was consummated on September 30, 1999. The information set
forth below should be read in conjunction with the Financial Statements of your
partnership, the Pro Forma Financial Information of the REIT and Management's
Discussion and Analysis of the Financial Condition and Results of Operations,
appearing elsewhere in this Consent Solicitation Statement/Prospectus or
incorporated herein by reference.
<TABLE>
<CAPTION>
The REIT Pro
Historical High Equity Partners L.P. - Series 86 Forma For the
For the Year Ended December 31, Year Ended
----------------------------------------------------------------------- ---------------
December 31,
1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenues $10,425,516 $10,814,043 $12,074,558 $12,660,956 $11,883,246 $11,883,246
Total Costs and Expenses $9,489,209 $32,898,948 $9,830,038 $9,815,331 $8,783,086 $8,783,086
Net Income (Loss) $936,307 ($22,084,905) $2,244,520 $2,845,625 $3,100,160 $3,100,160
Balance Sheet Data
Cash and Cash Equiv. $5,750,089 $4,752,024 $7,409,578 $9,828,701 $10,220,165
Total Assets $83,682,263 $60,266,933 $61,979,385 $61,919,546 $61,837,211
Total Liabilities $2,632,629 $2,837,220 $3,840,168 $3,429,104 $3,093,813
L.P. Equity $76,996,202 $54,557,278 $55,231,308 $55,564,973 $55,805,281
G.P. Equity (Deficit) $4,053,432 $2,872,435 $2,907,909 $2,925,469 $2,938,117
Total Common Stockholders
Equity
Other Financial Data
Net Increase (Decrease) $170,827 ($998,065) $2,657,554 $2,419,123 $391,464 $41,464
in Cash and Cash Equiv.
Net Cash Provided By $3,203,642 $2,737,148 $4,879,769 $3,214,689 $4,261,619 $3,911,619
Operating Activities
Distributions $1,832,115 $1,535,016 $1,535,016 $2,166,352 $2,847,204 $2,847,204
Per Unit Data
Net Income (loss) $1.51 ($35.68) $3.63 $4.60 $5.01
Earnings Per Share $2.50
Book Value $130.95 $92.78 $93.93 $94.50 $94.91
Book Value - restructuring
Cash distributions as a $2.45 $2.48 $2.48 $4.03 $4.60 $2.30
return of capital
Cash distributions from $0.00
sales and/or refinancing
of properties
Ratio of earnings to 1.12% -36.65% 3.62% 4.60% 5.01%
total assets
<CAPTION>
Historical Partnership The REIT Pro Forma
For the Nine Months For the Nine Months
Ended Sept. 30, Ended September 30,
-------------------------- -------------------
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
Income Statement Data
Total Revenues $8,798,496 $9,352,910 $9,352,910
Total Costs and Expenses $6,588,067 $6,618,178 $6,540,143
Net Income (Loss) $2,210,429 $2,734,732 $2,812,767
Balance Sheet Data
Cash and Cash Equiv. $10,451,345 $11,655,876 $11,305,876
Total Assets $62,030,298 $62,599,911 $62,327,946
Total Liabilities $3,464,830 $2,545,383 $2,545,383
L.P. Equity $55,636,248 $57,050,855
G.P. Equity (Deficit) $2,929,220 $3,003,673
Total Common Stockholders
Equity $59,782,563
Other Financial Data
Net Increase (Decrease) $622,644 $1,435,711 $1,085,711
in Cash and Cash Equiv.
Net Cash Provided By $3,426,769 $3,981,623 $3,631,623
Operating Activities
Distributions $2,135,403 $2,135,403 $2,135,403
Per Unit Data
Net Income (loss) $3.57 $4.42
Earnings Per Share $2.27
Book Value $94.62 $97.02
Book Value - restructuring $48.29
Cash distributions as a $2.30 $1.15
return of capital
Cash distributions from
sales and/or refinancing
of properties
Ratio of earnings to 3.56% 4.37% 4.51%
total assets
</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 historical financial
condition and results of operations of your partnership. This information should
be read in conjunction with the historical financial statements of your
partnership and the related notes thereto incorporated herein by reference.
Following the restructuring, the REIT's only asset will be its ownership
interests in the operating partnership. The REIT's revenues will be derived
primarily from distributions from the operating partnership.
Liquidity and Capital Resources
All of the REIT's investments were acquired for cash and are presently
unencumbered by debt. The REIT will use working capital reserves and any
undistributed cash from operations as its primary source of liquidity. The REIT
also has the ability to raise capital by borrowing money or issuing additional
equity securities. For the year ended December 31, 1998 and the nine months
ended September 30, 1999, capital expenditures were funded entirely from cash
flow. Distributions were funded entirely from cash flow for the year ended
December 31, 1998 and for the six months ended June 30, 1999. There were no
distributions with respect to the three months ended September 30, 1999. As of
December 31, 1998 and September 30, 1999, total remaining working capital
reserves amounted to approximately $5,742,000 and $5,631,000, respectively.
Working capital reserves are temporarily invested in short-term money market
instruments and are expected, together with cash flow from operations, to be
sufficient to fund future capital improvements.
During the year ended December 31, 1998 and the nine months ended
September 30, 1999, cash and cash equivalents increased $391,464 and $1,435,711,
respectively, as a result of cash provided by operations in excess of capital
expenditures and distributions to partners. Your partnership's primary source of
funds was cash flow from the operations of its properties (principally rents
received from tenants less property operating expenses) which amounted to
$4,261,619 and $3,981,623 for the year ended December 31, 1998 and the nine
months ended September 30, 1999, respectively. Your partnership used $1,022,951
and $410,509 for capital expenditures related to capital and tenant improvements
to the properties and $2,847,204 and $2,135,403 for distributions to partners
during 1998 and the nine months ended September 30, 1999, respectively.
The following table sets forth, for each of the last three fiscal years
and for the first nine months of 1999, your partnership's expenditures at each
of its properties for capital improvements and capitalized tenant procurement
costs:
Nine Months Ended
September 30, 1999 1998 1997 1996
------------------ ---- ---- ----
Century Park I ...... $ 20,732 $ 89,729 $ 506,704 $ 28,010
568 Broadway ........ 43,830 293,021 84,805 233,376
Seattle Tower ....... 184,949 490,322 78,754 352,522
45
<PAGE>
Commonwealth ........ -- 128,526 41,003 227,741
Commerce Plaza I .... 127,834 90,857 220,935 76,803
Melrose Crossing .... 19,993 69,338 84,202 45,628
Matthews Festival ... 5,244 69,666 133,029 24,586
Sutton Square ....... -- 110,775 52,625 106,766
230 East Ohio (a) ... -- 0 22,707 37,983
TMR Warehouses ...... 4,139 6,043 3,620 3,951
Melrose Out Parcel .. -- 0 0 0
---------- ---------- ---------- ----------
Totals ......... $ 406,721 $1,348,277 $1,228,384 $1,137,366
========== ========== ========== ==========
- ---------
(a) Property sold in 1997
The REIT expects to continue to utilize a portion of its cash flow from
operations to pay for various capital and tenant improvements to its properties
and for leasing commissions. The vacancy at the TMR Warehouses property is
currently being marketed to a variety of potential tenants. If and when a
replacement is secured, it is likely that capital expenditures will be required
to fund tenant improvements and leasing commissions. Capital and tenant
improvements and leasing commissions may in the future exceed the REIT's cash
flow from operations. In that event, the REIT would utilize its remaining
working capital reserves, reduce distributions, or sell one or more properties.
In addition, unlike your partnership, the REIT will have the ability to fund
capital improvements and other items through external financing.
Real Estate Market
The real estate market has begun to recover (for selected markets and
property types) from the effects of the substantial decline 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, the REIT's potential for realizing the full value of its investment in
its properties is at continued risk.
Impairment of Assets
Your partnership evaluated the recoverability of the net carrying value of
its real estate and related assets at least annually by estimating future cash
flows expected to result from the use of each property and its eventual
disposition, generally over a five-year holding period. In performing this
review, your partnership took 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 cash flows, undiscounted, was less than the carrying amount of
the property, your partnership recognized an impairment loss, and reduced the
carrying amount of the asset to its 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.
Fair value was estimated using discounted cash flows or market comparables, as
most appropriate for each property. Independent certified appraisers were
utilized to assist management, when warranted.
46
<PAGE>
Impairment write-downs recorded by your partnership did not affect the tax
basis of the assets and were not included in the determination of taxable income
or loss.
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. Unanticipated events
and circumstances may occur and some assumptions may not materialize; therefore,
actual results may vary from the estimates and the variances may be material.
The REIT may provide additional write-downs, which could be material in
subsequent years if real estate markets or local economic conditions change.
All of the REIT's properties have experienced varying degrees of operating
difficulties, and your partnership recorded significant impairment write-downs
in prior years. Improvements in the real estate market and in the properties'
operations resulted in no write-downs for impairment being needed in 1996, 1997
or 1998 or in the first nine months of 1999.
The following table represents the write-downs for impairment recorded on
certain of your partnership's properties through September 30, 1999:
Property
--------
Century Park I $11,700,000
568 Broadway 10,821,150
Seattle Tower 6,050,000
Commonwealth 5,800,000
Commerce Plaza I 2,700,000
Melrose Crossing 12,100,000
Mathews Festival 5,300,000
230 East Ohio (a) 8,800,000
---------
$63,271,150
-----------
- ---------
(a) Property sold in 1997
Results of Operations
Nine months ended September 30, 1999 vs. nine months ended September 30, 1998
Your partnership experienced an increase in net income for the nine months
ended September 30, 1999 as compared to the same period in 1998, primarily due
to higher rental revenues, interest and other income. Costs and expenses
increased for the nine month period ended September 30, 1999 as compared to the
same period in the prior year. Rental revenues increased due to higher revenues
at 568 Broadway and Seattle Tower as a result of an increase in overall rental
rates, partially offset by a decrease in rental revenues at TMR Warehouses and
Melrose due to the loss of tenants during the latter part of 1998.
Costs and expenses increased during the nine months ended September 30,
1999 as compared to the 1998 period primarily due to higher depreciation,
administrative expenses and property management fees, partially offset by lower
operating expenses and partnership management fees. The decrease in operating
expenses was primarily due to a reduction in repair and maintenance costs at
Matthews, a decrease in bad debt expense at various properties, and a decrease
in professional fees at 568 Broadway related to tenant
47
<PAGE>
collection issues. The partnership management fee decreased due to the amendment
to your partnership agreement approved in August 1999 reducing the fee for 1999.
Depreciation expense increased during the 1999 period due to the capital
additions during 1998. Administrative expenses increased for the nine months
ended September 30, 1999 due to higher legal fees incurred pursuant to the
Settlement. The increase in property management fees during the 1999 period was
due to higher revenues, as previously discussed.
Interest income increased during the nine months ended September 30,
1999 as compared to the 1998 period due to higher cash balances. Other income
increased during the nine months ended September 30, 1999 as compared to the
same period in 1998 due to a greater number of investor transfers on which the
your partnership earns a transfer fee.
Year ended December 31, 1998 vs. 1997
Your partnership experienced an increase in net income for the year ended
December 31, 1998 compared to 1997 primarily due to higher rental revenues,
lower costs and expenses and higher interest income in 1998. These increases to
net income were partially offset by lower other income and the fact that no gain
on sale of property was recorded in 1998.
Rental revenues increased during the year ended December 31, 1998 due to
an increase in rental revenue at Century Park due to higher occupancy rates in
1998 and at Commonwealth due to higher rental rates in place during 1998 as
compared to 1997. These increases were partially offset by the decrease in
revenues resulting from the sale of the 230 East Ohio property in October 1997.
Costs and expenses decreased during the year ended December 31, 1998
compared to 1997, due to decreases operating expenses, partnership asset
management fee, and administrative expenses, partially offset by increases in
depreciation and property management fees. Operating expenses decreased during
the year ended December 31, 1998 due primarily to lower real estate taxes and
repairs and maintenance costs resulting from the sale of the 230 East Ohio
property in 1997. Administrative expenses for the year ended December 31, 1998
decreased compared to 1997 due to lower legal and accounting fees related to the
ongoing litigation and possible reorganization of your partnership. Your
partnership's asset management fee decreased during 1998 because of reduced
assets under management due to the sale of 230 East Ohio in the prior year.
Depreciation increased due to higher depreciation recorded on certain
capitalized tenant improvements and property management fees were higher in 1998
due to higher revenues, as previously discussed.
Interest income increased during the year ended December 31, 1998 as
compared to 1997 due to higher invested cash balances. Other income decreased
during the year ended December 31, 1998 compared to 1997 due to fewer investor
transfers in 1998.
Year ended December 31, 1997 vs. 1996
Your partnership experienced an increase in net income for the year ended
December 31, 1997 compared to 1996 primarily due to the gain on the sale of 230
East Ohio, lower costs and expenses and higher interest income in 1997,
partially offset by lower revenues.
Rental revenues decreased during the year ended December 31, 1997 at
Melrose I due to certain tenants vacating the premises in late 1996 and early
1997 and at 230 East Ohio because of the sale of the property on October 2,
1997. These decreases for the year ended December 31, 1997 were partially offset
by
48
<PAGE>
an increase in rental revenue at 568 Broadway and Commonwealth due to higher
rental rates and occupancy rates, respectively, as lease renewals and new leases
were executed in the second half of 1996 and in early 1997.
Costs and expenses decreased slightly during the year ended December 31,
1997 compared to 1996, due to a decrease in administrative expenses, asset
management fee and property management fee partially offset by and increase in
operating expenses and depreciation. Administrative expenses for the year ended
December 31, 1997 decreased, as legal and accounting fees related to ongoing
litigation and the restructuring were higher in 1996. Your partnership's asset
management fee and property management fees decreased because of reduced assets
under management and revenues received from tenants, respectively, due to the
sale of 230 East Ohio. Operating expenses increased during the year ended
December 31, 1997 due to primarily increases in real estate taxes and bad debt
expenses. Overall real estate tax expense was higher at 568 Broadway in 1997 due
to the significant refunds received in 1996 which offset the annual tax
payments. Bad debt expenses decreased at Commonwealth and Melrose I because
certain tenants vacated in 1996 at which time the receivables deemed to be
uncollectible were written off. No such bad debt expenses were incurred in 1997.
Interest income increased during the year ended December 31, 1997 as
compared to 1996 due to higher rates and higher invested cash balances. Other
income increased slightly during the year ended December 31, 1997 compared to
1996 due to a greater number of investor transfers in 1997.
Inflation is not expected to have a material impact on your partnership's
operations or financial position.
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 (617) 234-3310.
General
You may take one of the following actions with respect to the
restructuring:
Vote "YES"--I vote to approve the restructuring
or
Vote "NO"--I vote not to approve the restructuring
or
Abstain from voting (Abstention will constitute a "NO" vote.)
We strongly urge you to vote "YES" for approval of the restructuring.
If you vote "YES", you will receive Common Stock in exchange for your
units unless you elect on the Consent Form to retain OP Units. A "YES" vote also
will constitute your approval to amend and restate your partnership's
partnership agreement in the form of Appendix B, whether or not you elect to
retain OP Units in lieu of receiving Common Stock.
49
<PAGE>
If you vote "NO" and the restructuring is nonetheless approved, you will
receive Common Stock unless you elect on the Consent Form to retain OP Units. A
"NO" vote will be a vote against the amendment and restatement of your
partnership's partnership agreement.
If you abstain or your fail to return a Consent Form and the restructuring
is nonetheless approved, you will receive Common Stock unless you elect on the
Consent Form to retain OP Units. If you abstain from voting or fail to return a
Consent Form, you will be deemed to have voted against the amendment and
restatement of your partnership's partnership agreement.
Vote Required
The affirmative vote of limited partners holding a majority of the
outstanding units of your partnership is required for approval of the
restructuring. This Consent Solicitation Statement/Prospectus constitutes our
solicitation of you to the restructuring, including all such actions required by
your partnership to consummate the restructuring. We also must approve the
restructuring as general partners of your partnership. We intend to approve the
restructuring, and our affiliates, who own 20.9% of the units, intend to vote
"YES" to approve the restructuring. In addition, in 1998 Presidio entered into
an agreement with a limited partner owning 16,395 units (or approximately 2.8%
of the outstanding units) in which the limited partner agreed to vote all of its
units in favor of a restructuring, 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
Information Agent in the enclosed pre-addressed, postage paid envelope no later
than __________ __, 2000, unless, in our discretion, we extend the solicitation
period to a later date which is no later than _____________ ____, 2000 (the last
day of the solicitation period is herein referred to as the "Expiration Date").
The Information Agent is:
The Swenson Group L.L.C.
Attn: Special Projects
5 Cambridge Center
9th Floor
Cambridge, Massachusetts 02142
(888) 448-5554
You may withdraw a Consent Form at any time before the Expiration Date by
delivering to the Information Agent written notice of your withdrawal. You may
change a Consent Form at any time before the Expiration Date by delivering to
the Information Agent 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 restructuring, you will be deemed to have voted "YES" for approval of the
restructuring.
The restructuring will be approved at such time as limited partners
holding a majority of the outstanding Units shall have consented to the
restructuring but in no event prior to ________ ___, 2000. The Information Agent
will tabulate the Consent Forms received from you.
The restructuring will apply prospectively from and after the date it
becomes effective. You will be bound by the restructuring, if it becomes
effective, whether or not you vote in favor of the restructuring.
50
<PAGE>
Delivery of a Consent Form is at your risk. The Consent Form will be effective
only when it is actually received by the Information Agent. A pre-addressed,
postage paid envelope to be used in returning completed Consent Forms has been
included with this Consent Solicitation Statement/Prospectus.
Record Date and Outstanding Units
If you are a limited partner at the close of business on __________ ___,
2000 (the "Record Date") you will be entitled to one vote for each unit held. On
the Record Date there were 588,010 Units outstanding held by 10,785 limited
partners, including 123,002 units (or 20.9% of the outstanding units) owned by
our affiliates.
Effect of Voting to Approve the Restructuring
Your vote to approve the restructuring 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 C;
(2) the amendment and restatement of your partnership agreement as set
forth on Appendix B; and
(3) the taking of any and all actions that we consider necessary or
advisable to consummate the restructuring, including all
transactions related to the restructuring described in this Consent
Solicitation Statement/Prospectus.
Solicitation of Votes; Solicitation Expenses
We may solicit your approval of the restructuring. Our employees may
solicit approval of the restructuring by use of the mails, by telephone,
telegram, or other means. Solicitation expenses will be paid and allocated as
set forth under "THE RESTRUCTURING -- FEES AND EXPENSES." No party soliciting
approval of the restructuring will receive compensation contingent on the
outcome of their solicitation efforts or the approval of the restructuring.
Investor Lists
Subject to certain 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.
Retaining OP Units
You may elect to retain your units as an alternative to receiving Common
Stock by checking the appropriate box on the Consent Form. Your units would
represent a percentage interest in the operating
51
<PAGE>
partnership equal to your percentage interest in your partnership as of the
effective date of the restructuring. There will be no formal trading market for
OP Units and the transfer of OP Units will be restricted. Beginning one year
after the restructuring you may at certain times elect to have your OP Units
redeemed for, at the REIT's option, Common Stock (on a two-for-one basis) or
cash in an amount equal to the fair market value of such Common Stock at the
time. See "THE OPERATING PARTNERSHIP AND OP UNITS." However, unlike receiving
Common Stock in the restructuring, the receipt of Common Stock (or cash) upon
the redemption of your OP Units will be a taxable transaction for you. Moreover,
you will be taxed on the value of the non-participating voting stock of the REIT
being issued to the operating partnership in connection with the restructuring.
Otherwise you will not be taxed in connection with the restructuring. See
"FEDERAL INCOME TAX CONSEQUENCES."
Because all business operations of the REIT will be conducted through the
operating partnership, holders of OP Units will have substantially the same
economic benefits with respect to cash distributions and liquidation proceeds as
holders of Common Stock. However, the tax aspects of retaining OP Units will
differ in various respects from owning units in your partnership. Tax-exempt
unitholders may realize UBTI from OP Units if, as anticipated, the operating
partnership borrows money to finance real property acquisitions and
improvements. If you are a taxable unitholder, you will not be specially
allocated depreciation deductions as you were by your partnership, which likely
will result in your being allocated taxable income rather than tax losses with
respect to your OP Units. Furthermore, if you retain OP Units and the operating
partnership becomes a "publicly traded partnership," you would not be able to
use any losses from other passive activities to offset your allocable share of
the operating partnership's taxable income. For a discussion of these and other
tax implications of retaining OP Units, see "FEDERAL INCOME TAX CONSEQUENCES --
CERTAIN TAX ASPECTS OF OWNING OP UNITS FOLLOWING THE RESTRUCTURING."
Subject to the potential dilution in voting power resulting from the 19%
limitation referred to below, holders of OP Units will have substantially the
same voting rights with respect to the REIT as holders of Common Stock. This
will be effected by the operating partnership holding shares of the REIT's
non-participating voting stock. The non-participating voting stock will vote
together with Common Stock (and not as a separate class) on a one-for-one basis
and will be voted by the operating partnership in proportion to the vote of OP
Unitholders (other than the REIT). The operating partnership will hold a number
of shares of non-participating voting stock equal to the number of shares of
Common Stock which may be issued upon redemption of the outstanding OP Units at
any time. However, the number of shares which the operating partnership may hold
as a result of the restructuring may not represent more than 19% of the combined
voting power of all voting securities of the REIT. Accordingly, the voting power
of holders of OP Units with respect to REIT matters may be diluted. The
non-participating voting stock will not participate in any dividends paid by the
REIT and will not participate in any liquidating distributions made by the REIT.
See "THE OPERATING PARTNERSHIP AND OP UNITS -- NON-PARTICIPATING VOTING STOCK."
We do not believe that as a general matter it is in your best interest to
retain OP Units. However, you should consult with your tax and financial advisor
to determine whether your particular circumstances warrant retaining OP Units.
As discussed under "SUMMARY -- ALLOCATION OF COMMON STOCK AND OP UNITS," as a
result of special tax considerations applicable to us and our affiliates
(because of our indirect ownership by a foreign entity), we and our affiliates
intend to retain OP Units with respect to certain of our interests in your
partnership.
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THE REIT
GENERAL
The REIT was recently formed for purposes of the restructuring. The REIT's
principal executive offices are located at 5 Cambridge Center, 9th floor,
Cambridge, MA 02142. The telephone number of the REIT at such office is (617)
234-3000.
We are soliciting your approval of a restructuring transaction in which
your partnership would be restructured into an operating partnership controlled
by the REIT. You would receive two shares of Common Stock in the restructuring
in exchange for each of your partnership units unless you elected to retain OP
Units. The restructuring is conditioned upon the Common Stock being approved for
listing on the American Stock Exchange.
The REIT will conduct all of its operations, including the historic
operations of your partnership, through the operating partnership. Following the
restructuring, the REIT will elect to be treated for Federal income tax purposes
as a real estate investment trust.
As a result of the restructuring, the REIT's only asset will be its
ownership interests in the operating partnership. The REIT will be a limited
partner of the operating partnership, and Shelbourne Properties II GP, a
wholly-owned subsidiary of the REIT will be the general partner of the operating
partnership.
OBJECTIVES AND STRATEGIES
The REIT's primary business objective following the restructuring will be
to maximize the value of Common Stock. The REIT will seek to achieve these
objectives 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. In order to achieve these objectives, the REIT may need to
raise additional capital. The REIT 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. We have not
identified or executed commitments for any additional real property investments
by the REIT at the current time. While the REIT will seek to implement its
investment strategies as soon as practicable following the restructuring, the
ultimate timing and extent of any new investments will depend upon various
factors. These factors include the REIT'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. The REIT also will
consider the effect that such investment will have on the REIT's 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 the REIT's 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 the REIT's
stockholders). See "FEDERAL INCOME TAX CONSEQUENCES -- TAXATION OF THE REIT AS A
REAL ESTATE INVESTMENT TRUST -Requirements for Qualification."
The ability of the REIT to make new investments will depend in part upon
it raising additional capital or obtaining financing following the
restructuring. The REIT 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.
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The ability of the REIT to raise additional capital, and the manner in which the
REIT raises such capital, may depend in part on the trading price of Common
Stock following the restructuring.
THE PROPERTIES
The operating partnership will continue to own and operate the properties
your partnership currently owns. All of the properties are owned free of any
mortgage indebtedness.
The following table sets forth certain information regarding your
partnership's interest in its properties.
<TABLE>
<CAPTION>
4/30/98
9/30/99 Appraised
Carrying Value Value Date Acquired Total Square Footage
-------------- ----- ------------- --------------------
DESCRIPTION
-----------
<S> <C> <C> <C> <C>
Century Park I Office Complex
Kearny Mesa, California (50% owned) $ 4,123,402 $9,500,000 11/86 201,654
568 Broadway Office Building New
York, New York (38.925% owned) 4,761,613 12,456,000 12/86 299,242
Seattle Tower Office Building
Seattle, Washington (50% owned) 2,427,694 5,150,000 12/86 140,358
Commonwealth Industrial Park
Manufacturing/Warehouse Buildings
Fullerton, California 4,288,646 7,200,000 4/87 273,576
Commerce Plaza I Office Building
Richmond, Virginia 5,017,912 7,600,000 4/87 84,681
Melrose Crossing Shopping Center
Retail Building Melrose Park,
Illinois 2,180,232 3,100,000 1/88 138,355
Matthews Township Festival Shopping
Center Retail Building Matthews,
North Carolina 8,432,630 9,600,000 2/88 127,389
Sutton Square Shopping Center
Retail Building Raleigh, North
Carolina 10,450,340 10,200,000 4/88 101,965
TMR Warehouse Industrial Buildings
Hillard, Grove City & Delaware,
Ohio (20.66% owned) 4,605,766 4,379,920 9/88 1,014,500
Melrose (lot #7) Vacant Lot Melrose
Park, Illinois 11/88 --
----------- ----------- ---------
Total $46,288,235 $69,185,920 2,381,630
</TABLE>
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OTHER ASSETS AND LIABILITIES
Following the restructuring, the operating partnership will continue to
own the other assets of your partnership. These other assets include, among
other things, cash and cash equivalents totaling approximately $11,656,000, as
of September 30, 1999. The operating partnership will also continue to be
subject to the liabilities of your partnership. These liabilities, totaling
approximately $2,545,000 as of September 30, 1999, consist primarily of your
partnership's accounts payable as of such date. The assets of the operating
partnership as of the date of the restructuring will be reduced on account of
the expenses associated with the restructuring.
CASH DIVIDEND POLICY
The partnership agreement for the operating agreement will provide for
distributions to its partners in proportion to their percentage interest in the
operating partnership. Shelbourne Properties II GP, a wholly-owned subsidiary of
the REIT and 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 the REIT elects to qualify as a real estate
investment trust, the REIT will use reasonable efforts to cause the operating
partnership to make distributions to holders of OP Units in amounts such that
the REIT 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 the REIT. See "FEDERAL INCOME TAX CONSEQUENCES --
TAXATION OF THE REIT AS A REAL ESTATE INVESTMENT TRUST - Requirements for
Qualification - Annual Distribution Requirements."
The operating partnership expects to make regular quarterly cash
distributions to holders of OP Units (including the REIT). The REIT, in turn,
will pay cash dividends to holders of Common Stock. We expect the REIT 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 the REIT's
Board of Directors. The first dividend on the shares of Common Stock will be
paid with respect to the period from the effective date of the restructuring
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 its 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 AND OTHER CONSIDERATIONS." Many of these
factors are not within the REIT's control.
The REIT's dividend policy may be altered by the REIT's Board of Directors
without the approval of its stockholders.
MANAGEMENT
General. Following the restructuring, 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 (the "Advisor"), under an advisory agreement (the "Advisory
Agreement"). The REIT will retain the Advisor pursuant to the authority of its
Board of Directors. Pursuant to the REIT's organizational documents,
responsibility for operation of the REIT's business and affairs is vested in the
Board of Directors. Accordingly, the Board of Directors is ultimately
responsible for the management and
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control of the REIT's business and operations, as well as the general
supervision of the REIT's officers, agents, employees, advisors, managers, and
independent contractors, including the Advisor.
Directors. Pursuant to the Certificate, the Board of Directors is divided
into three classes of directors. The initial terms of the three classes will
expire in 2001 (Michael L. Ashner and Peter Braverman), 2002 (Steven Stuart and
Robert Martin) and 2003 (David T. Hamamoto, Steven B. Kauff and David King),
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. The REIT believes that
classification of the Board of Directors helps to assure the continuity and
stability of the REIT'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 the REIT 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 the REIT.
The Advisory Agreement and the Advisor. The Advisory Agreement will
commence on the effective date of the restructuring and terminate ten years
after such date. During that period, the Advisor will manage the day-to-day
operations of the REIT and the operating partnership.
The Advisor will receive (1) an annual asset management fee, payable
quarterly, equal to 1.25% of the Gross Asset Value of the operating partnership
as of the last day of each year, (2) property management fees of up to 6% of
property revenues, (3) $200,000 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 an appraisal of such assets by an
independent appraiser of national reputation selected by the Advisor. As
provided in the Settlement, the fees payable to the Advisor are determined on
the same basis as the fees currently paid to us and our affiliates by your
partnership.
Shelbourne Management LLC, the Advisor, is a newly-formed company which
will provide various management services to various entities in which our
affiliates have an interest. In addition, the Advisor is an affiliate of ours.
The Advisor will perform similar services for the other HEP Partnerships if
their restructurings are approved. See "THE RESTRUCTURING -- BACKGROUND OF THE
RESTRUCTURING - The Class Action Settlement."
The initial directors and executive officers of the REIT and the Advisor
following the restructuring are set forth below. The individuals listed below as
the sole director and the executive officers of the Advisor will also serve as
the sole director and hold the same executive officer positions of Shelbourne
Properties II GP.
Name Age Title
---- --- -----
Michael L. Ashner 47 President and Sole Director of the Advisor and
President and Director of the REIT
Peter Braverman 47 Vice President of the Advisor and Vice President
and Director of the REIT
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David T. Hamamoto 40 Director of the REIT
Steven B. Kauff 37 Vice President of the Advisor and Vice President
of the REIT
David King 37 Vice President of the Advisor and Vice President
and Director of the REIT
Dallas E. Lucas 37 Vice President of the Advisor and Vice President
of the REIT
Robert Martin 38 Director of the REIT
W. Edward Scheetz 34 Director of the REIT
Steven Stuart 36 Director of the REIT
Lara Sweeney 27 Vice President and Secretary of the Advisor and
Vice President and Secretary of the REIT
Carolyn Tiffany 32 Vice President and Treasurer of the Advisor and
Vice President and Treasurer of the REIT
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 also a Co-Chief Executive Officer of
NorthStar Capital Investment Corp. ("NCIC"), having co-founded the firm in July
1997. At NCIC, 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 NCIC's investment professionals. Prior
to founding NCIC, 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 Goldman, Sachs & Co. from 1994 to 1997. Mr. Hamamoto
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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 NCIC since July
1999. He is also a Vice President of your general partners. Prior to joining
NCIC 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 King. Mr. King has been a Vice President and Assistant Treasurer of
NCIC since November 1997. He is also a Vice President of your general partners.
Prior to joining NCIC, 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 NCIC 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 NCIC,
having co-founded the firm in July 1997. At NCIC, 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
NCIC's investment professionals. Prior to founding NCIC, 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).
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.
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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
The REIT intends to pay an annual fee of $6,667 to each of its two
independent directors (Robert Martin and Steven Stuart). Executive officers of
the REIT will not receive any remuneration for their services as such to the
REIT, but will be compensated by the Advisor in their capacities as officers and
employees of the Advisor.
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 the
REIT'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 the REIT's
internal accounting controls.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the REIT.
Beneficial Ownership of Shares by Certain Persons
It is not possible at this time to estimate the percentage beneficial
ownership of OP Units or Common Stock that will be held by any person or entity
following consummation of the restructuring because it is not yet known how many
limited partners will retain OP Units. We own, together with our affiliates, a
24.9% interest in your partnership (we own a 5% general partnership interest and
our affiliates own 123,002 of the 588,010 outstanding units). Accordingly, we,
together with our affiliates, will be entitled to 24.9% of the aggregate amount
distributed by the operating partnership. We, together with our affiliates, will
also control 24.9% of the voting securities of the REIT. However, our voting
interest percentage will be reduced to the extent that partners owning more than
19% of the interests in your partnership elect to retain OP Units, since the
shares of non-participating voting stock to be issued in the restructuring will
not represent more than 19% of the combined voting power of all securities of
the REIT. We and our affiliates intend to retain as many as 111,412 OP Units
(representing approximately 18% of the interests in your partnership). See,
however, "SUMMARY -- ALLOCATION OF COMMON STOCK AND OP UNITS."
THE OPERATING PARTNERSHIP AND OP UNITS
GENERAL
Following the restructuring, your partnership will become the operating
partnership and will continue to exist and own and operate its assets and
properties. As part of the restructuring, the name of your partnership will be
changed to Shelbourne Properties II L.P.
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ORGANIZATION; TERM
The operating partnership was organized under the laws of the State of
Delaware as of November 14, 1985. As amended pursuant to the restructuring, the
operating partnership's partnership agreement will provide for perpetual
existence.
OWNERSHIP OF PROPERTIES
Following the restructuring, legal title to the interests in the
properties currently held by your partnership will continue to be held by your
partnership as the operating partnership. No specific assets have been
identified for sale, financing or purchase following the restructuring.
NON-PARTICIPATING VOTING STOCK
As part of the restructuring, the operating partnership will receive from
the REIT a number of shares of non-participating voting stock equal to the
number of shares of Common Stock which may be issued upon redemption of
outstanding OP Units (other than those held by the REIT) at any time up to a
maximum of 19% of the combined voting power of all securities of the REIT. Each
share of non-participating voting stock will have one vote. The
non-participating voting stock will have a vote on all matters put to a vote of
the stockholders of the REIT. The holders of OP Units (other than the REIT) will
vote on all such matters, and the operating partnership shall vote the
non-participating voting stock in proportion to how holders of OP Units vote
their OP Units. Except under certain circumstances, for each OP Unit that is
redeemed by the REIT as described below, the REIT will redeem two shares of
non-participating voting stock. The REIT will pay nominal consideration to
redeem shares of non-participating voting stock.
PARTNERSHIP AGREEMENT
As part of the restructuring, your partnership's Partnership Agreement
will be amended and restated to become the partnership agreement of the
operating partnership. The form of Second Amended and Restated Agreement of
Limited Partnership is attached as Appendix B to this Consent Solicitation
Statement/Prospectus. The following is a summary of the operating partnership's
partnership agreement (the "Partnership Agreement").
Management
Pursuant to the Partnership Agreement, Shelbourne Properties II GP, 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. As described above, the REIT has retained the
Advisor to provide day-to-day management and administrative services following
the restructuring. The Advisor will generally provide the services that we
provided prior to the restructuring. See "THE REIT -- MANAGEMENT - The Advisory
Agreement and the Advisor." No limited partner may take part in the operation,
management or control of the business of the operating partnership by virtue of
being a holder of OP Units.
The Partnership Agreement provides that all business activities of the
REIT, including all activities pertaining to the acquisition and operation of
properties, must be conducted through the operating partnership.
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Removal of the General Partner
The Partnership Agreement provides that the limited partners may not
remove Shelbourne Properties II GP as general partner of the operating
partnership.
Amendments of the Partnership Agreement
Amendments to the Partnership Agreement may be proposed only by Shelbourne
Properties II GP. Generally, the Partnership Agreement may be amended with the
approval of Shelbourne Properties II GP, as general partner, and limited
partners (including the REIT) holding a majority of the OP Units. Certain
amendments that would, among other things, convert a limited partner's interest
into a general partner's interest, modify the limited liability of a limited
partner, alter or modify the right of redemption described below, or amend the
events of dissolution must be approved by the REIT and each limited partner that
would be adversely affected by such amendment. Notwithstanding the foregoing,
Shelbourne Properties II GP, as general partner, will have the power, without
the consent of the limited partners, to amend the Partnership Agreement as may
be required to (1) add to the obligations of Shelbourne Properties II GP as
general partner or surrender any right or power granted to Shelbourne Properties
II GP as general partner; (2) reflect the admission, substitution, termination
or withdrawal of partners in accordance with the Partnership Agreement; (3)
establish the rights, powers, duties and preferences of any additional
partnership interest issued in accordance with the terms of the Partnership
Agreement; (4) reflect a change of an inconsequential nature that does not
materially adversely affect the limited partners, or cure any ambiguity, correct
or supplement any provisions of the Partnership Agreement not inconsistent with
law or with other provisions of the Partnership Agreement, or make other changes
concerning matters under the Partnership Agreement that are not otherwise
inconsistent with the Partnership Agreement or law; (5) impose limitations on
redemptions of OP Units as necessary or appropriate to ensure that the operating
partnership is not treated as publicly-traded partnership or (6) satisfy any
requirements of federal or state law. Certain provisions affecting the rights
and duties of the REIT (e.g., restrictions on the REIT's power to conduct
businesses other than owning OP Units; restrictions relating to the issuance of
securities of the REIT and related capital contributions to the operating
partnership; restrictions relating to certain extraordinary transactions
involving the REIT or the operating partnership) may not be amended without the
approval of a majority of the OP Units not held by the REIT.
Transfer of OP Units; Substitute Limited Partners
The Partnership Agreement generally provides that limited partners may
transfer their OP Units, subject to certain restrictions and the consent of
Shelbourne Properties II GP, which consent may only be withheld in certain
circumstances. The General Partner also may impose limitations on redemptions of
OP Units as necessary or appropriate to ensure that the operating partnership is
not treated as publicly-traded partnership. However, limited partners may not
substitute a transferee as a limited partner without the prior written consent
of Shelbourne Properties II GP, which may be granted or withheld in its sole
discretion. In addition, limited partners may not transfer OP Units in any event
until the one-year anniversary of the restructuring or in violation of certain
regulatory and other restrictions set forth in the Partnership Agreement.
Issuance of Additional Limited Partnership Interest
Shelbourne Properties II GP is authorized, without the consent of the
limited partners, to cause the operating partnership to issue additional OP
Units to itself, to the limited partners or to other persons for such
consideration and on such terms and conditions as Shelbourne Properties II GP
deems appropriate, including by reference to the market price of Common Stock.
If additional OP Units are issued to the REIT, then (a)
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the REIT must issue additional shares of Common Stock and must contribute to the
operating partnership the entire proceeds received by the REIT from such
issuance or (b) the operating partnership must issue additional OP Units to all
partners in proportion to their respective interests in the operating
partnership. In addition, Shelbourne Properties II GP may cause the operating
partnership to issue to the REIT additional partnership interests in different
series or classes, which may be senior to the OP Units, in conjunction with an
offering of securities of the REIT having substantially similar rights, in which
the proceeds thereof are contributed to the operating partnership. Consideration
for additional partnership interests may be cash or other property or assets. No
limited partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the operating partnership or the issuance or
sale of any partnership interest therein.
Exculpation and Indemnification of the General Partner
The Partnership Agreement generally provides that Shelbourne Properties II
GP, 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 II GP carried out its duties in good faith. In
addition, Shelbourne Properties II GP is not responsible for any misconduct or
negligence on the part of its agents, provided it appointed such agents in good
faith. Shelbourne Properties II GP may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisors, and any action it takes or omits to take in reliance upon the opinion
of such persons, as to matters that Shelbourne Properties II GP 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 Partnership Agreement also provides for indemnification of Shelbourne
Properties II GP, the directors and officers of Shelbourne Properties II GP, and
such other persons as Shelbourne Properties II GP 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 II GP will be the tax matters partner of the
operating partnership and, as such, will have the authority to make tax
elections under the Code on behalf of the operating partnership.
Redemption of OP Units
After a holding period that expires on the first anniversary of the
restructuring (subject to and with the requisite compliance with the securities
laws and the REIT's ownership limits), you will have the right, at the times
notice described below to have your OP Units redeemed by the operating
partnership for cash or, at the option of the REIT, for Common Stock, calculated
in either case as follows: (1) two shares of Common Stock for each OP Unit or
(2) cash per OP Unit equal to the fair market value as of the redemption date of
two shares of Common Stock. The REIT presently anticipates that it will elect to
issue Common Stock rather than having the operating partnership redeem OP Units
for cash. The number of shares of Common
62
<PAGE>
Stock issuable, or cash payable, upon redemption of OP Units is subject to
adjustment in the event that the REIT declares a dividend payable in Common
Stock or effects a stock split or reverse stock split.
You will be able to redeem your OP Units on the first business day of each
year, commencing with the year 2002 (the "Annual Redemption Right"), and subject
to volume limitations referred to below, you also will be able to redeem your OP
Units on any business day after the first anniversary of the restructuring (the
"Additional Redemption Right"), in each case upon not less than 61 days prior
written notice to the operating partnership.
The operating partnership currently intends to avoid tax treatment as a
publicly-traded partnership. Toward that end, the operating partnership
currently intends to impose an overall limitation on redemptions by holders of
OP Units that will limit the number of redemptions under the Additional
Redemption Right. This limitation will not apply to the Annual Redemption Right.
Under this limitation, the total percentage of operating partnership interests
that could be redeemed in any year could not exceed ten percent of the
outstanding operating partnership interests excluding, from the number of
outstanding operating partnership interests, operating partnership interests
held by the REIT and the general partner of the operating partnership.
Redemptions in accordance with the foregoing limitations are referred to herein
as "Permitted Redemptions." Block transfers (defined as a transfer or redemption
by a partner or related group of partners in any 30-day period of OP Units
representing more than 2% of all OP Units held by persons other than the REIT)
and certain other private transfers (e.g., intrafamily transfers, carry-over
basis transfers and transfers upon death), will not be subject to the 60-day
notice requirement and will not be counted when determining how much of the 10%
capacity remains available for Permitted Redemptions, but redemptions of OP
Units under the Annual Redemption Right will be counted when determining how
much of the 10% capacity remains available for Permitted Redemptions.
Notwithstanding the foregoing, Shelbourne Properties II GP reserves the
right, in its sole discretion, to discontinue the foregoing restrictions and
allow the operating partnership to become a publicly-traded partnership in the
future if it determines that avoiding such status is no longer in the best
interests of the OP Unitholders. See "FEDERAL INCOME TAX CONSEQUENCES -- CERTAIN
TAX ASPECTS OF OWNING OP UNITS FOLLOWING THE RESTRUCTURING."
Each of the foregoing redemption rights is subject to the additional
qualifications discussed in this paragraph, although we believe that the
circumstances giving rise to these additional qualifications are unlikely to
occur. Pursuant to the terms of the Partnership Agreement, Shelbourne Properties
II GP, in its sole discretion, may prohibit any redemption or any other transfer
of an interest in the operating partnership if it determines, among other
things, that the redemption or other transfer would (a) give rise to a violation
of law, including, for example, any provision of the Investment Company Act of
1940 or the Employee Retirement Income Security Act, (b) jeopardize the REIT's
status as a real estate investment trust or (c) cause the operating partnership
or any of its partners (other than the redeeming or transferring partner) to be
subject to any tax.
63
<PAGE>
PRO FORMA FINANCIAL INFORMATION OF THE REIT
The following pro forma statements of operations and cash flows of the
REIT for the nine months ended September 30, 1999 and the year ended December
31, 1998 assume that the restructuring was consummated on January 1, 1999 and
January 1, 1998, respectively, and have been prepared based on the historical
financial statements of your partnership. The pro forma balance sheet has been
prepared as if the restructuring was consummated on September 30, 1999.
The following pro forma financial information should be read in
conjunction with the financial statements of your partnership included elsewhere
in this Consent Solicitation Statement/Prospectus. These statements do not
purport to be indicative of the results of operations or cash flows that
actually would have occurred had the restructuring been consummated on January
1, 1998, January 1, 1999 or September 30, 1999, or that may be expected to occur
in the future.
64
<PAGE>
SHELBOURNE PROPERTIES II, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Capitalization Other Pro Forma REIT
Partnership of the REIT Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
REAL ESTATE $46,288,235 $46,288,235
CASH AND CASH EQUIVALENTS 11,655,876 (350,000)(a) 11,305,876
OTHER ASSETS 4,189,150 4,189,150
RECEIVABLES 466,650 78,035(b) 544,685
--------------- --------------- --------------- ---------------
$62,599,911 (271,965) $62,327,946
--------------- --------------- --------------- ---------------
LIABILITIESAND PARTNERS' EQUITY:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $2,312,911 $2,312,911
DUE TO AFFILIATES 232,472 232,472
--------------- --------------- --------------- ---------------
$2,545,383 $2,545,383
--------------- --------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
LIMITED PARTNERS' EQUITY (588,010 UNITS 57,050,855 (57,050,855)(c)
ISSUED AND OUTSTANDING)
GENERAL PARTNERS' EQUITY 3,003,673 (3,003,673)(c)
COMMON STOCK, PAR VALUE $.01 (1,237,916 -- 12,379(d) 12,379
SHARES ISSUED AND OUTSTANDING)
PAID-IN CAPITAL -- 60,042,149(d) ($271,965)(a)(b) $59,770,184
--------------- --------------- --------------- ---------------
$60,054,528 ($271,965) $59,782,563
--------------- --------------- --------------- ---------------
$62,599,911 ($271,965) $62,327,946
=============== =============== =============== ===============
</TABLE>
65
<PAGE>
SHELBOURNE PROPERTIES II, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Capitalization Pro Forma REIT
Partnership Adjustment Adjustments Pro Forma
<S> <C> <C> <C> <C>
REVENUES:
RENTAL INCOME $8,885,796 $8,885,796
--------------- ------------------ --------------- -------------
COSTS AND EXPENSES
OPERATING EXPENSES 2,838,183 2,838,183
DEPRECIATION AND AMORTIZATION 1,543,728 1,543,728
PARTNERSHIP MANAGEMENT FEE 808,005 (78,035) (b) 729,970
ADMINISTRATIVE EXPENSES 1,134,062 1,134,062
PROPERTY MANAGEMENT FEE 294,200 294,200
--------------- ------------------ --------------- -------------
6,618,178 (78,035) 6,540,143
--------------- ------------------ --------------- -------------
INCOME BEFORE INTEREST AND OTHER INCOME: $2,267,618 $78,035 $2,345,653
INTEREST INCOME 364,804 364,804
OTHER INCOME 102,310 102,310
--------------- ------------------ --------------- -------------
NET INCOME $2,734,732 $78,035 $2,812,767
--------------- ------------------ --------------- -------------
NET INCOME PER UNIT (588,010) UNITS OUTSTANDING) $4.42 ($4.42)
--------------- ------------------ --------------- -------------
NET INCOME PER SHARE (1,237,916) SHARES $2.21 $.06 $2.27
OUTSTANDING)
--------------- ------------------ --------------- -------------
</TABLE>
66
<PAGE>
SHELBOURNE PROPERTIES II, INC.
PRO FORMA STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical Pro Forma REIT
Partnership Adjustments Pro Forma
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,734,732 $ 78,035 $2,812,767
Adjustment to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 1,543,728 1,543,728
Straight-line adjustment for stepped lease rentals (75,123) (75,123)
Changes in asset and liabilities
Receivables (223,410) (78,035) (301,445)
Accounts payable and accrued expenses 410,105 410,105
Due to affiliates (246,734) (246,734)
Other assets (161,675) (161,675)
--------------- --------------- ---------------
Net cash provided by operating activities 3,981,623 3,981,623
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements to real estate: (410,509) (410,509)
--------------- --------------- ---------------
Net cash used in investing activities (410,509) (410,509)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to partners (2,135,403) (2,135,403)
Payment of transaction costs (350,000) (a) (350,000)
--------------- --------------- ---------------
Net cash used in financing activities (2,135,403) (350,000) (2,485,403)
--------------- --------------- ---------------
Increase in cash and cash equivalents 1,435,711 (350,000) 1,085,711
Cash and cash equivalents, beginning of period 10,220,165 10,220,165
--------------- --------------- ---------------
Cash and cash equivalents, end of period $11,665,876 ($350,000) $11,305,876
--------------- --------------- ---------------
</TABLE>
67
<PAGE>
SHELBOURNE PROPERTIES II, INC. COMPUTATION OF PRO FORMA
EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the nine months ended September 30, 1999
--------------------------------------------
<S> <C>
Average number of pro forma common and common equivalent shares outstanding
during the period 1,237,916
==========
Pro forma net income $2,812,767
==========
Pro forma net income per common and common equivalent shares $2.27
=====
</TABLE>
68
<PAGE>
SHELBOURNE PROPERTIES II, INC. PRO FORMA STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Historical Capitalization Pro Forma REIT
Partnership Adjustment Adjustments Pro Forma
<S> <C> <C> <C> <C>
REVENUES:
RENTAL INCOME $11,390,709 $11,390,709
---------------- --------------- -------------- --------------
COST AND EXPENSES
OPERATING EXPENSES 4,065,020 4,065,020
DEPRECIATION AND AMORTIZATION 2,102,684 2,102,684
PARTNERSHIP MANAGEMENT FEE 1,285,432 1,285,432
ADMINISTRATIVE EXPENSES 902,824 902,824
PROPERTY MANAGEMENT FEE 427,126 427,126
---------------- --------------- -------------- --------------
8,783,086 8,783,086
---------------- --------------- -------------- --------------
INCOME (LOSS) BEFORE INTEREST AND OTHER INCOME: $2,607,623 $2,607,623
INTEREST INCOME 458,990 458,990
OTHER INCOME 33,547 33,547
---------------- --------------- -------------- --------------
NET INCOME $3,100,160 $3,100,160
================ --------------- ============== ==============
NET INCOME PER UNIT (588,010) UNITS OUTSTANDING) $5.01 ($5.01)
================ --------------- ============== ==============
NET INCOME PER SHARE (1,237,916 SHARES) $2.50 $2.50
OUTSTANDING)
================ --------------- ============== ==============
</TABLE>
69
<PAGE>
SHELBOURNE PROPERTIES II, INC. PRO FORMA STATEMENT
OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma REIT
Partnership Adjustments Pro Forma
--------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,100,160 $3,100,160
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,102,684 2,102,684
Straight-line adjustment for stepped lease rentals (100,163) (100,163)
Changes in asset and liabilities
Receivables 4,474 4,474
Accounts payable and accrued expenses (115,454) (115,454)
Due to affiliates (219,837) (219,837)
Other assets (510,245) (510,245)
--------------- ---------------- ---------------
Net cash provided by operating activities 4,261,619 4,261,619
--------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements to real estate: (1,022,951) (1,022,951)
--------------- ---------------- ---------------
Net cash used in investing activities (1,022,951) (1,022,951)
--------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to partners (2,847,204) (2,847,204)
Payment of transaction costs (350,000) (a) (350,000)
--------------- ---------------- ---------------
Net cash used in financing activities (2,847,204) (350,000) (3,197,204)
--------------- ---------------- ---------------
Increase in cash and cash equivalents 391,464 (350,000) 41,464
Cash and cash equivalents, beginning of period 9,828,701 9,828,701
--------------- ---------------- ---------------
Cash and cash equivalents, end of period $10,220,165 ($350,000) $9,870,165
=============== ================ ===============
</TABLE>
70
<PAGE>
SHELBOURNE PROPERTIES II, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
For the year ended
December 31, 1998
--------------------
Average number of pro forma common and common
equivalent shares outstanding during the period 1,237,916
=========
Pro forma net income $3,100,160
==========
Pro forma net income per common and common
equivalent shares $2.50
=====
71
<PAGE>
SHELBOURNE PROPERTIES II, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
(a) This adjustment accrues the Partnership's Transaction Expense for the
restructuring.
(b) This adjustment represents a reduction in partnership management fees for
the 9 months ended September 30, 1999 as a result of amendments to the
partnership agreement previously approved by limited partners.
(c) These adjustments eliminate the Partnership Equity.
(d) These adjustments capitalize the REIT.
72
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description of the REIT's capital stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
REIT's Certificate and Bylaws, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part.
GENERAL
The REIT will have authority under its Amended and Restated Certificate of
Incorporation (the "Certificate") to issue up to 7,200,000 shares of stock,
consisting of 2,500,000 shares of Common Stock, par value $0.01 per share,
1,800,000 shares of non-participating voting stock, par value $0.01 per share
("NP Stock"), 2,400,000 shares of excess stock, par value $0.01 per share
("Excess Stock") (as described below), 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. It is not possible at
this time to determine the number of shares of each such class that will be
issued and outstanding following the restructuring because it is not yet known
how many partners will elect to retain OP Units. Immediately following
consummation of the restructuring, no shares of Excess Stock or Preferred Stock
will be issued and outstanding.
With respect to the Preferred Stock, the Certificate 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 the REIT's Certificate
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 the REIT out of assets legally available therefor and to share
ratably in the assets of the REIT 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 the
REIT.
Subject to the provisions of the REIT's Certificate 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
(together with the holders of NP 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 and NP Stock can elect
all of the directors then standing for election, and the holders of the
remaining shares of Common Stock and NP 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 the REIT.
The REIT 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.
73
<PAGE>
Subject to the provisions of the REIT's Certificate regarding Excess
Stock, all Common Stock has equal dividend, distribution, liquidation and other
rights, and has no preference, appraisal (except as provided by Delaware law) or
exchange rights.
NP STOCK
The REIT will only be permitted to issue NP Stock to the operating
partnership. The REIT will issue NP Stock to the operating partnership in
connection with the restructuring and at such other times as the Board of
Directors shall determine.
Subject to the provisions of the REIT's Certificate regarding Excess
Stock, each outstanding share of NP 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 NP Stock together
with 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 NP Stock and Common Stock can elect all
of the directors then standing for election, and the holders of the remaining
shares of NP Stock and Common Stock will not be able to elect any director.
The holder of NP Stock, is not entitled to receive any dividends or other
distribution declared by the REIT or to receive any proceeds of the net assets
of the REIT available for distribution as a result of the voluntary or
involuntary liquidation, dissolution or winding up of the REIT.
Except under certain circumstances, upon each redemption of OP Units, the
REIT will redeem from the operating partnership that number of shares of NP
Stock equal to the product of (a) the number of OP Units redeemed and (b) the
"Conversion Factor" (as defined in the Partnership Agreement), which shall
initially be equal to two, but which shall be adjusted as provided for in the
Partnership Agreement.
Upon the occurrence of any stock split or any subdivision,
reclassification, combination or like event with respect to the Common Stock,
the NP Stock will be appropriately adjusted so that the holders of NP Stock
retain equal voting rights relative to the holders of Common Stock as before the
occurrence of such stock split, subdivision, reclassification, combination or
like event.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more series, as
authorized by the Board of Directors. Prior to the issuance of shares of each
series, the Board of Directors is required by Delaware law and the REIT's
Certificate to fix for each series, subject to the provisions of the REIT's
Certificate regarding Excess Stock, such terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Delaware law. Such rights, powers, restrictions and limitations
could include the right to receive specified dividend payments and payments on
liquidation prior to any such payments being made to the holders of some, or a
majority, of the Common Stock. 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 the REIT has no present plans to issue any
Preferred Stock. The REIT has authorized the issuance of a series of preferred
stock in connection with the REIT's shareholder rights plan. See "DESCRIPTION OF
74
<PAGE>
CAPITAL STOCK -- SHAREHOLDER RIGHTS AGREEMENT" and "CERTAIN PROVISIONS OF
DELAWARE LAW AND OF THE REIT'S CERTIFICATE AND BYLAWS."
LISTING, PRICE AND TRADING
There is currently no established trading market for Common Stock, and,
prior to the restructuring, 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 restructuring 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 restructuring will be freely transferable.
RESTRICTIONS ON TRANSFERS
In order for the REIT to qualify and maintain qualification as a real
estate investment trust under the Code, among other things, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year) (the "Five or
Fewer Requirement"), and such shares of capital stock must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
(other than the first year) or during a proportionate part of a shorter taxable
year. See "FEDERAL INCOME TAX CONSEQUENCES." In order to protect the REIT
against the risk of losing its status as a real estate investment trust and to
otherwise protect the REIT from the consequences of a concentration of ownership
among its stockholders, the Certificate, subject to certain exceptions, provides
that no single person (which includes any "group" of persons) (other than the
"Related Parties," as defined below), may "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, 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 Section 544 of the Code, as modified by Section
856(h)(1)(B) of the 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) of the preceding sentence 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. NCIC (and its officers,
directors and affiliates) and the operating partnership (and its affiliates) are
"Related Parties." Related Parties will be limited as to the number of shares
beneficially owned by them if and to the extent that the Board of Directors
determines that such ownership would jeopardize the REIT'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 in the disqualification of the REIT as a
real estate investment trust, including any transfer that results in (1) the
shares of capital stock being owned by fewer than 100 persons, (2) in the REIT
being "closely held" within the meaning of Section 856(h) of the Code, (3) in
the REIT being a "pension-held real estate investment trust" within the meaning
of Section 856(h)(3)(D), (4) the REIT's failing to be a "domestically controlled
real estate investment trust" within the meaning of Section 897(h)(4)(B), or (5)
in the REIT constructively owning 10% or more of the ownership interests in a
tenant of the REIT within the meaning of Section 318 of the Code as modified by
75
<PAGE>
Section 856(d)(5) of the 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 the REIT 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 the REIT's status as a real estate
investment trust and the Board of Directors otherwise decides that such action
is in the best interest of the REIT.
If any purported transfer of capital stock of the REIT or any other event
would otherwise result in any person violating the Ownership Limit or the
Related Limit, as applicable, or the Certificate, 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 (or, 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
the REIT (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) 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 (who shall
be designated by the REIT and be unaffiliated with the REIT and any Prohibited
Transferee or Prohibited Owner) 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. 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 the REIT with respect
to such Excess Shares.
In addition, shares of stock of the REIT held in the trust shall be deemed
to have been offered for sale to the REIT, 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
the REIT, or its designee, accepts such offer. The REIT shall have the right to
accept such offer for a period of 90 days. Upon such a sale to the REIT, 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 the REIT 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 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.
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The Ownership Limit may have the effect of precluding acquisition of
control of the REIT.
ADDITIONAL ISSUANCES
Pursuant to the Certificate, 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 number of shares of stock set
forth in the Certificate. The REIT 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 the REIT has adopted a Shareholder Rights
Agreement (the "Rights Agreement"). The adoption of the Rights Agreement could
make it more difficult for a third party to acquire, or could discourage a third
party from acquiring, the REIT or a large block of the REIT's Common Stock.
Pursuant to the terms of the Rights Agreement, the Board of Directors declared a
dividend distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock to stockholders of record as of a day prior to
effectiveness of the restructuring (the "Record Date"). In addition, one Right
will automatically attach to each share of Common Stock issued between the
Record Date and the Distribution Date (as hereinafter defined). Each Right
entitles the registered holder to purchase from the REIT 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 $____ per Unit (the "Exercise Price"),
subject to adjustment. Each Share offered hereby will be entitled to a Right
when distributed.
Initially, the Rights are not exercisable and are attached to and trade
with the outstanding shares of Common Stock. The Rights will separate from the
Common Stock and will become exercisable upon the earliest of (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 (an "Acquiring Person")
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
(the earlier of such dates being herein referred to as the "Distribution Date").
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 Rights), (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after the Record Date
will contain a notation incorporating the Shareholder Rights Agreement by
reference, and (c) the surrender for transfer of any certificates for Common
Stock will also constitute the transfer of the Rights associated with the Common
Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
in 2010, unless previously redeemed or exchanged by the REIT as described below.
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As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
In the event that a Stock Acquisition Date occurs, proper provision will
be made so that each holder of a Right (other than an Acquiring Person or its
associates or affiliates, whose 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 the REIT having a market value of two times the
exercise price of the Right (such right being referred to as the "Subscription
Right"). In the event that, at any time following the Stock Acquisition Date,
(a) the REIT consolidates with, or merges with and into, any other person, and
the REIT is not the continuing or surviving corporation, (b) any person
consolidates with the REIT, or merges with and into the REIT and the REIT 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 the REIT's assets or earning power is sold, mortgaged or
otherwise transferred, each holder of a Right shall thereafter have the right to
receive, upon exercise, common stock of the acquiring REIT having a market value
equal to two times the exercise price of the Right (such right being referred to
as the "Merger Right"). The holder of a Right will continue to have the Merger
Right whether or not such holder has exercised the Subscription Right. Rights
that are or were beneficially owned by an Acquiring Person may under certain
circumstances specified in the 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
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 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 the REIT.
The Exercise Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (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 certain 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 Right basis. The REIT is not obligated to issue
fractional Units. If the REIT elects not to issue fractional Units, in lieu
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 Rights Agreement may be amended by the Board of
Directors at any time prior to the Distribution Date.
The Rights may be redeemed in whole, but not in part, at a price of $0.01
per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors) 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 Rights Agreement.
Immediately upon the action of the
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Board of Directors ordering redemption of the Rights, the Rights will terminate
and thereafter the only right of the holders of Rights will be to receive the
redemption price.
The 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 certain limitations set forth in the Rights
Agreement, amend the Rights Agreement only to cure any ambiguity, defect or
inconsistency, to shorten or lengthen any time period, or to make changes that
do not adversely affect the interests of Rights holders (excluding the interests
of an Acquiring Person or its associates or affiliates).
Until a Right is exercised, the holder will have no rights as a
stockholder of the REIT (beyond those as an existing stockholder), including the
right to vote or to receive dividends. While the distribution of the Rights will
not be taxable to stockholders or to the REIT, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Units, other securities of the REIT, other consideration or for
common stock of an acquiring REIT.
A copy of the Rights Agreement has been filed with the Commission and is
incorporated as an exhibit hereto by reference to the Registration Statement to
which this Prospectus is a part. A copy of the Rights Agreement is also
available from the REIT upon written request. The foregoing description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is incorporated herein by reference.
CERTAIN PROVISIONS OF DELAWARE LAW AND
THE REIT'S CERTIFICATE AND BYLAWS
The following summary of certain provisions of Delaware law and the REIT's
Certificate and Bylaws does not purport to be complete and is subject to and
qualified in its entirety by reference to Delaware law and the REIT's
Certificate 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 Prospectus is a part.
The Certificate and the Bylaws of the REIT contain certain provisions that
could make more difficult the acquisition of the REIT by means of a tender
offer, a proxy contest or otherwise. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the REIT to negotiate first with
the Board of Directors. The REIT 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 and the Bylaws,
which have been filed with the Commission and are incorporated as exhibits
hereto by reference to the Registration Statement to which this Prospectus is a
part. See "DESCRIPTION OF CAPITAL STOCK -- RESTRICTIONS ON TRANSFERS."
AMENDMENT OF CERTIFICATE AND BYLAWS
The REIT's Certificate may be amended only by the affirmative vote of the
holders of two-thirds (or, if a majority of the directors then in office approve
the amendment, a majority) of all of the votes entitled to be cast on the matter
except that amendments dealing with certain articles of the Certificate (for
example, 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) 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 the
REIT'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
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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 THE REIT
Delaware law permits the dissolution of the REIT 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 the REIT'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
The REIT's Certificate provides that the Board of Directors shall
initially consist of seven Directors and thereafter the number of Directors of
the REIT 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, 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 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 the REIT or
removal of incumbent management. The REIT 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
The REIT's Certificate generally limits the liability of the REIT's
Directors to the REIT 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 certain 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
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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 the REIT shall be, and,
in the discretion of the Board of Directors, non-officer employees may be,
indemnified by the REIT 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 the REIT. 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 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 the REIT pursuant to the foregoing provisions, the REIT 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
The REIT is subject to the provisions of Section 203 ("Section 203") of
the Delaware General Corporation Law. Section 203 provides, with certain
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 transaction; (b) the interested stockholder
owned 85% or more of the outstanding voting stock of the corporation immediately
after the transaction in which it became an interested stockholder (excluding
shares owned by persons who are both officers and directors of the corporation,
and shares held by certain employee stock ownership plans); 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 certain 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
The REIT has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other things, that the REIT 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
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that indemnification is not permitted. Under these agreements, the REIT 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 the REIT'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.
RESALE OF SECURITIES
Upon the completion of the restructuring, the REIT will have outstanding
shares of Common Stock. In addition, shares of Common Stock will be reserved for
issuance upon exchange of OP Units. The shares of Common Stock issued upon
redemption of OP Units (the "Restricted Shares") will be "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144.
In general, under Rule 144, if one year has elapsed since the later of the
date of acquisition of Restricted Shares from the REIT or any "affiliate" of the
REIT, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the date on which notice of the sale is
filed with the SEC. Sales under Rule 144 are also subject to certain manner of
sales provisions, notice requirements and the availability of current public
information about the REIT. If two years have elapsed since the date of
acquisition of Restricted Shares from the REIT or from any "affiliate" of the
REIT, and the acquiror or subsequent holder thereof is deemed not to have been
an affiliate of the REIT at any time during the 90 days preceding a sale, such
person is entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Prior to the restructuring, there has been no public market for the Common
Stock. Trading of the Common Stock on the Amex is expected to commence
immediately following the completion of the restructuring. No prediction can be
made as to the effect, if any, that future sales of shares, or the availability
of shares for future sale, will have on the market price prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales occur, could adversely affect prevailing market prices of the Common
Stock. See "RISK FACTORS AND OTHER CONSIDERATIONS."
FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the Federal income tax considerations
anticipated to be material to prospective stockholders of the REIT. 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.
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The information in this discussion and the opinions of Rosenman & Colin
LLP ("Rosenman & Colin") referenced below are based on current provisions of 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.
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 RESTRUCTURING AND THE OWNERSHIP AND DISPOSITION OF SHARES OF COMMON
STOCK IN LIGHT OF YOUR SPECIFIC TAX AND INVESTMENT SITUATION.
THE RESTRUCTURING
The proposed restructuring has been structured in a manner intended to
result in no recognition of taxable income to you. As a condition to the
restructuring, Rosenman & Colin will render an opinion to the effect that, under
current Federal income tax law, (1) the Merger will be treated as a contribution
(by unitholders who receive Common Stock) of units in your partnership to the
REIT in exchange for Common Stock, and will qualify as an exchange governed by
Section 351 of the Code, and (2) accordingly, you will not recognize any taxable
gain (or loss) for Federal income tax purposes on your receipt of Common Stock
in the restructuring. 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 similar to the proposed
restructuring, the letter ruling was not issued to your partnership and analyzed
a transaction that was not identical to the proposed restructuring of your
partnership and, 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 restructuring will be the same as your aggregate tax basis in your units
reduced by your share of your partnership's liabilities, if any, assumed by the
REIT in the restructuring. Your holding period in the Common Stock that you
receive in the restructuring generally will include your holding period in your
units.
The REIT 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 restructuring. The REIT will
provide stockholders with the documentation that they will be required to
furnish with their tax returns for the year of the restructuring.
If you retain OP Units, you will not recognize any taxable gain except
that you will be taxable on your share of the value of the non-participating
voting stock in the REIT being issued to the operating partnership in connection
with the restructuring. Your basis in your OP Units will be increased by the
amount of income that you recognize in the restructuring.
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TAXATION OF THE REIT 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 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. If the REIT qualifies for taxation as a real
estate investment trust, it generally will not be subject to Federal corporate
income tax on its taxable income that is distributed currently to stockholders
as long as the REIT distributes on a current basis 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 generally results from investment in
a corporation.
The REIT 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 ending on December 31,
2000. No assurance can be given that the REIT will operate in a manner so as to
qualify, or remain qualified, as a real estate investment trust.
As a condition of the restructuring, Rosenman & Colin will render an
opinion to the effect that, commencing with the REIT's tax year ending on
December 31, 2000, the REIT will be organized in conformity with the
requirements for qualification as a real estate investment trust, and the REIT'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 restructuring and certain procedural steps described under this heading are
completed in a timely fashion and (2) the REIT and the operating partnership
operate in accordance with various assumptions and factual representations made
by them concerning their organization, business, properties and operations (and
certain assumptions and factual representations made by your partnership as to
its organization, business, properties and operation prior to the
restructuring). The opinion will be based upon certain facts, representations
and assumptions as of its date, and will not be binding on the Service or the
courts. Qualification and taxation as a real estate investment trust will depend
upon the REIT's ability to meet on an ongoing basis (through 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 the REIT's operations for any particular taxable year will satisfy such
requirements. See "-- Failure of the REIT to Qualify as a Real Estate Investment
Trust."
If the REIT 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, the REIT will be subject to Federal income tax in the following
circumstances: First, the REIT (but not its stockholders) will be subject to tax
at regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the REIT
may be subject to the "alternative minimum tax" on its items of tax preference,
if any. Third, if the REIT has (a) net income from the sale or other disposition
of "foreclosure
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property" which is held primarily for sale to customers in the ordinary course
of business or (b) other nonqualifying income from foreclosure property, the
REIT will be subject to tax at the highest corporate rate on such income.
Fourth, if the REIT has net income from "prohibited transactions" (which are, in
general, certain sales or other dispositions of property, other than foreclosure
property, held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if the REIT 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 certain other requirements have been met, the REIT 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 the REIT fails the 75% or 95% test
multiplied by (2) a fraction intended to reflect the REIT's profitability.
Sixth, if the REIT fails to distribute during each calendar year at least the
sum of (1) 85% of its ordinary income (with certain adjustments) for such year,
(2) 95% of its capital gains for such year (other than capital gains that it
elects to retain and pay tax on) and (3) any undistributed taxable income from
prior periods (other than capital gains from such years that it elected to
retain and pay tax on), the REIT will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if the REIT acquires any asset from a "C" corporation (i.e., a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the asset in the hands of the REIT is determined by reference to the
basis of the asset in the hands of the "C" corporation (a "Built-In Gain
Asset"), and the REIT recognizes gain on the disposition of such asset during
the ten-year period beginning on the date on which such asset was acquired by
the REIT (the "Recognition Period"), then, to the extent of the asset's
"Built-In Gain" (i.e., the excess of (a) the fair market value of such asset
over (b) the REIT's adjusted basis in the asset, determined when the REIT
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, the REIT must elect to be so
treated (on its Federal income tax return for its taxable year ending December
31, 2000), and must meet the requirements discussed below relating to the REIT's
organization, sources of income, nature of assets, and distributions of income.
Organizational Requirements
The outstanding stock of the REIT must be held by at least 100 persons and
no 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, certain entities
are treated as individuals. These stock ownership requirements must be satisfied
in the REIT's second taxable year and in each subsequent taxable year. Following
the restructuring, the REIT expects to have outstanding stock with sufficient
diversity of ownership to enable it to satisfy these requirements. In addition,
the Certificate provides for certain restrictions regarding the transfer of the
REIT's capital stock in order to assist the REIT in meeting the stock ownership
requirements, although these restrictions cannot insure that the REIT will
always satisfy these stock ownership requirements.
To monitor the REIT's compliance with the stock ownership requirements,
the REIT will be required to maintain records regarding the actual ownership of
its stock. To do so, the REIT must send a letter to its stockholders requesting
that they disclose to the REIT the identity of the actual owners of the stock
(i.e., the persons required to include the REIT's dividends in their income). A
list of those persons failing or refusing to comply with this demand must be
maintained as part of the REIT'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.
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Income Tests
In order to maintain its qualification as a real estate investment trust,
the REIT must satisfy two gross income requirements each year. First, at least
75% of the REIT'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
(including "rents from real property" and "gain from the sale or other
disposition of real property" other than property held primarily for sale to
customers in the ordinary course of business) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from such real property investments, dividends, interest and gain from the sale
or disposition of stock or securities (or from any combination of the
foregoing).
The REIT 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 REIT 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 the REIT for purposes of
Section 856 of the Code, including satisfying the gross income tests described
above and the asset tests described below. Shelbourne Properties II GP, the
operating partnership's general partner, will be a "qualified real estate
investment trust subsidiary" (i.e., a corporation all the stock of which is
owned by one real estate investment trust). 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 the REIT (although the entity may
be subject to state and local taxation in certain jurisdictions).
The REIT 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. First, 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. Second, the Code provides that rents received from a tenant
will not qualify as "rents from real property" if the REIT, or any actual or
constructive owner of 10% or more of the REIT, 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 "taxable real estate investment trust subsidiaries"
(i.e., a corporation in which the REIT owns an interest and which elects to be
treated as such) under certain circumstances.) Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received for the year under the lease, then the
portion of the rent attributable to such personal property will not qualify as
"rents from real property." Finally, for rents received to qualify as "rents
from real property," the REIT 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 the REIT
derives no income. (Beginning after 2000, services also may be provided to
tenants through a "taxable REIT subsidiary" in which a real estate investment
trust owns shares, subject to certain limitations.) However, a real estate
investment trust may provide certain basic services to tenants without having to
engage independent contractors if the services in question are of a limited type
that a tax-exempt
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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. 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."
The REIT 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
will not 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 will not derive rents
from any persons who (immediately after the restructuring) would be Related
Party Tenants as to the REIT. The operating partnership will not derive rent
from personal property leased in connection with real property that exceeds 15%
of the total rents under the lease. The operating partnership will provide
(through the Advisor, independent contractors or, after 2000, "taxable real
estate investment trust subsidiaries") 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 REIT subsidiaries" to provide certain services to tenants.
Net income realized by the REIT 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
the REIT currently anticipates that all of 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
the REIT'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 will not acquire partnership interests in
an entity if the REIT's indirect share of the income or assets of the entity
after the acquisition would cause the REIT 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, the REIT 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 the REIT's first
taxable year.
If the REIT 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
the REIT's failure to meet such tests was due to reasonable cause and not due to
willful neglect, the REIT attaches a schedule of the sources of its income to
its Federal income tax return, and any incorrect information on the schedule was
not due to
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fraud with intent to evade tax. It is not possible, however, to state whether
the REIT would be entitled to the benefit of these relief provisions in all
circumstances. Also, as discussed above under "TAXATION OF THE REIT AS A REAL
ESTATE INVESTMENT TRUST -- General," even if these relief provisions apply, a
tax would be imposed with respect to the excess gross income.
Asset Tests
The REIT, at the close of each quarter of its taxable year, also must
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the REIT's total assets must be represented by real estate assets,
which for these purposes will include (1) its allocable share of real estate
assets held by partnerships in which the REIT owns an interest including its
allocable share of the real estate assets held by the operating partnership and
(2) 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
the REIT, cash, cash items and government securities. Second, not more than 25%
of the REIT's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by the REIT directly or through
the operating partnership may not exceed 5% of the value of the REIT's total
assets and the REIT 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 debt securities,
with certain exceptions) of any one issuer (except for the REIT's ownership
interests in a qualified real estate investment trust subsidiary or in a
partnership or other flow-through entity). However, after 2000, the REIT 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 the REIT's assets.
The REIT anticipates that, as of the closing of the restructuring,
substantially more than 75% of the fair market value of the assets indirectly
owned by the REIT through the operating partnership will consist of
non-residential rental real estate owned in fee. The REIT also expects that, at
all times, substantially more than 75% of the assets indirectly owned by the
REIT through the operating partnership will consist of fee ownership of real
property. The operating partnership 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 the REIT determines will be
consistent with the REIT's satisfying the asset tests both at the time of the
acquisition and for the quarter in which the acquisition occurs. Accordingly,
the REIT believes that it will be able to meet the asset tests described above
at the time of the restructuring and on a going forward basis.
If the REIT 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 the REIT's assets. If the condition described in clause (2) of the
preceding sentence were not satisfied, the REIT could still avoid
disqualification by curing the failure within 30 days after the close of the
quarter in which it arose.
Annual Distribution Requirements
In order to qualify as a real estate investment trust, the REIT 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 the REIT's "real estate investment trust taxable
income" (computed without regard to the dividends paid deduction and the REIT's
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
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before the REIT timely files its tax return for such year and paid on or before
the first regular dividend payment date after such declaration. The REIT intends
to make timely distributions sufficient to satisfy this requirement.
To the extent that the REIT 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 the REIT fails to
distribute during each calendar year at least the sum of (1) 85% of its real
estate investment trust ordinary income for such year, (2) 95% of its capital
gain income for such year (other than capital gain income which the REIT elects
to retain and pay tax on) and (3) any undistributed taxable income from prior
periods, the REIT 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 the REIT was taxed for such calendar year.
It is possible that the REIT 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
the REIT does not have sufficient cash or liquid assets to satisfy the
distribution requirements above, the REIT 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, the REIT 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 the REIT's deduction for
dividends paid for the earlier year. Thus, the REIT may be able to avoid being
taxed on amounts distributed as deficiency dividends. However, the REIT will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure of the REIT to Qualify as a Real Estate Investment Trust
If the REIT fails to qualify for taxation as a real estate investment
trust in any taxable year, and if certain relief provisions do not apply, the
REIT 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 the REIT fails to qualify as a real estate investment trust
will not be deductible by the REIT (nor will they be required to be made). As a
result, the cash available for distribution by the REIT to its stockholders
would be significantly reduced. In addition, if the REIT 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 the REIT's current and accumulated
earnings and profits (although, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction).
Unless entitled to relief under specific statutory provisions, the REIT 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 the REIT would be
entitled to such statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
Distributions by the REIT
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 the REIT's current and accumulated earnings and profits
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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 the REIT'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 (provided that the Common Stock is held as a capital asset).
Dividends declared by the REIT 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 the REIT and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by the
REIT on or before January 31 of the following calendar year.
Distributions made by the REIT to taxable stockholders that are properly
designated by the REIT as long-term capital gain dividends will be subject to
tax as long-term capital gains (to the extent that they do not exceed the REIT's
actual net capital gain for the taxable year) 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. The REIT may elect to retain its net long-term capital gains (if any)
rather than distribute them, in which event a stockholder would be deemed to
receive a capital gain dividend equal to its share of such retained capital
gains. In that event, a taxable stockholder would receive a tax credit or refund
for his share of the tax paid by the REIT on such undistributed capital gains
and the basis of his Common Stock would be increased by the amount of the
undistributed capital gains (minus his share of the tax paid by the REIT).
The REIT will notify each stockholder after the close of the REIT'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 the capital gain portion (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 the REIT and gain (if any) from the sale or exchange
of Common Stock will not be treated as passive activity income. As a result,
taxable stockholders generally will not be able to apply any "passive activity
losses," including their unused passive activity losses (if any) 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 the REIT (to the extent they 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 the REIT will not be considered investment income for
purposes of the investment interest limitation. See also "COMPARISON OF YOUR
PARTNERSHIP AND THE REIT -- 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
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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 certain holding period rules) will be treated as a long-term capital
loss to the extent of any distributions received by the taxable stockholder from
the REIT that were treated as long-term capital gains.
Backup Withholding
The REIT 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. Under certain circumstances, 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 the REIT 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 the REIT to
a tax-exempt stockholder will not constitute UBTI, provided that the tax-exempt
stockholder does not hold its Common Stock as "debt-financed property" within
the meaning of the Code (and 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 UBTI 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 Code are subject to different UBTI rules that
generally will require them to treat their income from the REIT as UBTI 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 the REIT may be treated as UBTI to certain U.S. private pension trusts
if the REIT is treated as a "pension-held real estate investment trust." Based
on stock ownership restrictions imposed by the REIT (see "THE RESTRUCTURING --
CONDITIONS TO THE RESTRUCTURING" and "DESCRIPTION OF CAPITAL STOCK --
RESTRICTIONS ON OWNERSHIP AND TRANSFER"), the REIT does not anticipate that it
will be a "pension-held real estate investment trust." In any event, if the REIT
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 the REIT'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
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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 the REIT
Distributions received by Non-U.S. Holders that are not attributable to
gain on sales or exchanges by the REIT 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 the REIT 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.
The REIT 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 the REIT or (b) a Non-U.S. Holder files a Federal Form 4224
with the REIT 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 the REIT 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),
and, if they are corporations, also may be subject to a 30% branch profits tax.
The REIT 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.
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 the
REIT 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. The REIT 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 the REIT 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 the REIT'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 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.
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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
The REIT 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.
ELECTING LARGE PARTNERSHIP ELECTION
Your partnership intends to make an election under Section 775 of the Code
to be treated as an electing large partnership beginning with the year in which
the restructuring occurs. Electing large partnerships are subject to different
reporting requirements than non-electing partnerships. In order to simplify the
reporting requirements for electing large partnerships, the Code allows such
partnerships to aggregate certain items of partnership income, gain, deduction,
loss and credit for reporting to partners on their Schedule K-1s. Your
partnership does not believe that you will be significantly adversely affected
by any of these reporting changes.
CERTAIN TAX ASPECTS OF OWNING OP UNITS FOLLOWING THE RESTRUCTURING
In general, partnerships are "pass-through" entities that are not subject
to Federal income taxation. Rather, partners are allocated their proportionate
share of items of income, gain, deduction, loss and credit of the partnership,
and are potentially subject to tax on such amounts without regard to whether
they receive a distribution from the partnership. Unitholders who retain OP
Units will continue to take into account their allocable share of the operating
partnership's items of income, gain, deduction, loss and credit. However,
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following the restructuring, the operating partnership will no longer specially
allocate its depreciation deductions to taxable OP Unitholders, which will
likely result in such OP Unitholders being allocated taxable income rather than
tax losses with respect to their OP Units.
Subject to certain risks discussed below, OP Unitholders generally should
be able to offset their unused losses from other passive activities against
their income from the operating partnership.
However, if the operating partnership were to be treated as a publicly
traded partnership, an OP Unitholder would be unable to use passive activity
losses from other passive activities to offset his allocable share of the
operating partnership's income. Moreover, it is not entirely clear that unused
passive activity losses from your partnership could be used to offset an OP
Unitholder's allocable share of the operating partnership's income if the
operating partnership were to be a publicly traded partnership. (See also "--
TAX STATUS OF THE OPERATING PARTNERSHIP.") A partnership is a publicly traded
partnership if its interests are either traded on an established securities
market (e.g., national securities exchanges) or readily tradable on a "secondary
market" (or its equivalent). The term "secondary market" includes situations
where partners are "easily able to buy, sell or exchange their partnership
interests in a manner that is comparable to trading on an established market,"
including by way of redemptions. The Treasury Regulations provide certain "safe
harbors" under which partnership interests will not be considered readily
tradable on a secondary market (or its substantial equivalent). The partnership
agreement of the operating partnership imposes certain restrictions on the
redemption of OP Units that are based, in part, on these safe harbors. However,
the operating partnership will not necessarily satisfy these "safe harbors" on
an ongoing basis, and, therefore, no assurance can be given that it will not
become a publicly traded partnership in the future, in which event the foregoing
special passive activity loss rules could become applicable to OP Unitholders
who or which are subject to these rules.
As part of the restructuring, the REIT will issue non-participating voting
stock to the operating partnership. A risk exists that the OP Unitholders might
be considered constructive shareholders of the REIT (rather than OP Unitholders)
from the date of the restructuring because OP Unitholders will have
substantially the same economic rights as REIT stockholders and will have the
voting rights afforded by the non-participating preferred stock. If OP
Unitholders were considered to be stockholders of the REIT (and not partners in
the operating partnership), they should not recognize gain (or loss) because
they should then be considered to have received stock in the REIT pursuant to
the restructuring in exchange for their units in your partnership. See " -- THE
RESTRUCTURING." The character of an OP Unitholder's allocable share of the
operating partnership's income, however, would be treated as non-passive income
rather than as passive activity income (i.e., they presumably would be taxable
on REIT dividends). As a result, OP Unitholders generally could not offset such
income with their passive activity losses from your partnership or other
investments. See " -- TAXATION OF TAXABLE U.S. STOCKHOLDERS - Passive Activity
Losses and the Investment Interest Limitation."
Tax-exempt OP Unitholders will be subject to the tax on a portion of their
share of the operating partnership's income to the extent that the operating
partnership borrows funds to finance improvements or to acquire additional
properties. (Although in certain instances a tax-exempt partner's allocable
share of income from debt-financed real property is not treated as UBTI, because
of prior special allocations made by your partnership, it does not appear that
any of the exceptions to these rules would apply to the operating partnership.)
Under the partnership agreement, OP Unitholders will have the right to
redeem their OP Units after a specified period of time and subject to certain
restrictions. A redemption of OP Units for Common Stock or cash will be a
taxable transaction for Federal income tax purposes in which an OP Unitholder
will recognize
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taxable gain (or loss) equal to the difference between (1) the OP Unitholder's
"amount realized" and (2) the OP Unitholder's "adjusted basis" in his OP Units.
The "amount realized" upon a redemption of OP Units will include the amount of
cash or the value of the Common Stock received in the redemption plus the amount
of the operating partnership's liabilities allocable to the OP Units. An OP
Unitholder's "adjusted basis" in OP Units generally would equal the amount of
cash or property contributed by the OP Unitholder to the operating partnership
in exchange for OP Units (i.e., such OP Unitholder's basis in his units in your
partnership prior to the restructuring), increased by any income recognized by
you in the restructuring attributable to the value of the non-participating
preferred stock issued by the REIT to the operating partnership in the
restructuring, and further adjusted as follows: (1) increased by the OP
Unitholder's allocable share of (A) the operating partnership's income and (B)
increases in the operating partnership's nonrecourse liabilities; and (2)
reduced (but not below zero) by the OP Unitholder's (C) allocable share of the
operating partnership's losses and decreases in the operating partnership's
liabilities and (D) distributions to the OP Unitholder. The OP Unitholder's gain
or loss generally would be treated as long-term capital gain or loss (except to
the extent that any portion of the amount realized is treated as ordinary income
under Section 751 of the Code) assuming that the OP Unitholder held his OP Units
for more than one year. Such gain (if any) generally would be taxed at a Federal
income tax rate of 25%, and (although this would not be entirely certain if the
operating partnership were to become a publicly traded partnership), could be
offset by the OP Unitholder's unused passive activity losses from your
partnership.
If an OP Unitholder chooses to redeem his OP Units, the REIT has the
option to acquire such OP Units for cash or Common Stock, in which case the
operating partnership anticipates that the REIT will elect to exercise its right
to acquire such OP Units for Common Stock. If the REIT so elects, the OP
Unitholder will be treated as having made a taxable sale of OP Units to the REIT
in exchange for Common Stock (or cash, if applicable). However, the REIT is
under no obligation to exercise its option to acquire OP Units. If the REIT does
not exercise its option, the operating partnership will be required to redeem
the OP Units for cash. In that event, if an OP Unitholder were to redeem less
than all of his OP Units, he would recognize no tax loss and would recognize
taxable gain only to the extent that the cash, plus his share of the operating
partnership's liabilities allocable to the redeemed OP Units, exceeded his
adjusted basis in all of his OP Units immediately before the redemption.
TAX STATUS OF THE OPERATING PARTNERSHIP
Substantially all of the REIT's investments will be held through the
operating partnership. Your partnership and the REIT each believe that your
partnership is, and that following the restructuring the operating partnership
will be, properly treated as a partnership for Federal income tax purposes.
Accordingly, the operating partnership will not be subject to tax and, instead,
the partners in the operating partnership will be subject to tax on their
allocable share of the operating partnership's taxable income (whether or not
the partners receive a distribution for the operating partnership). As a partner
in the operating partnership, the REIT will include in its income its allocable
share of operating partnership income for purposes of the various REIT income
tests and in the computation of its REIT taxable income. Moreover, for purposes
of the REIT asset tests, the REIT 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 the REIT's option, stock in the
REIT. 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 the REIT to be allocated lower
amounts of depreciation deductions
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for tax purposes with respect to such properties than would be allocated to the
REIT if all properties were to have a tax basis equal to their fair market
value. This may result in a higher portion of the REIT'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).
Section 7704 of the Code provides that a "publicly traded partnership"
will be treated as a corporation for Federal income tax purposes, rather than as
a partnership, unless a certain percentage of its income consists of "qualifying
income" under that section. The operating partnership agreement imposes
limitations on redemptions of OP Units that are intended to avoid the operating
partnership's being treated as a publicly traded partnership. See "-- Certain
Tax Aspects of Owning Units Following the Restructuring" and "OPERATING
PARTNERSHIP AND OP UNITS -- PARTNERSHIP AGREEMENT - Redemption of Units."
However, no assurance can be given that the operating partnership will not be
treated as a publicly traded partnership in the future, which treatment, if it
were to result in the operating partnership's being taxed as a corporation,
would jeopardize the REIT's ability to maintain qualification as a real estate
investment trust. (See "-- TAXATION OF THE REIT AS A REAL ESTATE INVESTMENT
TRUST - Failure of the REIT to Qualify as a Real Estate Investment Trust".)
Based on the anticipated nature of the operating partnership's income, the
operating partnership and the REIT believe in any event that the operating
partnership would continue to be treated as a partnership for Federal income tax
purposes even if the operating partnership were to become a publicly traded
partnership by reason of the foregoing "qualifying income" exception.
OTHER TAXES
The REIT, its subsidiaries, the operating partnership, OP Unitholders or
the REIT's stockholders may be subject to state or local tax in various states
or localities, including those in which the operating partnership or they
transact business, own property, or reside. The state or local tax treatment of
the REIT 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.
POSSIBLE TAX LAW CHANGES
The REIT cannot predict whether one or more provisions affecting real
estate investment trusts or the REIT 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 or retaining OP Units.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
The discussion under this heading is intended only as a summary of Federal
income tax consequences of the restructuring 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 restructuring 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/Prospectus constitutes the prospectus filed
as part of the Registration Statement. This Consent Solicitation
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Statement/Prospectus 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/Prospectus 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/Prospectus 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
the REIT 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/Prospectus is required to be delivered, we will amend or supplement
this Consent Solicitation Statement/Prospectus accordingly. This Consent
Solicitation Statement/Prospectus 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/Prospectus by reference, except exhibits to the document.
Please send requests for these documents to Resources Capital Corp., 5 Cambridge
Center, 9th floor, Cambridge, MA 02142. You should make telephone requests for
copies to us at (617) 234-3000. In order to ensure timely delivery of the
documents, we should receive such requests by _______ __, 2000.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by your partnership with
the SEC pursuant to the Exchange Act, are incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
(2) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1999, June 30, 1999 and September 30, 1999; and
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(3) Current Report on Form 8-K, dated October 25, 1999 (filed
November 3, 1999).
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/Prospectus 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/Prospectus 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/Prospectus.
FORWARD-LOOKING STATEMENTS
This Consent Solicitation Statement/Prospectus contains forward-looking
statements about the financial condition, results of operations and business of
the operating partnership and the REIT. 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 AND OTHER CONSIDERATIONS"
section of this Consent Solicitation Statement/Prospectus. 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/Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
pursuant to this Consent Solicitation Statement/Prospectus and certain tax
matters related to the Partnership and the REIT as described under "FEDERAL
INCOME TAX CONSEQUENCES" will be passed upon by Rosenman & Colin LLP, New York,
New York
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APPENDIX A
CONSENT FORM
<PAGE>
APPENDIX A
CONSENT FORM
HIGH EQUITY PARTNERS L.P. - SERIES 86
c/o The Swenson Group L.L.C.
5 Cambridge Center
9th Floor
Cambridge, Massachusetts 02142
Dear Limited Partner:
Enclosed is a Consent Solicitation Statement/Prospectus describing the
proposed tax-free restructuring of your partnership into an operating
partnership controlled by an American Stock Exchange-listed real estate
investment trust. Your general partners are proposing the restructuring as the
final step of a court-approved class action settlement. Your general partners
believe that the restructuring is fair and recommend that you vote "YES" in
favor of the restructuring.
Your vote is important. Please complete the attached consent form and then
return it using the enclosed pre-paid envelope or by facsimile to (617)
234-3310. If you have any questions, please call (888) 448-5554
Please detach here
------------------------------------------------------------------------
HIGH EQUITY PARTNERS L.P. - SERIES 86
CONSENT SOLICITED BY RESOURCES HIGH EQUITY, INC.
CONSENT EXPIRATION DATE: ________ ___, 2000
The undersigned, a holder of units (the "Units") of limited partnership interest
in High Equity Partners L.P. - Series 86, a Delaware limited partnership (the
"Partnership"), hereby acknowledges receipt of the Consent Solicitation
Statement/Prospectus, dated _________ ___, 2000, and votes with respect to the
restructuring of the Partnership described therein, including by (a) the merger
of HEP 86 MERGER L.P. with and into the Partnership pursuant to the Merger
Agreement as set forth in Appendix C thereto and (b) the amendment and
restatement of the Partnership's Agreement of Limited Partnership as set forth
in Appendix B thereto, as follows:
YES NO ABSTAIN
(Approve restructuring) (Do not approve restructuring) (Same as voting NO)
/ / / / / /
_____________________________ Dated: ________, 2000
Signature
_____________________________
Signature (if held jointly)
_____________________________
Title
If the following box is marked, the undersigned
hereby elects to retain Units in the partnership
instead of receiving shares of common stock of
Shelbourne Properties II, Inc. / /
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 restructuring.
<PAGE>
APPENDIX B
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
<PAGE>
APPENDIX B
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELBOURNE PROPERTIES II L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
Shelbourne Properties II L.P., dated as of ____________ __, 2000, is entered
into by and among Shelbourne Properties II GP, Inc. (the "General Partner"), a
Delaware corporation, as the general partner of the Partnership, Shelbourne
Properties II, Inc. (the "Company"), a Delaware corporation and a limited
partner in the Partnership, and the Persons (as defined below) whose names are
set forth on Exhibit A attached hereto (as it may be amended from time to time).
WHEREAS, the Partnership was formed on November 14, 1985 under the name
High Equity Partners L.P. - Series 86, and, on November 14, 1985, the
Partnership adopted an Agreement of Limited Partnership;
WHEREAS, as of April 22, 1986, the Agreement of Limited Partnership was
amended and restated pursuant to an Amended and Restated Agreement of Limited
Partnership, dated as of April 22, 1986 (as subsequently amended, the "Prior
Agreement"), and in connection therewith the Partnership filed a Certificate of
Amendment to the Certificate of Limited Partnership of the Partnership in the
office of the Delaware Secretary of State, which filing was made on April 22,
1986;
WHEREAS, in connection with a Consent Solicitation Statement/Prospectus
dated ______ __, 2000, (the "Proxy/Prospectus"), consent of the limited partners
was solicited to a restructuring of the Partnership (the "Restructuring"),
including the adoption of this Second Amended and Restated Agreement of Limited
Partnership;
WHEREAS, pursuant to the Restructuring, the Company proposes to qualify as
a real estate investment trust, and the Partnership will issue Partnership
Interests to the Company and other persons;
WHEREAS, in connection with the Restructuring, the General Partners filed
a Certificate of Amendment to the Certificate of Limited Partnership of the
Partnership in the office of the Delaware Secretary of State, which filing was
made on ______ __, 2000, to change the name of the Partnership from "High Equity
Partners L.P. - Series 86" to "Shelbourne Properties II L.P."; and
WHEREAS, limited partners owning a majority of the units voted in the
Proxy/Prospectus to approve and adopt this Second Amended and Restated
Partnership Agreement.
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NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Prior Agreement is hereby amended and
restated in its entirety 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.
"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
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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 Second Amended and Restated 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.
"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 or 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, including all Partnership property
held by the Partnership on the Effective Date, 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
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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.
"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. 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 Factor" means 2.0, 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
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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.
"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 the Restructuring.
"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 II GP, Inc., 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.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"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
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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 which is a Partner, the dissolution and commencement of
winding up of the partnership; (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, 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 status as the General Partner, or as a director or officer 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.
"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 Partner 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
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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.
"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.
"NP Stock" means the Non-Participating Voting Stock, par value $.01 per
share, of the Company.
"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.
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"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 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.
"Prior Agreement" has the meaning set forth in the second WHEREAS clause
hereof.
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"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.
"Recourse Debt Amount" has the meaning set forth in Section 6.1B(2)
hereof.
"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).
"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.
"Restructuring" has the meaning set forth in the third WHEREAS clause
hereof.
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"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
Effective Date, 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.
"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
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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 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. The Partners hereby agree to continue the Partnership
upon the terms and conditions set forth in this Agreement. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration and termination of the Partnership shall be governed by the
Act. 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 II 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
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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 November 14, 1985, 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
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 11, 12 or 13 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,
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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.
Section 2.6 Nothing contained herein shall be construed as authorizing the
General Partner or any Liquidator to amend this Agreement except in accordance
with Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.
A. 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
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner 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 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. In connection with the
foregoing, and without limiting the Company's right, in its sole discretion, to
cease qualifying as a REIT, the Partners acknowledge the Company's current
status as a REIT inures to the benefit of all of the Partners. 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.
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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 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. The Capital Account balance of each Person
who is a Partner on the Effective Date shall equal the Capital Account balance
of such Partner (or its transferor as to the transferred Partnership Interests)
immediately prior to 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 7.5 and 10.5 hereof, 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
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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
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
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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 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.
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
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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. 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 4 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 10.5 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 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
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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; and (ii)
thereafter, to the Partners in accordance with their respective Percentage
Interests, provided, however, that to the extent not duplicative of allocations
required by Section 1 of Exhibit C hereto, gain from a Sale or Disposition of
any Partnership property owned by the Partnership on the Effective Date shall
first be allocated among the OP Units in the same proportion and to the same
extent as such OP Units have been allocated depreciation deductions prior to the
Effective Date giving rise to such gain.
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 Limited Partner pursuant to this Section 6.1.B. to
the extent that such allocation would cause such Limited Partner to have an
Adjusted Capital Account Deficit (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.
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
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provision of this Agreement, the General Partner, subject to Sections 7.6.A,
7.6.D and 7.11 below, 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 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;
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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;
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, including, without limitation, the exercise of the
Partnership's right to vote shares of NP Stock in accordance with Section 8.3
hereof;
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,
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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;
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. Except as provided in Section
7.11 below, 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.
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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 (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.
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B. Responsibility for Partnership Expenses. The Partnership shall be
responsible for and shall pay all expenses relating to the Restructuring, 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 sole and absolute discretion, for all
expenses it incurs relating to the Restructuring 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 General Partner 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 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. 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
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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 Units pursuant to
Section 8.6 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 Company, as 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 7.5 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.
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, 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.
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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 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
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
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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
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
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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 shareholder 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 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
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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 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
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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
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 10.5 hereof, or under
the Act.
Section 8.2 Management of Business
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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 Voting of Company NP Stock
Whenever the General Partner receives notice of any matter that is to be
put to a vote of the stockholders of the Company (an "NP Stock Vote"), it shall
forward to each Limited Partner (except the Company) a copy of the documents
provided by the Company with respect to the NP Stock Vote, together with a
ballot for each such holder and the General Partner's recommendation with
respect to such NP Stock Vote. For purposes of obtaining a written vote, the
General Partner may require a response within a reasonable specified time, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to NP Stock
Vote. The General Partner shall cause the Partnership to vote the shares of NP
Stock held by it in proportion to such vote of holders of OP Units (other than
the Company). The General Partner also may conduct an NP Stock Vote by a meeting
pursuant to Section 14.2, which section, subject to the terms of this Section
8.3, shall govern the matters with respect to such meeting.
Section 8.4 Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the 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 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
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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 Exchange Act;
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 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 Effective Date, each Limited Partner
(other than the Company) shall have the right (the "Redemption Right") to
require the Partnership to redeem on a Specified Redemption Date all or a
portion of the OP Units held by such Limited Partner (or such lesser amount as
the General Partner may permit) at a redemption price per Unit equal to and in
the form of the Cash Amount to be paid by the Partnership. The Redemption Right
shall be
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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 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.
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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 provisions 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 any state or local
property transfer tax is payable as a result of the transfer of its OP Units to
the Partnership or the Company, such Limited Partner shall assume and pay such
transfer tax.
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
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
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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; provided, that the General Partner shall make the election
Section 775 of the Code in accordance with applicable regulations thereunder.
The General Partner shall have the right to seek to revoke any such election
(including, without limitation, the election under Section 775 of the Code) upon
the General Partner's determination in its sole and absolute discretion that
such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 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"),
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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.
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
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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 Partnership Interest to secure such Limited Partner's obligation to
pay to the Partnership any amounts required to be paid pursuant to this Section
10.5. In the event that a Limited Partner fails to pay any amounts owed to the
Partnership pursuant to this Section 10.5 when due, the General Partner may, in
its sole and absolute discretion, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and in such event shall be deemed
to have loaned such amount to such defaulting Limited Partner and shall succeed
to all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.
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
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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 (other than Limited Partner
Interests held by the Company) 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 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 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
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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 Effective Date,
the Limited Partnership Interest of any Partner 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 Effective Date, 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 Limited Partnership Interest 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 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) in the
opinion of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation for federal income tax
purposes or (ii) it would result in the Partnership (for so long as it is
classified as a partnership for federal income tax purposes) no longer being
qualified as an
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electing large partnership under Section 775 of the code, (iii) 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 (iv) such transfer is effectuated through an "established
securities market" or a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code, (v) 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); (vi) 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 (vii) 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 Partnership Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the 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 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
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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, such
transferee shall be considered an Assignee for purposes of this Agreement,
subject, however, to Section 11.6 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.
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). Solely for purposes of making such allocations, each of
such items for the calendar month in which the transfer or redemption occurs
shall be allocated to the Person who is a Partner as of midnight on the last day
of said month. All distributions 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,
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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; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest, (iv) if such transfer requires the registration of such
Partnership Interest pursuant to any applicable federal or state securities law,
or (v) if such transfer subjects the Partnership to regulation 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.
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
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.
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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 would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. 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.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership (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
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 (including Limited Partner Interests held by
the Company);
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C. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
D. the sale 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;
(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
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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) 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, 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
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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
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
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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 (including
Limited Partner Interests held by the Company).
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;
(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 (Excluding
Company). 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
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and the relative rights, powers and duties incident thereto) amend Sections 4.2,
7.5, 7.6, 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.
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 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 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 (including Limited
Partnership Interests held by the General Partner) 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
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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.
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
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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
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 Partnership 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.
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IN WITNESS WHEREOF, the General Partner has executed this Agreement as of
the date first written above.
SHELBOURNE PROPERTIES II GP, INC.
By:
-------------------------------------
Name:
Title:
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EXHIBIT A
Limited Partners and Percentage Interest
<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.
(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.
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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 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
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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
interest of the Partners.
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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 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.
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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.
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.
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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.
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APPENDIX C
AGREEMENT AND PLAN OF MERGER
<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF MERGER
Merging HEP 86 Merger L.P.
Into
High Equity Partners L.P. - Series 86
AGREEMENT AND PLAN OF MERGER, dated as of _______ ___, 2000 (the
"Agreement"), among Shelbourne Properties II, Inc., a Delaware corporation (the
"Company"), HEP 86 Merger L.P., a Delaware limited partnership ("Merger L.P.")
and High Equity Partners L.P. - Series 86, a Delaware limited partnership (the
"Partnership").
RECITALS:
A. The Company, Merger L.P. and the Partnership desire that Merger L.P. be
merged with and into the Partnership as contemplated by the restructuring (the
"Restructuring") described in the Consent Solicitation Statement/Prospectus of
the Company and the Partnership.
B. As of the date of this Agreement, the Company is the sole limited
partner of Merger L.P. with a 99% partnership interest, and Shelbourne
Properties II GP, Inc., a Delaware corporation wholly owned by the Company
("Shelbourne GP"), is the sole general partner of Merger L.P. with a 1%
partnership interest. As of the date of this Agreement, the general partners of
the Partnership are Resources High Equity Inc., Resources Capital Corp. and
Presidio AGP Corp., each Delaware corporations (collectively, the "General
Partners"), and there are 588,010 outstanding units of limited partnership
interest in the Partnership ("Units").
C. The Company, as the sole limited partner of Merger L.P., and Shelbourne
GP, as the sole general partner of Merger 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 General Partners of the Partnership and
the limited partners owning a majority of the outstanding Units have consented
to the adoption and authorization of this Agreement, the transactions
contemplated hereby, the amendment and restatement of the partnership agreement
of the Partnership provided herein, 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:
Article 1.
THE MERGER.
Section 1.01 Merger of Merger L.P. into the Partnership. At the Effective
Time (as defined in Section 1.05 hereof), Merger L.P. shall merge with and into
the Partnership (the "Merger"), and the separate existence of Merger L.P. shall
cease. The Partnership shall be the surviving entity in the Merger (hereinafter,
the surviving entity is the "Operating Partnership") and its existence with all
its rights, privileges, powers and franchises, shall continue unaffected and
unimpaired by the Merger.
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Section 1.02 Effect of the Merger. The Merger shall have the effects
provided for in the Delaware Revised Uniform Limited Partnership Act ("DRULPA").
Section 1.03 General Partner of the Operating Partnership. As of the
"Effective Time" (as hereinafter defined), the General Partners shall cease to
be general partners of the Partnership. From and after the Effective Time,
Shelbourne GP shall be the sole general partner of the Operating Partnership.
Section 1.04 Governing Instrument of the Operating Partnership. As of the
Effective Time, the partnership agreement of the Partnership shall be amended
and restated in the form of the Second Amended and Restated Agreement of Limited
Partnership of Shelbourne Properties II L.P. annexed as Exhibit A hereto, and
such amended and restated agreement shall thereafter be the partnership
agreement of the Operating Partnership (the "OP Partnership Agreement").
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 Delaware pursuant to DRULPA (the "Certificate of Merger"). The
Merger shall become effective at the time and date of the filing of the
Certificate of Merger, 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").
Section 1.06 Amendment to Certificate of Limited Partnership of the
Partnership. To the extent required by law or otherwise desirable, Shelbourne GP
shall file, or cause to be filed, with the Secretary of State of the State of
Delaware an amended and restated certificate of limited partnership of the
Partnership (the "Amended and Restated Certificate") (i) amending the name of
the Operating Partnership to Shelbourne Properties II L.P., (ii) reflecting that
Shelbourne GP is the general partner of the Partnership and (iii) providing for
any other matters required to be stated therein by DRULPA. The Amended and
Restated Certificate shall state that it is effective as of the Effective Time.
Article 2.
EFFECT ON SECURITIES
Section 2.01 Partnership Interests in the Partnership held by the General
Partners. The partnership interests in the Partnership held by the General
Partners immediately prior to the Effective Time shall, by virtue of the Merger
and without any further action by the General Partners, be converted into ______
OP Units.
Section 2.02 Retained Units. Each Unit outstanding immediately prior to
the Effective time owned by limited partners that elected in the Restructuring
to retain their Units (each a "Retained Unit") shall, by virtue of the Merger
and without any further action by the holder thereof, be converted into one (1)
OP Unit.
Section 2.03 Exchanged Units. Each Unit, other than a Retained Unit, that
is outstanding immediately prior to the Effective Time (an "Exchanged Unit")
shall, by virtue of the Merger and without any further action by the holder
thereof, be exchanged for two (2) shares of the Company's common stock, par
value $.01 per share.
Section 2.04 Partnership Interest in Merger L.P. held by Shelbourne GP.
The partnership interest in Merger L.P. held by Shelbourne GP immediately prior
to the Effective
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<PAGE>
Time shall, by virtue of the Merger and without any further action by Shelbourne
GP, be converted into ____ OP Units (as defined in the OP Partnership
Agreement).
Section 2.05 Partnership Interest in Merger L.P. held by the Company. The
partnership interest in Merger L.P. held by the Company immediately prior to the
Effective Time shall, by virtue of the Merger and without any further action by
the Company, be converted into _____ OP Units such that the Company shall
receive in the Merger, one OP Unit for each Exchanged Unit.
Section 2.06 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 without the
payment of any consideration therefor to the holder thereof.
Article 3.
MISCELLANEOUS.
Section 3.01 NP Stock. At the Effective Time, the Company shall issue to
the Operating Partnership ____ shares of the Company's non-participating voting
stock, par value $.01 per share.
Section 3.02 Termination and Amendment. At any time prior to the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
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 3.03 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 3.04 General Partner Actions. Shelbourne GP, as a general partner
of the Partnership subsequent to the Effective Time, 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 the Partnership 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.
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<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 II, INC.
By:
-------------------------------------
Title:
HIGH EQUITY PARTNERS L.P. - SERIES 86
By: RESOURCES CAPITAL CORP.,
administrative general partner
By:
-------------------------------------
Title:
HEP 86 MERGER L.P.
By: SHELBOURNE PROPERTIES II, INC.,
general partner
By:
-------------------------------------
Title:
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The REIT's Certificate, as amended, and Bylaws provide certain limitations
on the liability of the REIT's directors and officers for monetary damages to
the REIT. The Certificate and Bylaws obligate the REIT to indemnify its
directors and officers, and permit the REIT 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
the REIT and the stockholders against these individuals. See "Certain Provisions
of Delaware Law and The REIT's Certificate and Bylaws--Limitation of Liability
and Indemnification."
The REIT's Certificate limits the liability of the REIT's directors and
officers to the REIT 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 the REIT'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.
The REIT has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other matters, that the REIT 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, the
REIT 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 the REIT'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.
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<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 C 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 the
REIT
3.2 Form of Amended and Restated Bylaws of the REIT
4.1 Form of Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (included as Appendix B to the Consent
Solicitation Statement/ Prospectus included as Part I of this
Registration Statement).
4.2* Form of Shareholders Rights Agreement
4.3* Certificate of Designations, Preferences and Rights of Series A
Preferred Stock
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 Indemnification Agreement between the REIT and each of its
directors and executive officers
10.2* Form of Advisory Agreement
12.1* Statement of computation of ratios
23.1 Consent of Rosenman & Colin LLP
24.1 Power of Attorney (included as a part of Part II of this
Registration Statement)
99.1 Form of Consent Form (included as Appendix A to the Consent
Solicitation Statement/ Prospectus included as Part I of this
Registration Statement).
*TO BE FILED BY AMENDMENT
(b) Financial Statement Schedules
The financial statement schedules are incorporated by reference to High
Equity Partners -Series 86 Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 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.
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<PAGE>
(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 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 registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York on
February 10, 2000.
Shelbourne Properties II, Inc.
By: /s/ Michael L. Ashner
------------------------------------
Michael L. Ashner
President and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael Ashner his true and lawful
attorney-in-fact and agent, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all the exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises as fully, to
all intents and purposes, as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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 February 10, 2000
/s/ Peter Braverman
- ---------------------
Peter Braverman Vice President and Director February 10, 2000
/s/ David T. Hamamoto
- ---------------------
David T. Hamamoto Director February 10, 2000
/s/ David King
- ---------------------
David King Vice President and Director February 10, 2000
/s/ Robert Martin
- ---------------------
Robert Martin Director February 10, 2000
/s/ W. Edward Scheetz
- ---------------------
W. Edward Scheetz Director February 10, 2000
/s/ Steven Stuart
- ---------------------
Steven Stuart Director February 10, 2000
/s/ Carolyn Tiffany
- ---------------------
Carolyn Tiffany Vice President and Treasurer February 10, 2000
II-5
<PAGE>
EXHIBIT INDEX
Exhibit # Description Page
- --------- ----------- ----
2.1 Form of Merger Agreement (included as Appendix C 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 the REIT
3.2 Form of Amended and Restated Bylaws of the REIT
4.1 Form of Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (included as
Appendix B to the Consent Solicitation Statement/
Prospectus included as Part I of this Registration
Statement).
4.2* Form of Shareholders Rights Agreement
4.3* Certificate of Designations, Preferences and Rights of
Series A Preferred Stock
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 Indemnification Agreement between the REIT and
each of its directors and executive officers
10.2* Form of Advisory Agreement
12.1* Statement of computation of ratios
23.1 Consent of Rosenman & Colin LLP
24.1 Power of Attorney (included as a part of Part II of this
Registration Statement)
99.1 Form of Consent Form (included as Appendix A to the
Consent Solicitation Statement/ Prospectus included as
Part I of this Registration Statement).
*TO BE FILED BY AMENDMENT
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SHELBOURNE PROPERTIES II, INC.
Shelbourne Properties II, 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 II, 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 II, 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.
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
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<PAGE>
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 2,500,000 shares, of which (a)
1,500,000 shares shall be common stock, par value $.01 per share (the "Common
Stock"), (b) 700,000 shares shall be non-participating voting stock, par value
$.01 per share (the "NP Stock"), (c) 200,000 shares shall be excess stock, par
value $.01 per share (the "Excess Stock"), and (d) 100,000 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
together with the holders of NP Stock (and not as a separate class) 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.
B. NP 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 Corporation shall only be permitted to issue NP Stock to the
Operating Partnership (as defined in Article IV, Section 1).
2. The holders of shares of NP Stock shall be entitled to vote
together with the holders of Common Stock (and not as a separate class) for the
election of directors and on all other matters requiring stockholder action, and
each holder of shares of NP Stock shall be entitled to one vote for each share
of NP Stock held by such stockholder, provided, however, that should any Change
in Law require a reduction in the number of votes represented by the NP Stock,
then, until the Restriction Termination Date, the number of votes to which a
holder of NP
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<PAGE>
Stock shall, without any further action on the part of the Corporation or the
stockholders, be reduced to the extent reasonably necessary or appropriate to
maintain the Corporation's status as a REIT, such reduction to be deemed to have
been made as of the effective date of such Change in Law.
3. (a) Subject to Section B(3)(b) of this Article IV, shares of NP
Stock shall be redeemed by the Corporation, for $0.01 per share of NP Stock,
upon each occurrence of either of the following events (each such occurrence, a
"Redemption Event"): (i) the purchase by the Corporation or (ii) the redemption
by the Operating Partnership (as defined in Article IV, Section 1), of any units
of limited partnership interest (each, a "Unit") of the Operating Partnership
pursuant to the exercise of a "Redemption Right" (as defined in the Operating
Partnership's Second Amended and Restated Agreement of Limited Partnership,
hereinafter the "Partnership Agreement"). Subject to Section B(3)(b) of this
Article IV, the number of shares of NP Stock which shall be redeemed upon a
Redemption Event shall equal the product of (x) the number of Units redeemed or
purchased, as the case may be, as a result of such Redemption Event and (y) the
"Conversion Factor" (as defined in the Partnership Agreement"), rounded up to
the nearest whole share.
(b) Notwithstanding Section B(3)(a) of this Article IV:
(i) the Corporation shall not redeem any shares of NP Stock
upon a Redemption Event if (x) immediately prior to such Redemption Event the
number of shares of Common Stock which may be issued by the Corporation upon
exercise of the Redemption Right with respect to all remaining outstanding OP
Units is greater than the number of shares of NP Stock then outstanding and (y)
as a result of such Redemption Event, the number of shares of Common Stock which
may be issued by the Corporation upon exercise of the Redemption Right with
respect to all remaining outstanding OP Units is greater than or equal to the
number of shares of NP Stock then outstanding; and
(ii) the Corporation shall only redeem the Required Amount (as
hereinafter defined) upon a Redemption Event if (x) immediately prior to such
Redemption Event the number of shares of Common Stock which may be issued by the
Corporation upon exercise of the Redemption Right with respect to all remaining
outstanding OP Units is greater than the number of shares of NP Stock then
outstanding and (y) as a result of such Redemption Event, the number of shares
of NP Stock then outstanding exceeds the number of shares of Common Stock which
may be issued by the Corporation upon exercise of the Redemption Right with
respect to all remaining outstanding OP Units (the number of such excess shares
of NP Stock being referred to as the "Required Amount").
4. Holders of NP Stock shall not be entitled to receive any
dividends or other distributions from the assets of the Corporation in respect
of their shares of NP Stock.
5. Holders of NP Stock shall not be entitled to receive any proceeds
of the net assets of the Corporation available for distribution as a result of
the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation.
6. Upon the occurrence of any stock split or any subdivision,
reclassification, combination or like event with respect to the Common Stock,
the NP Stock shall be appropriately adjusted so that each share of NP Stock
retains equal voting rights relative to a
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<PAGE>
share of Common Stock as before the occurrence of such stock split, subdivision,
reclassification, combination or like event.
C. 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 (C)(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
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<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.
D. 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.
"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
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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.
"Equity Stock" shall mean the Common Stock, the NP 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 II, 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 (E)(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 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 (E)(1) of this Article IV.
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
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"Related Limit" shall have the meaning ascribed to such term in
Section 2(a)(I) hereof.
"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.
"Restructuring" shall mean the restructuring authorized pursuant to
that certain Prospectus/Consent Solicitation Statement of the Corporation and
High Equity Partners L.P. - Series 86 dated as of February ___, 2000.
"Restructuring Date" shall mean the effective date of the
Restructuring.
"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 (E) 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.
2. Restriction On Ownership And Transfer.
(a) Except as provided in Section (D)(4) of this Article IV, from and
after the Restructuring 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
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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 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
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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 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
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<PAGE>
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 (E)(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.
E. Excess Stock.
1. Conversion Into Excess Stock.
(a) If, notwithstanding the other provisions contained in this Article IV,
from and after the Restructuring Date and prior to the Restriction Termination
Date, there is a purported 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 (D)(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
(E)(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,
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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 (E)(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 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 (D)(2) of this Article IV or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership
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or Constructive Ownership of any shares of Equity Stock in violation of Section
(D)(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
(E)(1).
3. Notice Of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of Equity Stock in violation of Section (D)(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 (E)(1) and (E)(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 (E)(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 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
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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 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 (D)(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 (E)(1) and (E)(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 (E)(10) of this Article IV.
(b) Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (E)(8), the Trustee shall cause
to be transferred to the Permitted Transferee shares of Excess Stock acquired by
the Trustee pursuant to Section (E)(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
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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 (E)(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 (D)(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 (E)(8) through (E)(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
(E)(8) of this Article IV or following the acceptance of the offer to purchase
such shares in accordance with Section (E)(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 (E)(8) or Section (E)(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 (E)(9) shall
be distributed to the Beneficiary in accordance with the provisions of Section
(E)(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 (E) of this Article IV
by such Trustee.
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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 (E)(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 (D)(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 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
(D)(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 II, 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
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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.
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
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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 Michael L.
Ashner and Peter Braverman; the initial Class II Directors of the Corporation
shall be Steven Stuart 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
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
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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.
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.
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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 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
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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.
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Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SHELBOURNE PROPERTIES II, INC.
ARTICLE I
DEFINITIONS
For purposes of these By-laws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of such
other Person or (iii) any officer, director, employee, partner or trustee of
such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes of
this definition, the term "Person" shall mean, and includes, any natural person,
corporation, partnership, association, trust, limited liability company or any
other legal entity. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
(b) "Certificate" shall mean the Certificate of Incorporation of the
Corporation, as amended from time to time.
(c) "Corporation" shall mean Shelbourne Properties II, Inc.
(d) "DGCL" shall mean the Delaware General Corporation Law, as amended
from time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per share,
the non-participating voting stock, par value $.01 per share and the preferred
stock, par value $.01 per share of the Corporation.
(f) "Public Announcement" shall mean: (i) disclosure in a press release
reported by the Dow Jones News Service, Associated Press or other similar
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation at
the time of the mailing of such letter or report.
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ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACES OF MEETINGS. All meetings of the stockholders shall be held at
such place, either within or without the State of Delaware, as from time to time
may be fixed by the majority of the Board of Directors, the Chairman of the
Board, if one is elected, or the President, which place may subsequently be
changed at any time by vote of the Board of Directors.
2.2 ANNUAL MEETINGS. The annual meeting of the stockholders, for the
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by a majority of the Board of Directors, the Chairman of the Board,
if one is elected, or the President, which date and time may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
At any annual meeting of stockholders or any special meeting in lieu of
annual meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been properly brought before
such annual meeting. To be considered as properly brought before an annual
meeting, business must be: (a) specified in the notice of meeting, (b) otherwise
properly brought before the meeting by, or at the direction of, the Board of
Directors, or (c) otherwise properly brought before the meeting by any holder of
record (both as of the time notice of such proposal is given by the stockholder
as set forth below and as of the record date for the annual meeting in question)
of any shares of capital stock of the Corporation entitled to vote at such
annual meeting who complies with the requirements set forth in Section 2.9.
2.3 SPECIAL MEETINGS. Except as otherwise required by law and subject to
the rights, if any, of the holders of any series of preferred stock of the
Corporation, special meetings of the stockholders may be called only by the
Board of Directors pursuant to a resolution approved by the affirmative vote of
a majority of the directors then in office. Only those matters set forth in the
notice of the special meeting may be considered or acted upon at a special
meeting of stockholders of the Corporation, unless otherwise provided by law.
2.4 NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these By-laws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat and
to each stockholder who, by law or under the Certificate or under these By-laws,
is entitled to such notice, by delivering such notice to him or her or by
mailing it, postage prepaid, addressed to such stockholder at the address of
such stockholder as it appears on the stock transfer books of the Corporation.
Such notice shall be deemed to be delivered when hand-delivered to such address
or deposited in the mail so addressed, with postage prepaid.
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Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called. Notice of an annual meeting or special meeting of stockholders need
not be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any annual meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled annual meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2.9 of these By-laws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information that the
Board of Directors determines has not been made sufficiently or timely available
to stockholders or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting, other than an announcement at
the meeting at which the adjournment is taken, of the hour, date and place to
which the meeting is adjourned; PROVIDED, HOWEVER, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or under these By-laws, is entitled to such notice.
2.5 QUORUM. Except as otherwise required by the Certificate or law, any
number of stockholders together holding at least a majority of the outstanding
shares of capital stock entitled to vote with respect to the business to be
transacted, who shall be present in person or represented by proxy at any
meeting duly called, shall constitute a quorum for the transaction of business.
Where a separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
matter. If less than a quorum shall be in attendance at the time for which a
meeting shall have been called, the holders of voting stock representing a
majority of the voting power present at the meeting or represented by proxy or
the presiding officer may adjourn the meeting from time to time, and the meeting
may be held as adjourned without further notice. At such adjourned meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. The stockholders present at a
duly constituted meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
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2.6 VOTING AND PROXIES. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the Secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies authorizing a person to vote at a specific
meeting shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by or on behalf of any one of them unless at or prior
to the exercise of the proxy the Corporation receives a specific written notice
to the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid, and the burden of proving
invalidity shall rest on the challenger.
2.7 ACTION AT MEETING. When a quorum is present, any matter before any
meeting of stockholders shall be decided by the affirmative vote of the majority
of shares present in person or represented by proxy at such meeting and entitled
to vote on such matter, except where a larger vote is required by law, by the
Certificate or by these By-laws. Where a separate vote by a class of classes is
required, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class. Any election by stockholders shall be determined by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors, except where a
larger vote is required by law, by the Certificate or by these By-laws. The
Corporation shall not directly or indirectly vote any shares of its own stock;
PROVIDED, HOWEVER, that the Corporation may vote shares which it holds in a
fiduciary capacity to the extent permitted by law.
2.8 STOCKHOLDER LIST. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
2.9 STOCKHOLDER PROPOSALS. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder of record (both as of the time notice of such proposal is given by
the stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the first
annual meeting following the initial public offering of the common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not
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later than the close of business on the later of (x) the 75th day prior to the
scheduled date of such annual meeting or (y) the 15th day following the day on
which the Public Announcement of the date of such annual meeting is first made
by the Corporation. For all subsequent annual meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the anniversary date of the immediately preceding annual meeting (the
"Anniversary Date"); PROVIDED, HOWEVER, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled date of such annual meeting or (2) the
15th day following the day on which Public Announcement of the date of such
annual meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such annual
meeting and the reasons for conducting such business at such annual meeting,
(ii) the name and address, as they appear on the stock transfer books of the
Corporation, of the stockholder proposing such business, (iii) the class and
number of shares of the capital stock of the Corporation beneficially owned by
the stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered in
such stockholder's name on such books, and the class and number of shares of the
capital stock of the Corporation beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the capital stock of the Corporation beneficially owned by such other
stockholders and (vi) any material interest of the stockholder proposing to
bring such business before such meeting (or any other stockholders known to be
supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2.9. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 2.9, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set
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forth in this Section 2.9, and nothing in this Section 2.9 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act (or
any successor provision thereof).
2.10 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The Corporation shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the presiding officer shall appoint one or more inspectors to act
at the meeting. Any inspector may, but need not, be an officer, employee or
agent of the Corporation. Each inspector, before entering upon the discharge of
his or her duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors.
2.11 PRESIDING OFFICER. The Chairman of the Board, if one is elected, or
if not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
ARTICLE III
DIRECTORS
3.1 GENERAL POWERS. 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 Certificate or these By-laws, all of
the powers of the Corporation shall be vested in such Board.
3.2 NUMBER OF DIRECTORS. The number of directors shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
directors shall hold office in the manner provided in the Certificate.
3.3 ELECTION AND REMOVAL OF DIRECTORS; QUORUM.
(a) Directors shall be elected and removed in the manner provided
for in Article VI of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the
manner provided for in Article VI of the Certificate.
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(c) At any meeting of the Board of Directors, a majority of the
number of directors then in office shall constitute a quorum for the transaction
of business. However, if less than a quorum is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 3.6 of this Article III. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
(d) No director need be a stockholder of the Corporation.
(e) A director may resign at any time by giving written notice to
the Chairman of the Board, if one is elected, the President or the Secretary. A
resignation shall be effective upon receipt, unless the resignation otherwise
provides.
3.4 REGULAR MEETINGS. The regular annual meeting of the Board of Directors
shall be held, without notice other than this Section 3.4, on the same date and
at the same place as the annual meeting following the close of such meeting of
stockholders. Other regular meetings of the Board of Directors may be held at
such hour, date and place as the Board of Directors may by resolution from time
to time determine without notice other than such resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
3.6 NOTICE OF MEETINGS. Notice of the hour, date and place of all special
meetings of the Board of Directors shall be given to each director by the
Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The
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attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because such meeting is not lawfully called or convened. Except as otherwise
required by law, by the Certificate or by these By-laws, neither the business to
be transacted at, nor the purpose of, any meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting.
3.7 NOMINATIONS. Nominations of candidates for election as directors of
the Corporation at any annual meeting may be made only (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any holder of
record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such annual meeting who complies with the timing, informational and
other requirements set forth in this Section 3.7. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3.7 and who seeks to make such a nomination must be, or his, her or its
representative must be, present in person at the annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3.7 shall
be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board
of Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.7. For the first annual
meeting following the initial public offering of the common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (i) the 75th day prior to the
scheduled date of such annual meeting or (ii) the 15th day following the day on
which the Public Announcement of the date of such annual meeting is first made
by the Corporation. For all subsequent annual meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; PROVIDED, HOWEVER, that in the event the annual
meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
annual meeting or (y) the 15th day following the day on which Public
Announcement of the date of such annual meeting is first made by the
Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or re-
election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of such
stockholder and of the beneficial owners (if any) of the capital stock of the
Corporation registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s);
(b) the class and number of shares of the capital stock of the Corporation which
are held of record, beneficially owned or represented by proxy by such
stockholder and by any other stockholders known by such stockholder to be
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supporting such nominee(s) on the record date for the annual meeting in question
(if such date shall then have been made publicly available and shall be earlier
than the date of such stockholder notice) and on the date of such stockholder's
notice; and (c) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3.7 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.7 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.7, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder nomination
was not made in accordance with the terms of this Section 3.7 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.7 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 3.7, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.7, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 75 days prior to the Anniversary Date,
a stockholder's notice required by this Section 3.7 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if such notice shall be delivered to, or mailed to and received by,
the Corporation at its principal executive office not later than the close of
business on the 15th day following the day on which such Public Announcement is
first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.7. Election of directors at an annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the annual meeting in accordance with the procedures set forth in this Section
3.7 shall be provided for use at the annual meeting.
3.8 ACTION AT MEETING AND BY CONSENT.
(a) At any meeting of the Board of Directors at which a quorum is
present, a majority of the directors present may take any action on behalf of
the Board of Directors, unless otherwise required by law, by the Certificate or
by these By-laws.
(b) Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting if all members of the
Board of Directors consent
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thereto in writing. Such written consent shall be filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
3.9 MANNER OF PARTICIPATION. Directors may participate in meetings of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can hear
each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these By-laws.
3.10 COMPENSATION OF DIRECTORS. By resolution of the Board of Directors,
directors may be allowed a fee for serving as a director and a fee and expenses
for attendance at a meeting of the Board, but nothing herein shall preclude
directors from serving the Corporation in other capacities and receiving
compensation for such other services; PROVIDED, HOWEVER, that directors who are
serving the Corporation as employees and who receive compensation for their
services as such shall not receive any salary or other compensation for their
services as directors of the Corporation.
ARTICLE IV
COMMITTEES
4.1 EXECUTIVE COMMITTEE. The Board of Directors, by resolution duly
adopted, may designate an Executive Committee which shall consist of not less
than two directors, including the Chairman of the Board. The members of the
Executive Committee shall serve until their successors are designated by the
Board of Directors, until removed, or until the Executive Committee is dissolved
by the Board of Directors. All vacancies that may occur in the Executive
Committee shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee
shall have all power vested in the Board of Directors by law, by the
Certificate, or by these By-laws, except as otherwise provided in the DGCL or by
a resolution adopted by the Board of Directors. The Executive Committee shall
report at the next regular or special meeting of the Board of Directors all
action that the Executive Committee may have taken on behalf of the Board of
Directors since the last regular or special meeting of the Board of Directors.
Meetings of the Executive Committee shall be held at such places and at
such times fixed by resolution of the Executive Committee, or upon call of the
Chairman of the Board. Not less than 12 hours' notice shall be given by letter,
facsimile, telegraph or telephone (or in person) of all meetings of the
Executive Committee; PROVIDED, HOWEVER, that notice need not be given of regular
meetings held at times and places fixed by resolution of the Executive Committee
and that meetings may be held at any time without notice if all of the members
of the Executive Committee are present or if those not present waive notice in
writing either before or after the meeting; PROVIDED, FURTHER, that attendance
at a meeting for the express purpose of objecting at the beginning of a meeting
to the transaction of any business because the meeting is not lawfully convened
shall not be considered a waiver of notice. A majority of the members of the
Executive Committee then serving shall constitute a quorum for the transaction
of business at any meeting of the Executive Committee.
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4.2 COMPENSATION COMMITTEE. The Board of Directors, by resolution duly
adopted, may designate a Compensation Committee which shall consist of two or
more non-employee directors. In addition, the Board of Directors at any time may
designate one or more alternate members of the Compensation Committee, who shall
be non-employee directors, who may act in place of any absent regular member
upon invitation by the chairman or secretary of the Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further powers
with respect to bonuses as may from time to time be conferred by the Board of
Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to removal
by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A
majority of the number of regular members then serving on the Compensation
Committee shall constitute a quorum; and regular and alternate members present
shall be counted to determine whether there is a quorum. The Compensation
Committee shall keep minutes of its meetings, and all action taken by it shall
be reported to the Board of Directors.
4.3 AUDIT COMMITTEE. The Board of Directors, by resolution duly adopted,
may designate an Audit Committee which shall consist of two or more directors
whose membership on the Audit Committee shall meet the requirements set forth in
the rules of the American Stock Exchange, as amended from time to time.
Vacancies in the Audit Committee shall be filled by the Board of Directors with
directors meeting the requirements set forth above, giving consideration to
continuity of the Audit Committee, and members shall be subject to removal by
the Board of Directors at any time. The Audit Committee shall fix its own rules
of procedure and a majority of the members serving shall constitute a quorum.
The Audit Committee shall meet at least twice per year with both the internal
and the Corporation's outside auditors present at each meeting and shall keep
minutes of its meetings and all action taken shall be reported to the Board of
Directors. The Audit Committee shall review the reports and minutes of any audit
committees of the Corporation's subsidiaries. The Audit Committee shall review
the Corporation's financial reporting process, including accounting policies and
procedures. The Audit Committee shall examine the report of the Corporation's
outside auditors, consult with them with respect to their report and the
standards and procedures employed by them in their audit, report to the Board of
Directors the results of its study and recommend the selection of auditors for
each fiscal year.
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4.4 NOMINATING COMMITTEE. The Board of Directors, by resolution duly
adopted, may designate a Nominating Committee which shall consist of two or more
directors. The Nominating Committee shall make recommendations to the Board of
Directors regarding nominees for election as directors by the stockholders at
each annual meeting of stockholders and make such other recommendations
regarding tenure, and classification of directors as the Nominating Committee
may deem advisable from time to time. The Nominating Committee shall fix its own
rules of procedure and a majority of the members then serving shall constitute a
quorum.
4.5 OTHER COMMITTEES. The Board of Directors, by resolution adopted, may
establish such other standing or special committees of the Board of Directors as
it may deem advisable, and the members, terms and authority of such committees
shall be as set forth in the resolutions establishing the same.
ARTICLE V
OFFICERS
5.1 ENUMERATION. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary and such other officers, including, without
limitation, a Chairman of the Board of Directors, a Chief Executive Officer, a
Chief Operating Officer and one or more Vice Presidents (including Executive
Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant
Treasurers and Assistant Secretaries, and such other officers as the Board of
Directors may determine.
5.2 ELECTION. At the regular annual meeting of the Board following the
annual meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors at such regular annual meeting of the Board of Directors or
at any other regular or special meeting.
5.3 QUALIFICATION. No officer need be a stockholder or a director. Any
person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
5.4 TENURE. Except as otherwise provided by the Certificate or by these
By-laws, each of the officers of the Corporation shall hold office until the
regular annual meeting of the Board of Directors following the next annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
5.5 RESIGNATION. Any officer may resign by delivering his or her written
resignation to the Corporation addressed to the President or the Secretary, and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
5.6 REMOVAL. Except as otherwise provided by law, the Board of Directors
may remove any officer with or without cause by the affirmative vote of a
majority of the directors then in office.
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5.7 ABSENCE OR DISABILITY. In the event of the absence or disability of
any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
5.8 VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
5.9 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he or she is absent, the
President shall preside, when present, at all meetings of stockholders and of
the Board of Directors. The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
5.10 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is elected,
shall preside, when present, at all meetings of the stockholders and of the
Board of Directors. The Chairman of the Board shall have such other powers and
shall perform such other duties as the Board of Directors may from time to time
designate.
5.11 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one is
elected, shall have such powers and shall perform such duties as the Board of
Directors may from time to time designate. If there shall be a Chief Executive
Officer at any time, such officer shall have authority to take any action that
the President is authorized to take.
5.12 VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any Vice President
(including any Executive Vice President or Senior Vice President) and any
Assistant Vice President shall have such powers and shall perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
5.13 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to
the direction of the Board of Directors and except as the Board of Directors or
the President may otherwise provide, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
The Treasurer shall have custody of all funds, securities, and valuable
documents of the Corporation. He or she shall have such other duties and powers
as may be designated from time to time by the Board of Directors or the Chief
Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
5.14 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all
the proceedings of the meetings of the stockholders and the Board of Directors
(including committees of the Board) in books kept for that purpose. In his or
her absence from any such meeting, a temporary secretary chosen at the meeting
shall record the proceedings thereof. The Secretary shall have charge of the
stock ledger (which may, however, be kept by any transfer or other agent of the
Corporation). The Secretary shall have custody of the seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to affix it
to any instrument requiring it, and, when so affixed, the seal may be attested
by his or her signature or that of an Assistant Secretary. The Secretary shall
have such other duties and powers as may be designated
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from time to time by the Board of Directors or the Chief Executive Officer. In
the absence of the Secretary, any Assistant Secretary may perform his or her
duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
5.15 OTHER POWERS AND DUTIES. Subject to these By-laws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors, the Chairman of the
Board or the President.
ARTICLE VI
CAPITAL STOCK
6.1 CERTIFICATES. Each stockholder shall be entitled to a certificate of
the capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the transfer
agent or the registrar may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, the certificate may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the time of its issue. Every certificate for shares of
stock which are subject to a restriction on transfer (as provided in Article IV
of the Certificate) and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend (as provided in Article IV of the Certificate) with respect thereto as is
required by law.
6.2 LOST, DESTROYED AND MUTILATED CERTIFICATES. Holders of the shares of
the stock of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.3 TRANSFER OF STOCK. Subject to the restrictions on transfer of stock
described in Article IV of the Certificate, shares of stock of the Corporation
shall be transferable or assignable only on the stock transfer books of the
Corporation by the holder in person or by attorney upon surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or, if sought to be transferred by attorney, accompanied by a written
assignment or power of attorney properly executed, with transfer stamps (if
necessary) affixed, and with such proof of the authenticity of signatures as the
Corporation or its transfer agent may reasonably require.
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6.4 RECORD HOLDERS. Except as may otherwise be required by law, by the
Certificate or by these By-laws, the Corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her postal address and any changes thereto.
6.5 RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION
7.1 DEFINITIONS. For purposes of this Article VII:
(a) "Corporate Status" describes the status of a person who (i) in
the case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Officer is or was serving at the
request of the Corporation and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that such Non-Officer Employee is or was
serving at the request of the Corporation;
(b) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding
in respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
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(d) "Expenses" means all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and binding
costs, costs of preparation of demonstrative evidence and other courtroom
presentation aids and devices, costs incurred in connection with document
review, organization, imaging and computerization, telephone charges, postage,
delivery service fees, and all other disbursements, costs or expenses of the
type customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in,
settling or otherwise participating in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served
as an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the operation of
Section 7.4 of these By-laws, each Director and Officer shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the DGCL,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment) against any and all Expenses, judgments,
penalties, fines and amounts reasonably paid in settlement, in each case to the
extent actually and reasonably incurred by such Director or Officer or on such
Director's or Officer's behalf in connection with any threatened, pending or
completed Proceeding or any claim, issue or matter therein, which such Director
or Officer is, or is threatened to be made, a party to or participant in by
reason of such Director's or Officer's Corporate Status, if such Director or
Officer acted in good faith and in a manner such Director or Officer reasonably
believed to be in or not opposed to the best interests of the Corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The rights of indemnification provided by this
Section 7.2 shall exist as to a Director or Officer after he or she has ceased
to be a Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation shall indemnify any Director or Officer seeking
indemnification in connection with a Proceeding initiated by such Director or
Officer only if such Proceeding was authorized by the Board of Directors. The
Company hereby agrees to indemnify such Director's or Officer's spouse (whether
by statute or at common law and without regard to the location of the governing
jurisdiction) and children as express third-party beneficiaries hereunder to the
same extent and subject to the same limitations applicable to such Director or
Officer hereunder for claims arising out of the status of such person as a
spouse or child of such Director or Officer, including claims seeking damages
from marital property (including community property) or property held by such
Director or Officer and such spouse or property transferred to such spouse or
child.
7.3 INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the operation of
Section 7.4 of these By-laws, each Non-Officer Employee may, in the discretion
of
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the Board of Directors, be indemnified by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement, in each case to the extent actually and reasonably incurred by such
Non-Officer Employee or on such Non-Officer Employee's behalf in connection with
any threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors. The Company hereby agrees to indemnify such Non-Officer
Employee's spouse (whether by statute or at common law and without regard to the
location of the governing jurisdiction) and children as express third-party
beneficiaries hereunder to the same extent and subject to the same limitations
applicable to such Non-Officer Employee hereunder for claims arising out of the
status of such person as a spouse or child of such Non-Officer Employee,
including claims seeking damages from marital property (including community
property) or property held by such Director or Officer and such Non-Officer
Employee and such spouse or property transferred to such spouse or child.
7.4 GOOD FAITH. Unless ordered by a court, no indemnification shall be
provided pursuant to this Article VII to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion or (c) by the stockholders of the Corporation.
7.5 NOTICE/COOPERATION BY INDEMNITEE. Any Director, Officer or Non-
Employee Director shall, as a condition precedent to his or her right to be
indemnified under these By-laws, give the Company notice in writing as soon as
practicable of any claim made against such Director, Officer or Non-Officer
Employee for which indemnification will or could be sought under these By-laws.
Such notice shall contain the written affirmation of the Director, Officer or
Non-Officer Director that the standard of conduct necessary for indemnification
hereunder has been satisfied. Notice to the Company shall be directed to the
Chief Executive Officer of the Company in the manner set forth below. The
Director, Officer or Non-Officer Director shall give the Company such
information and cooperation as it may reasonably require and as shall be within
such Director, Officer or Non-Officer Employee's power. A delay in giving notice
under this Section 7.5 shall not invalidate the Director, Officer or Non-Officer
Director's right to be indemnified under these By-laws unless such delay
prejudices the defense
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of the claim or the availability to the Company of insurance coverage for such
claim. All notices, requests, demands and other communications under these
By-laws shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipted for by the party addressed, 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.
7.6 ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL DISPOSITION. The
Corporation shall advance all Expenses incurred by or on behalf of any Director
in connection with any Proceeding in which such Director is involved by reason
of such Director's Corporate Status within 10 days after the receipt by the
Corporation of a written statement from such Director requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Director and shall be preceded or accompanied by an undertaking
by or on behalf of such Director to repay any Expenses so advanced if it shall
ultimately be determined that such Director is not entitled to be indemnified
against such Expenses.
7.7 ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER EMPLOYEES PRIOR TO
FINAL DISPOSITION. The Corporation may, in the discretion of the Board of
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such Officer
or Non-Officer Employee is involved by reason of such Officer or Non- Officer
Employee's Corporate Status upon the receipt by the Corporation of a statement
or statements from such Officer or Non-Officer Employee requesting such advance
or advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by such Officer or Non-Officer Employee and shall be preceded
or accompanied by an undertaking by or on behalf of such Officer or Non-Officer
Employee to repay any Expenses so advanced if it shall ultimately be determined
that such Officer or Non-Officer Employee is not entitled to be indemnified
against such Expenses.
7.8 CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of this Article
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while this Article VII
is in effect, and any repeal or modification thereof shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the receipt by the Corporation
of a written claim for indemnification or (b) in the case of a Director, 10 days
after the receipt by the Corporation of documentation of Expenses and the
required undertaking, such Director or Officer may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article VII shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible. It is the parties' intention that if the Company
contests any Director's, Officer's or Non-Officer
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Employee's right to indemnification, the question of such Director's, Officer's
or Non-Officer Employee'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 shareholders) to have made a determination that
indemnification of such Director, Officer or Non-Officer Employee is proper in
the circumstances because the Director, Officer or Non-Officer Employee 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
stockholders) that the Director, Officer or Non-Officer Employee has not met
such applicable standard of conduct, shall create a presumption that such
Director, Officer or Non-Officer Employee has or has not met the applicable
standard of conduct.
7.9 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article VII shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these By-
laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
7.10 PARTIAL INDEMNIFICATION. If any Director, Officer or Non-Officer
Employee is entitled under any provision of these By-laws 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 such
Director, Officer or Non-Officer Employee for the portion of such expenses,
judgments, fines or penalties to which such Director, Officer or Non-Officer
Employee is entitled.
7.11 MUTUAL ACKNOWLEDGMENT. By accepting any potential benefits under this
Article VII each Director, Officer or Non-Officer Employee acknowledges that in
certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers and employees under these
By-laws or otherwise. The Director, Officer or Non-Officer Employee 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's right under public policy to indemnify Director,
Officer or Non-Officer Employee.
7.12 INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the provisions
of this Article VII.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
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8.1 SEAL. The seal of the Corporation shall consist of a flat-faced
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation. The Board of
Directors shall have the power to adopt and alter the seal of the Corporation.
8.2 FISCAL YEAR. The fiscal year of the Corporation shall end on such date
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 CHECKS, NOTES AND DRAFTS. Checks, notes, drafts and other orders for
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without director action may be executed on
behalf of the Corporation by the Chairman of the Board, if one is elected, the
President or the Treasurer or any other officer, employee or agent of the
Corporation as the Board of Directors or Executive Committee may authorize.
8.5 RESIDENT AGENT. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
Corporation.
8.6 CORPORATE RECORDS. The original or attested copies of the Certificate,
By-laws and records of all meetings of the incorporators, stockholders and the
Board of Directors and the stock transfer books, which shall contain the names
of all stockholders, their record addresses and the amount of stock held by
each, may be kept outside the State of Delaware and shall be kept at the
principal office of the Corporation, at the office of its counsel or at an
office of its transfer agent or at such other place or places as may be
designated from time to time by the Board of Directors.
8.7 AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law,
these By-laws 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. These By-laws may be amended or
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds 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; 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 a 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.
8.8 VOTING OF STOCK HELD. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board, if one is elected, the President or the Treasurer may from time to time
waive notice of and act on behalf
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of this Corporation, or appoint an attorney or attorneys or agent or agents of
the Corporation, in the name and on behalf of the Corporation, to cast the vote
that the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose securities may be held by the Corporation,
at meetings of the holders of the shares or other securities of such other
corporation, or to consent in writing to any action by any such other
corporation; and the Chairman of the Board, if one is elected, the President or
the Treasurer shall instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent and may execute or cause to be
executed on behalf of the Corporation, and under its corporate seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the premises. In lieu of such appointment, the
Chairman of the Board, if one is elected, the President or the Treasurer may
himself or herself attend any meetings of the holders of shares or other
securities of any such other corporation and there vote or exercise any or all
power of the Corporation as the holder of such shares or other securities of
such other corporation.
Adopted ________ ___, 2000 and effective as of ________ ___, 2000.
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Exhibit 23.1
CONSENT OF ROSENMAN & COLIN LLP
We hereby consent to the references to this firm in the Registration
Statement on Form S-4 under the captions "THE RESTRUCTURING," "FEDERAL INCOME
TAX CONSEQUENCES" and "EXPERTS."
ROSENMAN & COLIN LLP
New York, New York
February 10, 2000
