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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 III, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6798 Applied for
- --------------------------------------------- -------------------------------- ----------------------------------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
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SHELBOURNE PROPERTIES III, 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
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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
- --------------------------- -------------------------- ------------------------ ------------------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock, par value 1,173,998 $44.40 $52,125,511.20 $13,761.13
$.01 per share
- --------------------------- -------------------------- ------------------------ ------------------------ -----------------------
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- ---------------
(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.
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SHELBOURNE PROPERTIES III, INC.
PROSPECTUS RELATING TO
1,173,998 SHARES OF COMMON STOCK
----------------
HIGH EQUITY PARTNERS L.P. - SERIES 88
CONSENT SOLICITATION STATEMENT
------------------------
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 88. We are soliciting your approval of the restructuring
of your partnership into an operating partnership controlled by a newly-formed
corporation called Shelbourne Properties III, Inc. Following the restructuring,
Shelbourne Properties III, 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 three 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 III, 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
o Unlike your partnership, the REIT may reinvest proceeds of
property sales
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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 $3.57 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.
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 97,570 units in your partnership (or approximately 26.2% of the
outstanding units). Our affiliates intend to vote all of these units to approve
the restructuring. Your vote in
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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 three-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.
------------------------
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.
------------------------
The date of this Consent Solicitation Statement/Prospectus is ______ __, 2000.
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TABLE OF CONTENTS
Page
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
Distributions; distribution policy.......................................28
Management Fees to Affiliates............................................29
Taxation of Taxable Limited Partners.....................................31
Taxation of Tax-Exempt Limited Partners..................................31
(i)
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THE RESTRUCTURING...........................................................32
General..................................................................32
Mechanics of the Restructuring...........................................32
Effective Time...........................................................33
Conditions to the Restructuring..........................................33
Fees And Expenses........................................................34
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...........42
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....................................................................52
General..................................................................52
Objectives and Strategies................................................53
The Properties...........................................................54
Other Assets and Liabilities.............................................54
Cash Dividend Policy.....................................................55
(ii)
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Management...............................................................55
THE OPERATING PARTNERSHIP AND OP UNITS......................................59
General..................................................................59
Organization; Term.......................................................59
Ownership of Properties..................................................60
Non-Participating Voting Stock...........................................60
Partnership Agreement....................................................60
Management............................................................60
Removal of the General Partner........................................60
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.................................63
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..............................81
Business Combinations....................................................81
Indemnification Agreements...............................................82
RESALE OF SECURITIES........................................................82
FEDERAL INCOME TAX CONSEQUENCES.............................................83
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......................................89
Failure of the REIT to Qualify as a Real Estate Investment Trust......89
Taxation of Taxable U.S. Stockholders....................................90
Distributions by the REIT.............................................90
Passive Activity Losses and the Investment Interest Limitation........90
Sale of Common Stock..................................................91
Backup Withholding....................................................91
Taxation of Tax-Exempt Stockholders......................................91
Taxation of Non-U.S. Stockholders........................................92
Distributions by the REIT.............................................92
Sale of Common Stock..................................................92
(iii)
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Backup Withholding Tax and Information Reporting......................93
Electing Large Partnership Election......................................93
Certain Tax Aspects of Owning OP Units Following the Restructuring.......94
Tax Status of the Operating Partnership..................................95
Other Taxes..............................................................96
Possible Tax Law Changes.................................................96
Importance of Obtaining Professional Tax Assistance......................97
AVAILABLE INFORMATION.......................................................97
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................98
FORWARD-LOOKING STATEMENTS..................................................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 1987 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 between 1987 and 1989. Your partnership invested substantially
all of the capital raised from the sale of units in the six properties it
currently owns. 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 $719,411 for 1999 which is $160,993 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 25,034 units at a price of $113.15 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.
1
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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 three 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."
2
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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
3
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obligation to pay limited partners of your partnership the "fee give-back"
amount (a maximum of $3.57 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
4
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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."
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
<S> <C>
General Business Owning and operating Owning and operating existing and to be
existing income-producing acquired properties, including on a joint
properties, including on a venture basis, as well as other real estate-
joint venture basis related investments such as mortgages and
securities of other real estate companies
(all business to be conducted through
operating partnership)
Management Conflicts of Various conflicts based on our Present conflicts eliminated; the advisor may
Interest potentially oposing have conflicts of interest in connection with
economic interests, services provided by it and its affiliates to
particularly with respect to other property owners
management and timing of
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
sales of properties
Liquidity of Your Investment Relatively illiquid Listed for trading on the 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 Affiliates Limitations on transactions with Subject to applicable provisions of Delaware law;
our affiliates contained in your transactions with our affiliates must be on terms
partnership agreement comparable to transactions with unaffiliated third
parties
Borrowing Policy Minimal ability to employ leverage Borrowing permitted on a secured and unsecured basis;
provided borrowing would not result cross-collateralization permitted; borrowing will not
in UBTI result in UBTI to tax-exempt Common Stockholders
Issuances of Additional Securities Prohibited from issuing additional Ability to raise additional capital or acquire
securities additional properties or other investments through
issuances of debt or additional equity securities
(Common Stock or OP Units)
Duration of Entity December 31, 2017; originally Perpetual, no fixed liquidation date
contemplated holding period for
properties expires in 2000
Federal Taxation Not subject to Federal tax Generally not subject to 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 of your Generally taxed on amounts distributed to you (unless
partnership's taxable income (loss) you are tax-exempt), which distributions will be made
is included in calculating your pro rata to all holders of Common Stock
taxable income, regardless of
whether your partnership makes any
cash distributions; there are
special allocations of depreciation
deductions to
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
taxable unitholders
Tax Characterization of Income Generally passive activity income Dividends and capital gains 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, generally mailed to Form 1099-DIV must be mailed to you by January 31 of
you by March 15 of each year, each year
typically increasing your cost of
tax return preparation
You generally are required to file You generally will not have to file tax returns or pay
state tax returns, and pay taxes, taxes in states other than your state of residence on
in various states where properties account of owning Common Stock
are located
Distributions; distribution policy Quarterly historical distributions; Quarterly dividends; dividend rate determined by the
distributions suspended as of Board of Directors based on the REIT's results of
September 30, 1999 operations, cash flow and capital requirements;
mandatory distributions required to satisfy REIT
requirements
Management Vested in general partners Vested in Board of Directors 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 interest; One vote per share. Majority vote of Common Stock and
voting is generally permitted only non-participating voting stock (owned by operating
for significant actions requiring partnership) required for certain significant
approval of limited partners transactions such as merger or sale of substantially
holding majority of units such as all of the assets
sale of substantially all of the
assets or amendment of your
partnership agreement
Partnership Management Fees Partnership asset management fee Asset management fees payable under advisory agreement
Payable to Us or to Our Affiliates would be 1.25% of appraised value would equal 1.25% of appraised value of assets (same
of assets method of calculation used for determination of
Partnership Asset Management Fee)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CHARACTERISTIC YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
head
Property Management Fees Payable Up to 6% of property revenues but Up to 6% of property revenues paid to advisor but no
to Us or to Our Affiliates no more than competitive rate for more than competitive rate for similar services
similar services
Property Disposition Fees Payable Generally, 3% subordinated fee plus None
to Us or Our Affiliates subordinated incentive management
fees
Reimbursement of Expenses to Us or All expenses paid by your All expenses paid by operating partnership; the
Our Affiliates partnership; we are reimbursed for advisor, our affiliate, entitled to reimbursement for
expenses incurred in connection expenses incurred in connection with performance of
with performance of services for services for the operating partnership, plus a $200,000
your partnership plus a $200,000 non-accountable expense reimbursement per annum
non-accountable expense
reimbursement per annum
</TABLE>
8
<PAGE>
The following depicts the structure of your partnership before and after the
restructuring:
BEFORE THE RESTRUCTURING:
-------------------------
PRESIDIO CAPITAL CORP.
(100%)
(Indirect)
General Partner General Partner
--------------- ---------------
Resources High Equity, Presidio AGP Corp.
Inc.
Limited Partners
5%
95%
Your Partnership
----------------
High Equity Partners L.P.-
Series 88
9
<PAGE>
<TABLE>
<CAPTION>
AFTER THE RESTRUCTURING
-----------------------
<S> <C> <C> <C>
Stockholders
------------
Former Unitholders
100%
Limited Partners Advisor
- ---------------- -------
Former General Partners Shelbourne Properties III, (Advisory Shelbourne
and Unitholders who Inc. Agreement) Management LLC
retain OP Units (the "REIT") (affiliate of your general
partners)
100%
General Partner
---------------
Shelbourne Properties III
99%(1) GP, Inc.
1%
Operating Partnership(2)
---------------------
Shelbourne Properties III 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 88.
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<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 ________
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<PAGE>
__, 2000. You may withdraw your Consent Form at any time
before the expiration date by delivering written 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 three-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
12
<PAGE>
from other passive activities to offset your allocable share of the operating
partnership's taxable income. 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 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 three-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 19,567 units in your partnership). Our affiliates own a total
of 97,570 units in your partnership (or approximately 26.2% of the outstanding
units). The 5% general partnership interest owned by us and 67,066 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 86,633 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 91,512 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 $3.57 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 two 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
$149.48 per unit. This amount includes the "fee give-back amount" payable as of
such date ($3.67), 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 25,034 Units at a price of $113.15 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 25,034 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 $3.57 per unit if your partnership is liquidated. That
amount is reduced by 10% for each full year in which a liquidation does not
occur.
16
<PAGE>
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 AND THE REIT'S
CERTIFICATE AND BYLAWS -- THE BOARD OF DIRECTORS." The issuance of
17
<PAGE>
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 adverse changes normally associated with changes in national,
regional and local
18
<PAGE>
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 assurance that it will be successful in raising such
capital in the capital and financial markets. For
19
<PAGE>
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.
20
<PAGE>
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."
22
<PAGE>
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.
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
FORM OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Your partnership is a limited partnership formed under The REIT is a corporation organized under Delaware
Delaware Partnership Law. Your partnership has been General Corporation Law. The REIT intends to qualify
treated as a partnership for Federal income tax purposes, as a real estate investment trust under the Code,
and is not subject to entity-level taxes. thereby generally avoiding Federal taxation of income
distributed to stockholders. Maintaining real estate
investment trust status will require ongoing
satisfaction of various tests and restrictions that do
not apply to your partnership. The REIT may be
subject to entity-level taxes in certain circumstances.
</TABLE>
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.
23
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
General Business
<S> <C>
The business of your partnership is limited to the The REIT will have the authority to engage in any and
ownership of interests in its properties. The properties all business activities permitted a corporation
were intended to be sold over varying periods of time organized under the laws of the State of Delaware
with the resulting liquidation of your partnership. Your which is consistent with qualification as a real
partnership is prohibited from reinvesting its funds in estate investment trust. Specifically, through the
additional properties. operating partnership, the REIT 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).
</TABLE>
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Duration of Existence
<S> <C>
Your partnership has a finite term of existence. Your In accordance with the Delaware General Corporation
partnership agreement provides for a term lasting until Law and the REIT's Certificate, the REIT will have a
December 31, 2017, unless sooner terminated in connection perpetual existence, and continue to operate
with a liquidation following the sale of all the indefinitely.
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.
</TABLE>
Your partnership agreement provides for the dissolution of your partnership
in 2017, 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.
24
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
Voting Rights
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
You are entitled to one vote per unit on matters The Bylaws and Delaware law provide that the
requiring a vote of limited partners. Although you have stockholders of the REIT shall be entitled to vote,
no right to elect management of your partnership on an subject to any voting rights which may be granted to
annual basis or to participate in the management or holders of preferred stock, on all matters submitted
control of its business, the vote of limited partners to a vote of the stockholders. In determining the
holding more than 50% of the outstanding units may, number of shares entitled to vote, each share of
subject to certain exceptions and limitations set forth Common Stock and non-participating voting stock (owned
in the your partnership agreement, approve certain by the operating partnership) is entitled to one vote.
significant actions such as approve or initiate (1)
removal of a general partner and the election of a Generally, matters submitted to the stockholders
successor general partner, (2) election of an additional require the affirmative vote of stockholders holding a
general partner, (3) termination and dissolution of your majority of the number of votes cast either present in
partnership, (4) certain amendments to your partnership, person or by proxy at a duly convened meeting of
(5) sale of substantially all of the assets of your stockholders, except that the removal of directors and
partnership, (6) the pledge or encumbrance of the amendment of certain sections of the Certificate
substantially all of the assets of your partnership, and requires the affirmative vote of stockholders holding
(7) the extension of the term of your partnership. two-thirds of the number of votes entitled to be cast
on such proposals.
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.
</TABLE>
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.
25
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- -----------------------------------------------------------------------------------------------------------------------------------
Fiduciary Duties, Limitation of Liability and Indemnification
<S> <C>
We are accountable to your partnership as fiduciaries and Although it is unclear whether or to what extent there are any
are required to exercise good faith and integrity in all differences in such fiduciary duties, it is possible that the
our dealings in your partnership's affairs. Your fiduciary duties of directors of the REIT to its stockholders
partnership agreement generally provides that neither we could be less than our fiduciary duties to you, which may
nor any of our affiliates performing services on behalf result in decreased potential liability of the directors of the
of your partnership will be liable to your partnership or REIT. The REIT's Certificate limits the liability of the
any of their respective partners for any loss suffered by REIT's directors to the fullest extent permitted from time to
your partnership that arises out of any action or time by Delaware law. The Certificate presently permits the
inaction of us or our affiliates if we in good faith liability of directors to the REIT or its stockholders for
determine that such course of conduct was in the best money damages to be limited, except for liability (1) for any
interests of your partnership, provided that such course transaction from which the director derived an improper
of conduct did not constitute negligence or misconduct of benefit, (2) for any breach of the director's duty of loyalty
us and our affiliates. to the REIT or its stockholders, (3) acts or omissions not in
good faith or which involve intentional misconduct or a knowing
Your partnership agreement generally requires your violation of law, and (4) under Section 174 of the General
partnership to indemnify us to the maximum extent Corporation Law of the State of Delaware.
permitted by law from any liability, loss or damage
incurred by reason of an act performed or omitted to be The REIT's Bylaws require the REIT to indemnify its directors
performed by them, including costs and expenses, provided and officers to the fullest extent permitted from time to time
that (1) the course of conduct was determined to be in by Delaware law.
the best interest of your partnership, and (2) the course
of conduct did not constitute 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.
</TABLE>
The rights of stockholders against management of the REIT in certain
circumstances are more limited than the rights you have against us
26
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
Review of Books and Records
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Under your partnership agreement and applicable law, you Under Delaware General Corporation Law, a stockholder
may be entitled to review and obtain a copy of a current is entitled, upon written demand, to inspect for any
list of the names and addresses of limited partners in proper purposes during usual business hours, the
your partnership as well as other information maintained REIT's stock ledger, a list of the REIT's stockholders
at the principal offices of your partnership. and its other books and records and to make copies or
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.
</TABLE>
The rights of stockholders to obtain an investor list is somewhat more limited
than your corresponding right in your partnership.
<TABLE>
<CAPTION>
Management
<S> <C>
With the exception of certain significant transactions The REIT will be managed by its Board of Directors and
which require your approval (such as a sale of all of executive officers. Management of the day-to-day
your partnership's assets), we have exclusive authority affairs of the REIT will be performed by the Advisor.
and control over the management and operation of your (The Advisory Agreement is described in general under
partnership. You do not have the right to annually elect "THE REIT -- Management -- The Advisory Agreement and
the management of your partnership. However, we may be the Advisor") The Board of Directors will be elected
removed at any time by a vote of a majority of the by the holders of Common Stock and non-participating
outstanding units in your partnership. voting stock.
</TABLE>
Unlike limited partners in your partnership, holders of Common Stock and
non-participating voting stock will vote to elect management of the REIT.
27
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
Distributions; distribution policy
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Your partnership generally distributes available cash on The REIT intends to make quarterly dividend payments
a quarterly basis. Amounts distributed to you to its stockholders. The amount of such dividends
historically have been derived from your share of will be established by the Board of Directors, taking
adjusted cash from operations. We may, under your into account the cash needs of the REIT, the
partnership agreement, create working capital and other requirements of the Code for qualification as a real
reserves that may have the effect of decreasing cash estate investment trust and the amount of
distributions. You also are entitled to receive your distributions necessary to avoid becoming subject to
share of cash from sales or financings upon the sale or, non-deductible excise tax. See "FEDERAL INCOME TAX
in limited circumstances, financing of your partnership's CONSEQUENCES." Under the Code, the REIT is required
properties. However, your partnership has not to date to distribute ordinary income dividends of at least
sold or financed any of its real estate investments. 95% (90% after taxable year 2000) of its taxable
income. Unlike your partnership, the REIT is not
required to distribute, and 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".
</TABLE>
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.
28
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
Management Fees to Affiliates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Your partnership agreement provides for the payment of Pursuant to the Advisory Agreement, the Advisor, which
the following fees to us and our affiliates in is one of our affiliates, will be paid (1) an asset
consideration of our and their performance of certain management fee equal to 1.25% of gross assets of your
services on behalf of your partnership. partnership, (2) $200,000 for non-accountable
expenses, (3) competitive property management fees and
Management and Administrative Fees. In consideration of (4) reimbursements for accountable expenses.
providing management 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.
</TABLE>
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.
29
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL AND PRO FORMA PAYMENTS TO THE GENERAL PARTNERS
--------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------------------------
------------------------------------- ------------------------------------- ----------------------
1996 1997 1998
------------------------------------- ------------------------------------- ----------------------
Net Net
Historical REIT Increase Historical REIT Increase Historical REIT
Partnership Pro Forma (Decrease) Partnership Pro Forma (Decrease) Partnership Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Management Fee $880,404 $880,404 $0 $880,404 $880,404 $0 $880,404 $880,404
Property Management Fees (2) 246,908 246,908 0 305,203 305,203 0 270,074 270,074
General Partners' Distribution 136,966 136,966 0 189,503 189,603 0 199,584 199,584
Reimb. of Exp.-Non-Accountable 200,000 200,000 0 200,000 200,000 0 200,000 200,000
Reimb. of Part. Exp.
to Affiliates 81,036 81,036 0 42,997 42,997 0 102,019 102,019
---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Total $1,545,314 $1,545,314 $0 $1,618,207 $1,618,207 $0 $1,652,081 $1,652,081
========== ========== ======== ========== ========== ======== ========== ==========
<CAPTION>
------------ ---------------------------------
Year Ended
December 31, Nine Months Ended
------------ ---------------------------------
------------ ---------------------------------
1998 September 30, 1999
------------ ---------------------------------
Net Net
Increase Historical REIT Increase
(Decrease) Partnership Pro Forma (Decrease)
<S> <C> <C> <C> <C>
Asset Management Fee $0 $579,807 $539,558 (40,249)(1)
Property Management Fees (2) 0 152,933 152,933 0
General Partners' Distribution 0 99,792 99,792 0
Reimb. of Exp.-Non-Accountable 0 150,000 150,000 0
Reimb. of Part. Exp. to Affiliates 0 76,500 76,500 0
--------- ----------- ----------- ----------
Total $0 $1,059,032 $1,018,783 (40,249)
========= =========== =========== ==========
</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 $246,908, $350,203, $270,074 and $152,993 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 $120,387, $108,247, $129,580 and $66,675,
respectively, was paid to unaffiliated management companies.
30
<PAGE>
<TABLE>
<CAPTION>
YOUR PARTNERSHIP THE REIT
- ------------------------------------------------------------------------------------------------------------------------------
Taxation of Taxable Limited Partners
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Your partnership, which is treated as a partnership for Dividends received by taxable stockholders generally
Federal income tax purposes, is not subject to tax, but will be taxable as ordinary dividend income (except
you report your allocable share of partnership income and for distributions properly designated as capital gain
loss on your tax return. Partnership distributions are distributions). Dividends and capital gains from
not taxable to you except to the extent such Common Stock cannot be offset by passive activity
distributions exceed your adjusted tax basis in your losses (including any unused passive activity losses
partnership. Your partnership specially allocates from your partnership) in the case of stockholders who
depreciation deductions to taxable unitholders. Losses are subject to the passive activity loss limitation.
from your partnership constitute passive activity losses Unused passive activity losses from your partnership
which, under the passive activity loss limitation rules, generally could be deducted when you sell all of your
cannot be deducted currently except to the extent of your Common Stock. Any tax losses of the REIT will not
passive activity income (if any) from other investments. pass through to stockholders, but will reduce the
Income from your partnership generally constitutes REIT's future taxable income (subject to applicable
passive activity income which, under the passive activity limitations). Each January, stockholders will be
loss limitation (but subject to other applicable mailed the familiar Form 1099-DIV for corporate
limitations), can be offset by passive activity losses dividends.
from other investments. Generally, by March 15 of each
year, you receive annual Schedule K-1 forms with respect As a stockholder, you generally will not be required
to information for inclusion on your Federal income tax to file state income tax returns or pay state income
returns. taxes outside your state of residence with respect to
the REIT's operations. The REIT must pay state income
You generally must file state income tax returns and may taxes in certain states where it is qualified to do
incur state income tax in various states in which your business.
partnership owns property.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Taxation of Tax-Exempt Limited Partners
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Leveraged acquisitions by your partnership would give The IRS has ruled that distributions by a real estate
rise to UBTI under the Code. investment trust to a 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
</TABLE>
<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 three 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 III GP, Inc. ("Shelbourne Properties III
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 three 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 III 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
32
<PAGE>
OP Unit that is redeemed by the operating partnership, three shares of
non-participating voting stock will be redeemed by the 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."
33
<PAGE>
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.
Registration, Listing and Filing Fees.............. $ 28,761
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....................................... 16,239
--------
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
34
<PAGE>
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.
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 1987 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 September
1987 and September 1989 resulting in the sale of 371,766 partnership units for
aggregate gross proceeds to your partnership of $92,941,500. 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 six
properties currently owned by your partnership. A complete description of the
properties currently owned by your partnership is set forth under "THE REIT --
THE PROPERTIES."
Your partnership has two general partners. The Managing
General Partner is Resources High Equity, Inc. ("RHE"), a Delaware corporation,
and the Associate General Partner is Presidio AGP Corp.
As the Managing 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, and the
administration and day to day operation of your partnership. Presidio AGP Corp.,
the Associate General Partner of your partnership, does not have any power or
responsibility with respect to your partnership and does not devote any material
amount of its business time and attention to the affairs of your partnership. We
are accountable to your partnership as fiduciaries and accordingly must exercise
good faith and integrity in handling its affairs. 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."
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
36
<PAGE>
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 $4,331,074 (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
------------------------ ------------------ ------------------- ----------------------
Total Per Unit Total Per Total Per Total Per
Unit Unit Unit
- ----------- ------------- ---------- ----------- ------ ----------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Limited 88,610,426 238.35 (2,648,763) (7.13) 23,884,904 64.25 (46,457,388) (124.96)
Partners
- ----------- ------------- ---------- ----------- ------ ----------- ------- ------------ ---------
General 4,332,074 -- (139,408) -- 1,257,100 (2,113,469)
Partners
- ----------- ------------- ---------- ----------- ------ ----------- ------- ------------ ---------
<CAPTION>
Equity Balances as
Losses Allocated of 9/30/99
--------------------- ---------------------
Total Per Total Per
Unit Unit
- ----------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Limited (13,572,924) (36.51) 49,816,255 134.00
Partners
- ----------- ------------ -------- ----------- ---------
General (714,364) 2,621,933
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, A California Limited Partnership and High Equity Partners L.P. -
Series 86 (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
37
<PAGE>
expert appointed by the Court as well as the Court determined that the
Settlement was fair, reasonable and adequate and in the best interests of the
settlement class and the HEP Partnerships.
Pursuant to the Settlement, we agreed to take 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 $719,411 or $160,993 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 IV, LLC, made a tender offer to limited partners of your partnership to
acquire 25,034 units of your partnership at a price of $113.15 per unit. The
offer closed in January 2000 and Millennium acquired all 25,034 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 11,092 units in your partnership have traded in
the secondary market between a high of $137 per unit and a low of $93.45 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 $3.57 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 two 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 $149.48 per unit. This amount
includes the "fee give-back amount" payable as of such date ($3.67), 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
39
<PAGE>
currently structured, your partnership is not permitted to raise additional
capital or acquire additional properties. Consequently, you 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>
<TABLE>
<CAPTION>
SECONDARY MARKET TRADING VOLUME AND UNIT PRICES
(ALL PRICE INFORMATION ON A PER UNIT BASIS)
- -------------------------- ----------------------- ---------------- --------------------- --------------------- --------------------
Date Total Units Traded Number of Weighted Average High Low
Trades
- -------------------------- ----------------------- ---------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
2/1/96-3/31/96 1,884 23 $73.03 $77.81 $67.50
4/1/96-5/30/96 2,123 18 $72.43 $76.00 $70.00
6/1/96-7/31/96 14,271 21 $81.35 $82.75 $65.00
8/1/96-9/30/96 1,041 24 $74.10 $80.42 $70.00
10/1/96-11/30/96 1,179 25 $73.79 $77.00 $71.75
12/1/96-1/31/97 381 5 $80.64 $86.00 $77.50
2/1/97-3/31/97 1,975 40 $88.57 $93.00 $75.00
4/1/97-5/30/97 2,330 22 $90.28 $96.58 $83.40
6/1/97-7/31/97 2,369 40 $88.80 $94.13 $84.00
8/1/97-9/30/97 1,989 28 $89.87 $97.00 $84.00
10/1/97-11/30/97 671 9 $93.89 $109.50 $84.00
12/1/97-1/31/98 2,374 44 $99.18 $111.33 $88.00
2/1/98-3/31/98 2,216 47 $110.30 $120.00 $110.00
4/1/98-5/31/98 1,547 35 $111.89 $120.00 $100.00
6/1/98-7/31/98 1,626 28 $115.68 $140.52 $100.00
8/1/98-9/30/98 2,402 41 $120.17 $131.11 $110.00
10/1/98-11/30/98 6,158 19 $127.02 $132.00 $122.00
12/1/98-1/31/99 1,988 27 $124.31 $130.88 $105.00
2/1/99-3/31/99 2,412 42 $117.74 $131.00 $110.00
4/1/99-5/31/99 1,212 24 $119.24 $137.00 $102.50
6/1/99-7/31/99 2,192 46 $116.41 $132.05 $102.50
8/1/99-9/30/99 1,960 30 $117.11 $125.00 $93.45
10/1/99-11/30/99 1,328 24 $112.51 $117.88 $100.00
</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
568 Broadway $ 7,088,000 (1)
Livonia Plaza 8,750,000
Melrose Crossing - Phase II 2,100,000
Sunrise Marketplace 11,100,000
SuperValu Stores 7,875,000
TMR Warehouses 16,820,080 (2)
----------
TOTAL $53,733,080
- ---------------
(1) Your partnership has a 22.15% interest in this property and the amount
listed in the table represents 22.15% of the appraised value.
(2) Your partnership has a 79.34% interest in this property and the amount
listed in the table represents 79.34% 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 $1,612,000
(approximately 3% of the total appraised value). We then added the $4,941,000 of
net current assets of your partnership at September 30, 1999 to arrive at the
estimated liquidation value of your partnership's assets of $57,062,000. Limited
partners in your partnership would be entitled to 95% of the liquidation
proceeds of your partnership's assets plus a $3.67 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 $149.48. 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 25,034 units in your partnership
for a price of $113.15 per unit.
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
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<PAGE>
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> <C>
NorthStar Capital Investment Corp. (1) 97,570 (2) 26.2%
</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) 67,066 units held by Millennium Funding IV Corp., a
wholly-owned subsidiary of Presidio, (b) 5,470 units held by Millennium
Funding I LLC, a wholly-owned subsidiary of PCIC and (c) 25,034 units
held by Millennium Funding IV 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 Forma
Historical High Equity Partners L.P. - Series 88 For the Year Ended
For the Year Ended December 31, December 31,
---------------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Total Revenues $7,235,440 $7,657,237 $7,986,083 $9,524,410 $8,210,920 $8,210,920
Total Costs and Expenses $4,796,419 $14,917,736 $5,833,911 $5,815,723 $5,215,289 $5,215,289
Net Income (Loss) $2,439,021 ($7,260,499) $2,152,172 $3,708,687 $2,995,631 $2,995,631
Balance Sheet Data
Cash and Cash Equiv. $3,762,390 $3,898,548 $5,353,731 $6,540,252 $6,520,698
Total Assets $66,210,947 $56,305,498 $56,381,690 $56,296,853 $55,087,481
Total Liabilities $1,588,021 $1,682,399 $2,345,747 $2,344,238 $2,130,831
L.P. Equity $61,391,756 $51,891,920 $51,334,121 $51,254,962 $50,308,799
G.P. Equity (Deficit) $3,231,170 $2,731,179 $2,701,822 $2,697,653 $2,647,851
Total Common Stockholders Equity
Other Financial Data
Net Increase (Decrease) $196,599 $136,158 $1,455,183 $1,186,521 ($19,554) ($369,554)
in Cash and Cash Equiv.
Net Cash Provided By $4,029,752 $3,828,533 $4,485,245 $4,780,276 $4,436,169 $4,086,169
Operating Activities
Distributions $2,739,328 $2,739,328 $2,739,328 $3,478,948 $3,991,596 $3,991,596
Per Unit Data
Net Income (loss)/units $6.23 ($18.55) $5.50 $9.48 $7.65
Earnings Per Share $2.55
Book Value $165.14 $139.58 $138.08 $137.87 $135.32
Book Value - Restructuring
Cash distributions as a return of
capital $7.00 $7.00 $7.00 $9.69 $10.20 $3.40
Cash distributions from sales
and/or refinancing of properties
Ratio of earnings to total assets 3.68% -12.89% 3.82% 6.59% 5.44%
<CAPTION>
The REIT Pro
Historical Partnership Forma For the
For the Nine Months Nine Months Ended
Ended Sept. 30, September 30,
-------------------------- ---------------------
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
Income Statement Data
Total Revenues $6,202,825 $5,815,415 $5,815,415
Total Costs and Expenses $4,014,638 $4,338,087 $4,297,838
Net Income (Loss) $2,188,187 $1,477,328 $1,517,577
Balance Sheet Data
Cash and Cash Equiv. $6,578,157 $5,765,070 $5,415,070
Total Assets $55,353,946 $53,639,068 $53,329,317
Total Liabilities $2,206,841 $1,200,888 $1,200,888
L.P. Equity $50,489,731 $49,816,255
G.P. Equity (Deficit) $2,657,374 $2,621,925
Total Common Stockholders Equity $52,128,429
Other Financial Data
Net Increase (Decrease) $37,905 ($755,628) ($1,105,628)
in Cash and Cash Equiv.
Net Cash Provided By $3,362,306 $2,283,473 $1,933,473
Operating Activities
Distributions $2,993,697 $2,993,697 $2,993,697
Per Unit Data
Net Income (loss)/units $5.59 $3.78
Earnings Per Share $1.29
Book Value $135.81 $134.00
Book Value - Restructuring $44.40
Cash distributions as a return of
capital $7.65 $5.10 $1.70
Cash distributions from sales
and/or refinancing of properties
Ratio of earnings to total assets 3.95% 2.75% 2.85%
</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 and distributions were
funded partially from cash flow and partially from working capital reserves. As
of December 31, 1998 and September 30, 1999, total remaining working capital
reserves amounted to approximately $1,530,000 and $1,475,000, 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 nine months ended September 30, 1999, cash and cash
equivalents decreased $755,628 as a result of capital expenditures and
distributions to partners in excess of cash provided by operations. During the
year ended December 31, 1998, cash and cash equivalents decreased $19,554 as a
result of capital expenditures and distributions to partners in excess of cash
flows from operations. 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 $4,436,169 and $2,283,473
for the year ended December 31, 1998 and the nine months ended September 30,
1999, respectively. Your partnership used $464,127 and $45,404 for capital
expenditures related to capital and tenant improvements to the properties and
$3,991,596 and $2,993,697 for distributions to partners during 1998 and the nine
months ended September 30, 1999, respectively.
45
<PAGE>
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:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999 1998 1997 1996
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Sunrise................................ $ -- $ 140,388 $ 7,068 $ 308,903
568 Broadway........................... 22,941 166,742 48,217 132,801
Livonia Plaza.......................... -- 149,894 111,358 7,818
Melrose - Phase II..................... -- 90,633 93,728 2,100
TMR Warehouses......................... 15,895 23,207 13,902 15,174
SuperValu.............................. 0 0 0 0
----------- --------------- --------------- ----------------
Totals............................ $38,836 $ 570,864 $ 274,273 $ 466,796
=========== =============== =============== ================
</TABLE>
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. Vacancies at the TMR Warehouses property
and Melrose II are currently being marketed to a variety of potential tenants.
Your partnership has funded operating expenses at these locations from cash
reserves. If and when replacement tenants are 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
46
<PAGE>
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.
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
Sunrise $8,500,000
568 Broadway 6,157,700
Livonia Plaza 2,100,000
Melrose Plaza II 2,881,000
$19,638,700
-----------
Results of Operations
Nine months ended September 30, 1999 vs. nine months ended September 30, 1998
Your partnership experienced a decrease in net income for the
nine months ended September 30, 1999 as compared to the 1998 period, primarily
due to lower rental revenues and higher costs and expenses.
Rental revenue decreased during the nine months ended
September 30, 1999, due primarily to the departure of significant tenants at
Tri-Columbus and Melrose II during 1998. These decreases were partially offset
by an increase in rental revenue during 1999 at 568 Broadway due to higher
overall rental rates at the property.
47
<PAGE>
Costs and expenses increased during the nine months ended
September 30, 1999 as compared to the 1998 period due to higher operating and
administrative expenses, partially offset by lower partnership management fees.
The increase in operating expenses during the nine months ended September 30,
1999 was primarily due to an increase in repair and maintenance costs at Sunrise
due to the receipt of insurance proceeds in February 1998, offsetting previously
incurred costs. This increase was partially offset by a reduction in real estate
taxes at Melrose II during the nine months ended September 30, 1999. The
partnership management fee decreased due to the amendment to your partnership
agreement approved in August 1999 reducing the fee for 1999. Administrative
expenses increased for the nine months ended September 30, 1999 due to higher
legal fees pursuant to the Settlement. The decrease in property management fees
during the 1999 period were due to lower revenues, as previously discussed.
Interest income decreased during the nine months ended
September 30, 1999 as compared to the 1998 period due to lower invested 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 decrease in net income for the
year ended December 31, 1998 compared to 1997 primarily due to a decrease in
rental revenues during 1998, partially offset by a decrease in costs and
expenses.
Rental revenue decreased during the year ended December 31,
1998 as compared to the prior year, primarily due the departure of a significant
tenant at Tri-Columbus in July 1998 and to the approximately $1.5 million
received in April, 1997 pursuant to the bankruptcy settlement of Handy Andy, the
former sole tenant at Melrose II.
Costs and expenses decreased for the year ended December 31,
1998 compared to 1997 due to lower operating expenses, administrative expenses
and property management fees, partially offset by higher depreciation and
amortization. Operating expenses decreased during the year ended December 31,
1998 due primarily to lower repair and maintenance costs at Sunrise due to the
receipt of insurance proceeds in 1998 (offsetting previously incurred costs) and
a decrease in insurance expenses at all of the properties due to the payment of
lower premiums while coverage remained the same. Administrative expenses for the
year ended December 31, 1998 decreased compared to 1997 due to lower legal and
accounting fees related to the ongoing litigation and possible reorganization of
your partnership. Property management fees decreased during the year ended
December 31, 1998 due to the decrease in revenues, as previously discussed.
Depreciation and amortization expense increased in the current year due to
higher depreciation recorded in 1998 on certain capitalized tenant improvements.
Interest income and other income (transfer fees received from
limited partner ownership transfers) remained relatively consistent during the
year ended December 31, 1998 as compared to 1997.
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 an increase in
rental revenues and interest income during 1997.
Rental revenue increased during the year ended December 31,
1997 as compared to the prior year, primarily due to the approximately $1.5
million received in April, 1997 pursuant to the bankruptcy settlement of Handy
Andy, the sole tenant at Melrose II. During 1997, increases in revenue at 568
Broadway
48
<PAGE>
and Livonia due to higher rental rates were offset by lower revenues at
Tri-Columbus and Sunrise resulting from tenant departures and lower cost
reimbursements from tenants, respectively.
Costs and expenses decreased slightly for the year ended
December 31, 1997 compared to 1996. 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. Operating expenses
increased during the year ended December 31, 1997 due primarily to increases in
real estate taxes and repair and maintenance 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. Higher repair and
maintenance costs at Sunrise were due to insurance proceeds that were received
in 1996, offsetting previously incurred costs. Property management fees
increased during the year ended December 31, 1997 due to the increase in
revenues, as previously discussed.
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 decreased during the year ended December 31, 1997 compared to 1996
due to fewer ownership transfers.
Inflation is not expected to have a material impact on the
REIT'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.
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.
49
<PAGE>
If you abstain or you 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 26.2% 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 7,478 units (or approximately 2% 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. 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.
50
<PAGE>
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 371,766 Units outstanding held by
6,521 limited partners, including 97,570 units (or 26.2% 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 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 three-for-one basis) or cash in an
amount equal to the fair
51
<PAGE>
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.
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.
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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 three 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 III 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. 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.
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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
-------------- ----- ------------- --------------------
<S> <C> <C> <C> <C>
DESCRIPTION
-----------
Livonia Plaza, Shopping Center,
Livonia, MI $ 8,341,129 $ 8,750,000 6/89 133,198
568 Broadway, Office Building,
New York, New York (22.15% owned) 3,377,978 7,088,000 2/89 299,242
Sunrise Marketplace, Shopping
Center, Clark County, NV 7,793,561 11,100,000 2/89 176,756
SuperValu Stores, Retail,
Atlanta, GA, Indianapolis, IN,
Toledo, OH, Edina, MN 7,401,112 7,875,000 3/89 257,700
TMR Warehouses, Industrial
Buildings, Hillard, Grove City &
Delaware, Ohio (79.34% owned) 17,222,338 16,820,080 9/88 1,010,500
Melrose Crossing - Phase II
Melrose Park, Illinois 2,112,921 2,100,000 2/89 117,028
----------- ----------- ---------
Total $46,249,039 $53,733,080 2,052,880
</TABLE>
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
$5,765,070, as of September 30, 1999. The operating partnership will also
continue to be subject to the liabilities of your partnership. These
liabilities, totaling approximately $1,220,888 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.
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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 III 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 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
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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 III GP.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
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
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
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
</TABLE>
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 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.
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<PAGE>
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.
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
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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 29.9% interest in your partnership (we own a 5% general
partnership interest and our affiliates own 97,570 of the 371,766 outstanding
units). Accordingly, we, together with our affiliates, will be entitled to 29.9%
of the aggregate amount distributed by the operating partnership. We, together
with our affiliates, will also control 29.9% 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 86,663 OP Units (representing approximately 22.1% 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 III L.P.
ORGANIZATION; TERM
The operating partnership was organized under the laws of the
State of Delaware as of February 24, 1987. As amended pursuant to the
restructuring, the operating partnership's partnership agreement will provide
for perpetual existence.
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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 three 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
III 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.
Removal of the General Partner
The Partnership Agreement provides that the limited partners
may not remove Shelbourne Properties III GP as general partner of the operating
partnership.
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Amendments of the Partnership Agreement
Amendments to the Partnership Agreement may be proposed only
by Shelbourne Properties III GP. Generally, the Partnership Agreement may be
amended with the approval of Shelbourne Properties III 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 III 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 III GP as general partner or surrender any right or power granted to
Shelbourne Properties III 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 III 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 III 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 III 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 III
GP deems appropriate, including by reference to the market price of Common
Stock. If additional OP Units are issued to the REIT, then (a) 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 III GP may cause the operating partnership to
issue
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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 III 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 III GP carried out its duties in good
faith. In addition, Shelbourne Properties III 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 III 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 III 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 III GP, the directors and officers of Shelbourne
Properties III GP, and such other persons as Shelbourne Properties III 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 III 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 compliance with the securities laws and the
REIT's ownership limits), you will have the right, at the times and with the
requisite 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) three 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 three 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 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.
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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 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 III 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
III 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 III, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Capitalization Pro Forma REIT
Partnership of the REIT Adjustments Pro Forma
------------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
REAL ESTATE $46,249,039 $46,249,039
CASH AND CASH EQUIVALENTS 5,765,070 ($350,000) (a) 5,415,070
OTHER ASSETS 1,248,148 1,248,148
RECEIVABLES 376,811 40,249 (b) 417,060
----------- ----------- ----------- -----------
$53,639,068 ($309,751) $53,329,317
=========== =========== =========== ===========
LIABILITIES AND PARTNERS' EQUITY:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $991,272 $991,272
DUE TO AFFILIATES 209,616 209,616
----------- ----------- ----------- -----------
$1,200,888 $1,200,888
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
LIMITED PARTNERS' EQUITY (371,766 UNITS 49,816,255 (49,816,255) (c)
ISSUED AND OUTSTANDING)
GENERAL PARTNERS' (DEFICIT) EQUITY 2,621,925 (2,621,925) (c)
COMMON STOCK, PAR VALUE $.01 (1,173,948 11,740 (d) 11,740
SHARES ISSUED AND OUTSTANDING)
PAID-IN CAPITAL 52,426,440 (d) ($309,751) (a)(b) $52,116,689
----------- ----------- ----------- -----------
$52,438,180 ($309,751) $52,128,429
----------- ----------- ----------- -----------
$53,639,068 ($309,751) $53,319,317
=========== =========== =========== ===========
</TABLE>
65
<PAGE>
SHELBOURNE PROPERTIES III, 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 $5,526,702 $5,526,702
---------- ---------- ---------- ----------
COSTS AND EXPENSES
OPERATING EXPENSES 1,355,720 1,355,720
DEPRECIATION AND AMORTIZATION 1,172,250 1,172,250
PARTNERSHIP MANAGEMENT FEE 579,807 (40,249) (b) 539,558
ADMINISTRATIVE EXPENSES 1,077,377 1,077,377
PROPERTY MANAGEMENT FEE 152,933 152,933
---------- ---------- ---------- ----------
4,338,087 (40,249) 4,297,838
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST AND OTHER INCOME: $1,188,615 $40,249 $1,228,864
INTEREST INCOME 205,113 205,113
OTHER INCOME 83,600 83,600
---------- ---------- ---------- ----------
NET INCOME $1,477,328 $40,249 $1,517,577
=========== ========== ========== ==========
NET INCOME PER UNIT (371,766 UNITS
OUTSTANDING) $3.78 ($3.78)
=========== ========== ========== ==========
NET INCOME PER SHARE (1,173,998) SHARES
OUTSTANDING) $1.26 $0.03 $1.29
=========== ========== ========== ==========
</TABLE>
66
<PAGE>
SHELBOURNE PROPERTIES III, 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 $1,477,328 $40,249 $1,517,577
Adjustment to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 1,172,250 1,172,250
Straight-line adjustment for stepped lease rentals 30,849 30,849
Changes in asset and liabilities
Receivables (234,755) (40,249) (275,004)
Accounts payable and accrued expenses 201,362 (201,362)
Due to affiliates (133,406) (133,406)
Other assets (230,155) (230,155)
---------- --------- ----------
Net cash provided by operating activities 2,283,473 2,283,473
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements to real estate: (45,404) (45,404)
---------- --------- ----------
Net cash used in investing activities (45,404) (45,404)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to partners (2,993,697) (2,993,697)
Payment of transaction costs -- (350,000) (a) (350,000)
---------- --------- ----------
Net cash used in financing activities (2,993,697) (350,000) (3,343,697)
---------- --------- ----------
Decrease in cash and cash equivalents (755,628) (350,000) (1,105,628)
Cash and cash equivalents, beginning of period 6,520,698 6,520,698
---------- --------- ----------
Cash and cash equivalents, end of period $5,765,070 ($350,000) $5,415,070
---------- --------- ----------
</TABLE>
67
<PAGE>
SHELBOURNE PROPERTIES III, 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 1,173,998
=========
Pro forma net income $1,517,577
==========
Pro forma net income per common and common equivalent shares $1.29
====
</TABLE>
68
<PAGE>
SHELBOURNE PROPERTIES III, 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 $7,882,248 $7,882,248
---------- ---------- ---------- ----------
COST AND EXPENSES
OPERATING EXPENSES 1,420,916 1,420,916
DEPRECIATION AND AMORTIZATION 1,685,884 1,685,884
PARTNERSHIP MANAGEMENT FEE 880,404 880,404
ADMINISTRATIVE EXPENSES 985,011 985,011
PROPERTY MANAGEMENT FEE 270,074 270,074
---------- ---------- ---------- ----------
5,215,289 5,215,289
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INTEREST AND OTHER INCOME: $2,666,959 $2,666,959
INTEREST INCOME 296,082 296,082
OTHER INCOME 32,590 32,590
---------- ---------- ---------- ----------
NET INCOME $2,995,631 $2,995,631
========== ========== ========== ==========
NET INCOME PER UNIT (371,766 UNITS OUTSTANDING) $7.65 ($7.65)
========== ========== ========== ==========
NET INCOME PER SHARE (1,173,998 SHARES) $2.55 $2.55
OUTSTANDING)
========== ========== ========== ==========
</TABLE>
69
<PAGE>
SHELBOURNE PROPERTIES III, 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 $2,995,631 $2,995,631
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,685,884 1,685,884
Straight-line adjustment for stepped lease 41,131 41,131
rentals
Changes in asset and liabilities
Receivables 51,985 51,985
Accounts payable and accrued expenses 28,351 28,351
Due to affiliates (241,758) (241,758)
Other assets (125,055) (125,055)
---------- -------- ----------
Net cash provided by operating activities 4,436,169 4,436,169
---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Improvements to real estate (464,127) (464,127)
---------- -------- ----------
Net cash used in investing activities (464,127) (464,127)
---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to partners (3,991,596) (3,991,596)
Payment of transaction costs (350,000) (a) (350,000)
---------- -------- ----------
Net cash used in financing activities (3,991,596) (350,000) (4,341,596)
---------- -------- ----------
Decrease in cash and cash equivalents (19,554) (350,000) (369,554)
Cash and cash equivalents, beginning of period 6,540,252 6,540,252
---------- -------- ----------
Cash and cash equivalents, end of period $6,520,698 ($350,000) $6,170,698
========== ========= ==========
</TABLE>
70
<PAGE>
SHELBOURNE PROPERTIES III, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the year ended
December 31, 1998
---------------------------
<S> <C>
Average number of pro forma common and common
equivalent shares outstanding during the period 1,173,998
==========
Pro forma net income $2,995,631
==========
Pro forma net income per common and common
equivalent shares $2.55
==========
</TABLE>
71
<PAGE>
SHELBOURNE PROPERTIES III, 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 three, 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.
74
<PAGE>
See "DESCRIPTION OF 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) of the Code, (4)
the REIT's failing to be a "domestically controlled real estate investment
trust" within the meaning of Section 897(h)(4)(B) of the Code, 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
75
<PAGE>
the Code as modified by 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
76
<PAGE>
trusts, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of precluding
acquisition of control of 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.
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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.
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.
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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 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
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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 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.
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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 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,
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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 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."
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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.
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.
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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.
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
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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 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
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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.
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 III
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
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"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
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.
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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 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
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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 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,
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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 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
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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 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
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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 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-
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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.
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
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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, 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."
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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 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
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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 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.
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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 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
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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
(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 88
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 88
CONSENT SOLICITED BY RESOURCES CAPITAL CORP.
CONSENT EXPIRATION DATE: ________ ___, 2000
The undersigned, a holder of units (the "Units") of limited partnership interest
in High Equity Partners L.P. - Series 88, 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 88 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 III, 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 III L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF Shelbourne Properties III L.P., dated as of ____________ __,
2000, is entered into by and among Shelbourne Properties III GP, Inc. (the
"General Partner"), a Delaware corporation, as the general partner of the
Partnership, Shelbourne Properties III, 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 February 24, 1987 under
the name High Equity Partners L.P. - Series 88, and, on February 24, 1987, the
Partnership adopted an Agreement of Limited Partnership;
WHEREAS, as of September 15, 1987, the Agreement of Limited
Partnership was amended and restated pursuant to an Amended and Restated
Agreement of Limited Partnership, dated as of September 15, 1987 (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 September 15, 1987;
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 88" to "Shelbourne Properties III
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.
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:
<PAGE>
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 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
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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 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.
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"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 3.0, provided that in the event that
the Company (i) declares or pays a dividend on its outstanding REIT Shares in
REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purpose that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event (provided, however, if a
Notice of Redemption is given prior to such a record date and the Specified
Redemption Date is after such a record date, then the adjustment to the
Conversion Factor shall, with respect to such redeeming Partner, be retroactive
to the date of such Notice of Redemption). It is intended that adjustments to
the Conversion Factor are to be made in order to avoid unintended dilution or
anti-dilution as a result of transactions in which REIT Shares are issued,
redeemed or exchanged without a corresponding issuance, redemption or exchange
of OP Units. If, prior to a Specified Redemption Date, Rights (other than Rights
issued pursuant to an employee benefit plan or other compensation arrangement)
were issued and have expired, and such Rights were issued with an exercise price
that, together with the purchase price for such Rights, was below fair market
value in relation to the security or other property to be acquired upon the
exercise of such Rights, and such Rights were issued to all holders of
outstanding REIT shares or the General Partner cannot in good faith represent
that the issuance of such Rights benefited the Limited Partners, then the
Conversion Factor applicable upon a Notice of Redemption shall be equitably
adjusted in a manner consistent with antidilution
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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 III 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 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
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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 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.
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"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.
"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
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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.
"Proxy/Prospectus" has the meaning set forth in the third
WHEREAS clause hereof.
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"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
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any adjustment to be made pursuant to Exhibit B hereof) as of such date over
(ii) the fair market value of such property (as determined under Exhibit B
hereof) as of such date.
"Value" means, with respect to a REIT Share, the average of
the daily market price for the ten (10) consecutive trading days immediately
preceding the Specified Redemption Date. The market price for each such trading
day shall be: (i) if the REIT Shares are listed or admitted to trading on any
securities exchange or the Nasdaq National Market System, the closing price on
such day, or if no such sale takes place on such day, the average of the closing
bid and asked prices on such day; (ii) if the REIT Shares are not listed or
admitted to trading on any securities exchange or the Nasdaq National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner; or
(iii) if the REIT Shares are not listed or admitted to trading on any securities
exchange or the Nasdaq National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than ten (10) days prior to the date
in question) for which prices have been so reported; provided that if there are
no bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the REIT Shares shall be determined by the General
Partner acting in good faith on 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 III 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
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of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall notify the Limited Partners of such change in the next
regular communication to the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be 5 Cambridge Center, 9th Floor, Cambridge, Massachusetts
02142 or such other place as the General Partner may from time to time designate
by notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on February 24, 1987,
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,
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in the sole and absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given by
the Partners hereunder or is consistent with the terms of this
agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent
of this Agreement.
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
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rights contained in such New Securities, provided that if the proceeds received
by the Company are less than the gross proceeds of such issuance as a result of
any underwriter's discount or other expenses paid or incurred in connection with
such issuance, then the Company shall be deemed to have made a Capital
Contribution to the Partnership in the amount equal to the sum of the net
proceeds of such issuance plus the amount of such underwriter's discount and
other expenses paid by the Company (which discount and expense shall be treated
as an expense for the benefit of the Partnership for purposes of Section 7.4).
Without limiting the foregoing, the Company is expressly authorized to issue New
Securities for no tangible value or for less than fair market value, and the
General Partner is expressly authorized to cause the Partnership to issue to the
Company corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the interests of the Company
and the Partnership (for example, and not by way of limitation, the issuance of
REIT Shares and corresponding 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
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General Partner deems appropriate or desirable in its sole discretion. All
distributions shall be made to Partners who are Partners on the Partnership
Record Date in accordance with their respective Percentage Interests on such
Partnership Record Date; provided that in no event may a Partner receive a
distribution with respect to an OP Unit if such Partner is entitled to receive a
distribution with respect to a REIT Share for which such OP Unit has been
exchanged and such distribution shall be made to the Company. 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
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the extent that Net Losses previously allocated to the General Partner pursuant
to the last sentence of Section 6.1.B exceed Net Income previously allocated to
the General Partner pursuant to this clause (i) of Section 6.1.A; 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;
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(vii) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(viii) the holding, managing, investing and reinvesting of
cash and other assets of the Partnership and, in connection therewith, the
opening, maintaining and closing of bank and brokerage accounts and the drawing
of checks or other orders for the payment of moneys;
(ix) the collection and receipt of revenues and income of the
Partnership;
(x) the selection and dismissal of employees of the
Partnership (including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer,) and agents, outside
attorneys, accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring;
(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;
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(xvii) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any Person in which the
Partnership does not have any interest pursuant to contractual or other
arrangements with such Person;
(xviii) the making, executing and delivering of any and all
deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or other legal instruments or agreements in writing necessary
or appropriate in the judgment of the General Partner for the accomplishment of
any of the powers of the General Partner under this Agreement;
(xix) the distribution of cash to acquire OP Units held by a
Limited Partner in connection with a Limited Partner's exercise of its
Redemption Right under Section 8.7 hereof;
(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
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hereunder and (iii) such other insurance as the General Partner, in its sole and
absolute discretion, determines to be necessary.
D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
(both in purpose and amount) from time to time, including upon liquidation of
the Partnership pursuant to Section 13.2 hereof.
E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken (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.
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Section 7.4 Reimbursement of the General Partner and the
Company
A. No Compensation. Except as provided in this Section 7.4
and elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
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.
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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 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 ther 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
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in respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. Conflict Avoidance. The General Partner is expressly
authorized to enter into, in the name and on behalf of the Partnership, a right
of first opportunity arrangement and other conflict avoidance agreements with
various Affiliates of the Partnership and the General Partner, on such terms as
the General Partner, in its sole and absolute discretion, believes are
advisable.
D. Transfers of Assets. The Partnership may transfer assets
to joint ventures, other partnerships, corporations or other business entities
in which it is or thereby becomes a participant upon such terms and subject to
such conditions consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. General. To the fullest extent permitted by Delaware law,
the Partnership shall indemnify each Indemnitee from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorneys fees and other legal fees and expenses),
judgments, fines, settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the operations of the Partnership 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,
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administrative or investigative made or threatened against an Indemnitee, in the
case of any director or officer who is an Indemnitee upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in Section 7.7.A has been met and (ii) a written
undertaking by or on behalf of the Indemnitee to repay the amount if it shall
ultimately be determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by
this Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain
insurance on behalf of the Indemnitees and such other Persons as the General
Partner shall determine against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7,
(i) the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose that is not
opposed to the best interests of the Partnership
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
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matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the
extent any payments to the General Partner pursuant to this Section 7.7
constitute gross income to the General Partner (as opposed to the repayment of
advances made on behalf of the Partnership), such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners, and shall
not be treated as distributions for purposes of computing the Partners' Capital
Accounts.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set
forth in this Agreement, the General Partner and its directors and officers
shall not be liable for monetary damages to the Partnership, any Partners or any
Assignees for losses sustained, liabilities incurred or benefits not derived as
a result of errors in judgment or mistakes of fact or law or of any act or
omission if the General Partner acted in good faith.
B. No Obligation to Consider Separate Interests of Limited
Partners or Shareholders. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, that the General Partner
is under no obligation to consider the separate interests of the Limited
Partners (including, without limitation, the tax consequences to Limited
Partners or Assignees) in deciding whether to cause the Partnership to take (or
decline to take) any actions and that the General Partner shall not be liable
for monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith. In addition, the
Limited Partners expressly acknowledge that the Company is acting on behalf of
its shareholders, that the Company, in its capacity as the sole 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
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respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. Reliance on Documents. The General Partner may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors selected by it, and any act taken or
omitted to be taken in reliance upon the advice of such Persons as to matters
which the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such advice.
C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to employ
persons in the operation and management of the business of the Partnership,
including but not limited to, the Advisor, supervisory managing agents, building
management agents, insurance, real estate and loan brokers, agents, employees,
managers, accountants, attorneys, consultants and others, on such terms and for
such compensation as the General Partner shall determine. In addition, the
General Partner may act through any of its duly authorized officers or a duly
appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power and
authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation.
Notwithstanding any other provisions of this Agreement or the Act, any action of
the General Partner on behalf of the Partnership or any decision of the General
Partner to refrain from acting on behalf of the Partnership, undertaken in the
good faith belief that such action or omission is 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
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no obligation to avoid publicly traded partnership status for the Partnership if
the General Partner determines, in its sole and absolute discretion, that the
avoidance of such status is no longer in the best interests of the Partners.
Section 7.10 Purchase of REIT Shares by Company
In the event that the Company shall elect to purchase from
its shareholders REIT Shares for the purpose of delivering such REIT Shares to
satisfy an obligation under any dividend reinvestment program adopted by the
Company, any employee stock purchase plan adopted by the Company, or any similar
obligation or arrangement undertaken by the Company in the future or for the
purpose of retiring such REIT Shares, the purchase price paid by the Company for
such REIT Shares and any other expenses incurred by the Company in connection
with such purchase shall be considered expenses of the Partnership and shall be
advanced to the Company or reimbursed to the Company, subject to the condition
that: (i) if such REIT Shares subsequently are sold by the Company, the Company
shall pay to the Partnership any proceeds received by the Company for such REIT
Shares (which sales proceeds shall include the amount of dividends reinvested
under any dividend reinvestment or similar program provided that a transfer of
REIT Shares for OP Units pursuant to Section 8.7 would not be considered a sale
for such purposes); and (ii) if such REIT Shares are not retransferred by the
Company within thirty (30) days after the purchase thereof, or the Company
otherwise determines not to retransfer such REIT Shares, the General Partner
shall cause the Partnership to redeem a number of OP Units held by the Company,
as a Limited Partner, equal to the product obtained by dividing the number of
such REIT Shares by the Conversion Factor (in which case such advancement or
reimbursement of expenses shall be treated as having been made as a distribution
in redemption of such number of Units held by the Company).
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority, without consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership and
such 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
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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 inthis Agreement, including Section 10.5
hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner 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
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any Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. None of the Limited Partners (other
than the Company) nor any other Person shall have any rights by virtue of this
Agreement or the Partnership relationship established hereby in any business
ventures of any other Person and such Person shall have no obligation pursuant
to this Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.5 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.7 below, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. No Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee, either as to the return of Capital Contributions or
as to profits, losses or distributions.
Section 8.6 Rights of Limited Partners Relating to the
Partnership
A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.6.C below, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:
(i) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the Company
pursuant to the 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
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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 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
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transaction between the Company and the Redeeming Partner, for federal income
tax purposes, as a sale of the Redeeming Partner's OP Units to the Company. Each
Redeeming Partner agrees to execute such documents as the Company may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Redemption Right.. In the event that the Company determines to pay the Redeeming
Partner the Redemption Amount in the form of REIT Shares, the total number of
REIT Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's OP Units shall be the applicable REIT Shares Amount. In the event this
amount is not a whole number of REIT Shares, the Redeeming Partner shall be paid
(i) that number of REIT Shares that equals the nearest whole number less than
such amount plus (ii) an amount of cash which the Company determines, in its
reasonable discretion, to represent the fair value of the remaining fractional
Share which would otherwise be payable to the Redeeming Partner.
C. Exceptions to Exercise of Redemption Right.
Notwithstanding the provisions of Sections 8.7.A and 8.7.B above, a Partner
shall not be entitled to exercise the Redemption Right pursuant to Section 8.7.A
above if (but only as long as) the delivery of REIT Shares to such Partner on
the Specified Redemption Date (i) would be prohibited under the Certificate of
Incorporation, or (ii) as long as the REIT Shares are Publicly Traded, would be
prohibited under applicable federal or state securities laws or regulations
(assuming the Company would in fact assume and satisfy the Redemption Right).
Furthermore, the Redemption Right pursuant to 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,
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photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no event
later than one hundred five (105) days after the close of each Partnership Year,
the General Partner shall cause to be mailed to each Limited Partner as of the
close of the Partnership Year, an annual report containing financial statements
of the Partnership, or of the Company if such statements are prepared solely on
a consolidated basis with the Company, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.
B. Quarterly Reports. As soon as practicable, but in no event
later than one hundred five (105) days after the close of each calendar quarter
(except the last calendar quarter of each year), the General Partner shall cause
to be mailed to each Limited Partner as of the last day of the calendar quarter,
a report containing unaudited financial statements of the Partnership, or of the
Company, if such statements are prepared solely on a consolidated basis with the
Company, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code; 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.
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Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6230(e)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profits interest of each of the Limited Partners and any Assignees;
provided, that such information is provided to the Partnership by the Limited
Partners.
B. Powers. The tax matters partner is authorized, but not
required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax purposes
(such administrative proceedings being referred to as a "tax audit" and such
judicial proceedings being referred to as "judicial review"), and in the
settlement agreement the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such settlement agreement shall
not bind any Partner (i) who (within the time prescribed pursuant to the Code
and Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such final adjustment, including
the filing of a petition for readjustment with the Tax Court or the filing of a
complaint for refund with the United States Claims Court or the District Court
of the United States for the district in which the Partnership's principal place
of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not allowed by the IRS,
to file an appropriate pleading (petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
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.
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C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be become by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.
Section 10.4 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a recourse loan by the Partnership to such Limited Partner, which
loan shall be repaid by such Limited Partner within fifteen (15) days after
notice from the General Partner that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's 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
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Person or by which a Limited Partner purports to assign all or any part of its
Limited Partnership Interest to another Person, and includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise. The term "transfer" when used in this Article
XI does not include any redemption or repurchase of OP Units by the Partnership
from a Limited Partner or acquisition of OP Units from a Limited Partner by the
Company pursuant to Section 8.7 hereof or otherwise. No part of the interest of
a Limited Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and no part of the interest of a
Limited Partner may be voluntarily or involuntarily alienated or encumbered
except as may be specifically provided for in this Agreement.
B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.
Section 11.2 Transfers of Partnership Interests of
General Partner and the Company
A. Except as provided elsewhere in this Agreement, the
General Partner may not transfer any of its General Partner Interest or withdraw
as General Partner, and the Company may not transfer any of its Limited Partner
Interest or engage in an Extraordinary Transaction, except, in any such case,
(i) if such Extraordinary Transaction is, or such transfer or withdrawal is
pursuant to an Extraordinary Transaction that is, permitted under Section
11.2(B) or (ii) if Limited Partners holding at least a majority of the
Percentage Interests of the Limited Partners (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
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assets directly or indirectly owned by the Partnership are owned directly or
indirectly by the Partnership or another limited partnership or limited
liability company which is the survivor of a merger, consolidation or
combination of assets with the Partnership (in each case, the "Surviving
Partnership"); (x) the Limited Partners own a percentage interest of the
Surviving Partnership based on the relative fair market value of the net assets
of the Partnership (as determined pursuant to Section 11.2.C) and the other net
assets of the Surviving Partnership (as determined pursuant to Section 11.2.C)
immediately prior to the consummation of such transaction; (y) the rights,
preferences and privileges of the Limited Partners in the Surviving Partnership
are at least as favorable as those in effect immediately prior to the
consummation of such transaction and as those applicable to any other limited
partners or non-managing members of the Surviving Partnership; and (z) such
rights of the Limited Partners include the right to exchange their interests in
the Surviving Partnership for at least one of: (a) the consideration available
to such Limited Partners pursuant to Section 11.2.B(i) or (b) if the ultimate
controlling person of the Surviving Partnership has publicly traded common
equity securities, such common equity securities, with an exchange ratio based
on the relative fair market value of such securities (as determined pursuant to
Section 11.2.C) and the REIT Shares.
C. In connection with any transaction permitted by Section
11.2.B, the relative fair market values shall be reasonably determined by the
General Partner as of the time of such transaction and, to the extent
applicable, shall be no less favorable to the Limited Partners than the relative
values reflected in the terms of such transaction.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Prior to the first anniversary of the 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.
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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 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
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Section 2.5 hereof and such other documents or instruments as may be required to
effect the admission)
C. Amendment and Restatement of Exhibit A. Upon the admission
of a Substituted Limited Partner, the General Partner shall amend and restate
Exhibit A hereto to reflect the name, address, Capital Account, number of OP
Units, and Percentage Interest of such Substituted Limited Partner and to
eliminate or adjust, if necessary, the name, address, Capital Account and
Percentage Interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
above as a Substituted Limited Partner, as described in Section 11.4 above, 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
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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, 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
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Agreement, including, without limitation, the power of attorney granted in
Section 2.5 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner. Notwithstanding anything to
the contrary in this Section 12.2, no Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent may be
given or withheld in the General Partner's sole and absolute discretion. The
admission of any Person as an Additional Limited Partner shall become effective
on the date upon which the name of such Person is recorded on the books and
records of the Partnership, following the consent of the General Partner to such
admission.
B. Allocations to Additional Limited Partner. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Section 706(d) of the Code, using
the interim closing of the books method (unless the General Partner, in its sole
and absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses and each item thereof 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"):
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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);
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.
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The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A above which require liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of
Regulations
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) 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
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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 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
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Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed only
by the General Partner. Following such proposal, the General Partner shall
submit any proposed amendment to the Limited Partners. The General Partner shall
seek the written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written vote, the General Partner may
require a response within a reasonable specified time, but not less than fifteen
(15) days, and failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation with respect to
the proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Partners holding
a majority of the Percentage Interests of the Limited Partners (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
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(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 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
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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 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
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Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors; Other Third Parties
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor or other third party having
dealings with the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 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
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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.
IN WITNESS WHEREOF, the General Partner has executed this
Agreement as of the date first written above.
SHELBOURNE PROPERTIES III GP, INC.
By:
Name:
Title:
<PAGE>
Exhibit A
Limited Partners and Percentage Interests
<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
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necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q); and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b). In addition, the
General Partner may adopt and employ such methods and procedures for (i) the
maintenance of book and tax capital accounts; (ii) the determination and
allocation of adjustments under Sections 704(c), 734 and 743 of the Code; (iii)
the determination of Net Income, Net Loss, taxable loss and items thereof under
this Agreement and pursuant to the Code; (iv) the adoption of reasonable
conventions and methods for the valuation of assets and the determination of tax
basis; (v) the allocation of asset value and tax basis; and (vi) conventions for
the determination of cost recovery, depreciation and amortization deductions, as
it determines in its sole discretion are necessary or appropriate to execute the
provisions of this Agreement, to comply with federal and state tax laws, and are
in the best 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
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<PAGE>
item of Partnership income, including gross income and gain for the Partnership
taxable year) shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, its
Adjusted Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible.
D. Gross Income Allocation. In the event that any Partner has an Adjusted
Capital Account Deficit at the end of any Partnership taxable year (after taking
into account allocations to be made under the preceding paragraphs hereof with
respect to such Partnership taxable year) each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership taxable year) in an amount and manner sufficient to eliminate, to
the extent required by Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which would satisfy
such requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such item of gain or loss shall be specially allocated
to the Partners in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
H. Curative Allocations. The allocations set forth in Section 1.A through
1.F of this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under Section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that, if
necessary, this will be accomplished by specially allocating other items of
income, gain, loss and deduction among the Partners so that the net amount of
the Regulatory Allocations and such special allocations to each person is zero.
However, the General Partner will have discretion to accomplish this result in
any reasonable
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manner; provided, however, that no allocation pursuant to this Section 1.G shall
cause the Partnership to fail to comply with the requirements of Regulations
Sections 1.704-1(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1)(a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners, consistent
with the principles of Section 704(c) of the Code and the Regulations
thereunder, to take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of contribution;
and
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
(2)(a) In the case of an Adjusted Property, such items shall
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c)of the Code and the Regulations thereunder
to take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof pursuant to
Exhibit B; and
(b) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section 2.B(1) of this Exhibit C; and
(c) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.
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APPENDIX C
AGREEMENT AND PLAN OF MERGER
<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF MERGER
Merging HEP 88 Merger L.P.
Into
High Equity Partners L.P. - Series 88
AGREEMENT AND PLAN OF MERGER, dated as of _______ ___, 2000 (the
"Agreement"), among Shelbourne Properties III, Inc., a Delaware corporation (the
"Company"), HEP 88 Merger L.P., a Delaware limited partnership ("Merger L.P.")
and High Equity Partners L.P. - Series 88, 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 III 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. and Presidio AGP Corp., each
Delaware corporations (collectively, the "General Partners"), and there are
371,766 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 1.1 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")
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and its existence with all its rights, privileges, powers and franchises, shall
continue unaffected and unimpaired by the Merger.
Section 1.2 Effect of the Merger. The Merger shall have the effects
provided for in the Delaware Revised Uniform Limited Partnership Act ("DRULPA").
Section 1.3 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 1.4 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 III 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 1.5 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 1.6 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 III 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 2.1 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 2.2 Retained Units. Each Unit outstanding immediately prior
to the Effective time owned by limited partners that elected in the
Restructuring to retain their Units
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(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 2.3 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 three (3) shares of the Company's common stock,
par value $.01 per share.
Section 2.4 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 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 2.5 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 2.6 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 3.1 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 3.2 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 3.3 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 3.4 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
C-3
<PAGE>
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.
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 III, INC.
By: ___________________________________
Title:
HIGH EQUITY PARTNERS L.P. - SERIES 88
By: RESOURCES HIGH EQUITY, INC.
managing general partner
By: __________________________________
Title:
HEP 88 MERGER L.P.
By: SHELBOURNE PROPERTIES III, 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
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.
(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
II-3
<PAGE>
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 III, 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
- -------------------------- President February 10, 2000
Michael L. Ashner
/s/ Peter Braverman
- -------------------------- Vice President and February 10, 2000
Peter Braverman Director
/s/ David T. Hamamoto
- -------------------------- Director February 10, 2000
David T. Hamamoto
/s/ David King
- -------------------------- Vice President and February 10, 2000
David King Director
/s/ Robert Martin
- -------------------------- Director February 10, 2000
Robert Martin
/s/ W. Edward Scheetz
- -------------------------- Director February 10, 2000
Edward Scheetz
/s/ Steven Stuart
- -------------------------- Director February 10, 2000
Steven Stuart
/s/ Carolyn Tiffany
- -------------------------- Vice President and February 10, 2000
Carolyn Tiffany Treasurer
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit # Description Page
--------- ----------- ----
<S> <C> <C>
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 exeutive 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).
</TABLE>
*TO BE FILED BY AMENDMENT
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SHELBOURNE PROPERTIES III, INC.
Shelbourne Properties III, 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 III, 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 III, Inc. (the
"Corporation").
Article II
REGISTERED OFFICES
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.
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<PAGE>
Article IV
CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 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
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<PAGE>
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 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
4
<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 through the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the
5
<PAGE>
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 III,
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 88 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 Equity Stock in excess of the Ownership
Limit to the extent that ownership in excess of
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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 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
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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 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
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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, 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
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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 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
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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 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
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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 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
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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.
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
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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 III, Inc. (the
"Corporation") represented by this certificate are subject to
restrictions set forth in the Corporation's Certificate of
Incorporation which prohibit in general (a) any Person (other than a
Related Party) from Beneficially Owning shares of Equity Stock in
excess of the Ownership Limit, (b) any Related Party from Beneficially
Owning shares of Equity Stock in excess of the Related Limit and (c)
any Person from acquiring or maintaining any ownership interest in the
stock of the Corporation that is inconsistent with (i) the requirements
of the Code pertaining to real estate investment trusts or (ii) the
Certificate of Incorporation of the Corporation, and the holder of this
certificate by his acceptance hereof consents to be bound by such
restrictions. Any purported Transfer of Equity Stock in violation of
such restrictions shall be void AB INITIO and the Equity Stock
violating such restriction, whether as a result of a Transfer or a
Non-Transfer Event, shall automatically be converted into shares of
Excess Stock and transferred to a Trust for disposition as provided in
the Corporation's Certificate of Incorporation. Capitalized terms used
in this paragraph and not defined herein are defined in the Certificate
of Incorporation.
The Corporation will furnish without charge, to each
stockholder who so requests, a copy of the relevant provisions of the
Certificate of Incorporation and By-laws of the Corporation, a copy of
the provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that the
Corporation is authorized to issue and the qualifications, limitations
and restrictions of such preferences and/or rights. Any such request
shall be addressed to the Secretary of the Corporation or to the
transfer agent named on the face hereof."
J. Severability. Each provision of this Article IV shall be
severable and an adverse determination as to any such provision shall in no way
affect the validity of any other provision.
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.
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Article VI
DIRECTORS
A. General Powers; Action By Committee. The property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and, except as otherwise expressly provided by law, the
By-laws or this Certificate, all of the powers of the Corporation shall be
vested in such Board. Any action which the Board of Directors is empowered to
take may be taken on behalf of the Board of Directors by a duly authorized
committee thereof except (i) to the extent limited by Delaware law, this
Certificate or the By-laws and (ii) for any action which requires the
affirmative vote or approval of a majority or a supermajority of the Directors
then in office (unless, in such case, this Certificate or the By-laws
specifically provides that a duly authorized Committee can take such action on
behalf of the Board of Directors). A majority of the Board of Directors shall
constitute a quorum and, except as otherwise provided by the By-laws of the
Corporation or this Certificate, the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
B. Election Of Directors. Election of directors need not be by
written ballot unless the By-laws of the Corporation shall so provide.
C. Number And Terms Of Directors. The Corporation shall have a
Board of Directors initially consisting of seven (7) directors. Thereafter, the
number of directors shall be fixed by resolution duly adopted from time to time
by the Board of Directors; PROVIDED, HOWEVER, that in no event shall the number
of directors exceed nine (9) or be less than the minimum number required by the
DGCL. A director need not be a stockholder of the Corporation.
The directors shall be classified, with respect to the term
for which they severally hold office, into three classes, as nearly equal in
number as possible. The initial Class I Directors of the Corporation shall be
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
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certificates of designation applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Section (C).
During any period when the holders of any series of Preferred
Stock have the right to elect additional directors as provided for or fixed
pursuant to the provisions of Article IV of this Certificate, then upon
commencement and for the duration of the period during which such right
continues: (a) the then otherwise total authorized number of directors of the
Corporation shall automatically be increased by such specified number of
directors, and the holders of such Preferred Stock shall be entitled to elect
the additional directors so provided for or fixed pursuant to said provisions
and (b) each such additional director shall serve until such director's
successor shall have been duly elected and qualified, or until such director's
right to hold such office terminates pursuant to said provisions, whichever
occurs earlier, subject to such director's earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total authorized number of directors of the Corporation shall
be reduced accordingly.
D. Removal Of Directors. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect directors and to remove any
director whom such holders have the right to elect, any director (including
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote of
the holders of at least 2/3 of the shares then entitled to vote at a meeting of
the stockholders called for that purpose. At least 30 days prior to any meeting
of stockholders at which it is proposed that any director be removed from
office, written notice of such proposed removal shall be sent to the director
whose removal will be considered at the meeting. For purposes of this
Certificate, "cause," with respect to the removal of any director, shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of a
court, (iii) gross dereliction of duty, (iv) commission of any act involving
moral turpitude or (v) commission of an act that constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit to such director and a material
injury to the Corporation.
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
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of Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until such vacancy is filled.
Article VII
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VII by either (i)
the stockholders of the Corporation or (ii) an amendment to the DGCL shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person who has served as a director prior to, or is then
serving as a director at the time of, such repeal or modification.
Article VIII
MAINTENANCE OF REIT STATUS
Until the Board of Directors deems the maintenance of REIT
status to no longer be in the best interests of the Corporation, which
determination shall require an affirmative vote of at least two-thirds of the
Directors of the Corporation then in office, the Corporation shall seek to
satisfy the requirements for qualification as a REIT under the Code, including,
but not limited to, the 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.
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Article X
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this
Certificate in the manner now or hereafter prescribed by statute and this
Certificate, and all rights conferred upon stockholders herein are granted
subject to this reservation.
No amendment or repeal of this Certificate shall be made
unless the same is first approved by the Board of Directors pursuant to a
resolution adopted by the Board of Directors in accordance with Section 242 of
the DGCL, and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required to
amend or repeal any provision of this Certificate, then in addition to any other
vote of the holders of voting stock that is required by this Certificate or by
law, the affirmative vote of two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote on such amendment or repeal, voting
together as a single class, and the affirmative vote of two-thirds of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of this Certificate (except that in
each case only a majority rather than two-thirds shall be needed if the Board of
Directors recommends that stockholders approve such amendment or repeal);
PROVIDED, HOWEVER, that the affirmative vote of not less than 2/3 of the
outstanding shares entitled to vote on such amendment or repeal, voting together
as a single class, and the affirmative vote of not less than 2/3 of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any of the provisions of Article V, Article VI,
Article VII, Article VIII, Article IX or Article X of this Certificate.
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Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SHELBOURNE PROPERTIES III, 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 III, 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.
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
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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.
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
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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 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
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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 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).
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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.
(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
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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 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
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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
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
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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 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.
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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.
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
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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.
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
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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.
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.
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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 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.
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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.
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.
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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;
(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;
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(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 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
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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 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
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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 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.
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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
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.
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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 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
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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
